##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the fiscal year ended December 31, 2004                                                 
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the transition period
    from        to                                                

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(Address of principal executive offices) |  | 01581-2831(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, $0.0025 par value


þ o


o


o þ






Documents Incorporated By Reference


|                                                                                                                                                                                                         |  |  |  |          
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ---------
|Document Part                                                                                                                                                                                            |  |  |  | Form 10-K
|                                                                                                                                                                                                         |  |  |  |          
|Portions of the Registrants Definitive Proxy
    Statement for the Annual Stockholders Meeting to
    be held on June 9, 2005 to be filed with the United
    States Securities and Exchange Commission |  |  |  | Part III 









---










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, Related Stockholder Matters and Issuer Purchases of
    Equity Securities |    |      | 10 | 
|Item 6.                                                               |  | Selected Financial Data                                                                                                  |    |      | 11 | 
|Item 7.                                                               |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                |    |      | 11 | 
|Item 7A.                                                              |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                           |    |      | 28 | 
|Item 8.                                                               |  | Financial Statements and Supplementary
    Data                                                                          |    |      | 28 | 
|Item 9.                                                               |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosures                                |    |      | 29 | 
|Item 9A.                                                              |  | Controls and Procedures                                                                                                  |    |      | 29 | 
|Item 9B.                                                              |  | Other Information                                                                                                        |    |      | 30 | 
|                                                                     
|PART III                                                             
|Item 10.                                                              |  | Directors and Executive Officers of the
    Registrant                                                                   |    |      | 30 | 
|Item 11.                                                              |  | Executive Compensation                                                                                                   |    |      | 30 | 
|Item 12.                                                              |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                       |    |      | 30 | 
|Item 13.                                                              |  | Certain Relationships and Related
    Transactions                                                                       |    |      | 30 | 
|Item 14.                                                              |  | Principal Accounting Fees and Services                                                                                   |    |      | 30 | 
|                                                                     
|PART IV                                                              
|Item 15.                                                              |  | Exhibits and Financial Statement
    Schedules                                                                           |    |      | 30 | 
|Signatures                                                            |  |                                                                                                                          | 33 |     
|Exhibit Index                                                         |  |                                                                                                                          | 63 |     
|EX-3.2 Amended and Restated By-laws                                  
|EX-10.24 Summary of Compensation Policy for Directors of Applix, Inc.
|EX-21.1 Subsidiaries of the Registrant                               
|EX-23.1 Consent of Independent Registered Public Accounting Firm     
|EX-23.2 Consent of Ernst & Young LLP                                 
|EX-31.1 Certification of CEO                                         
|EX-31.2 Certification of CFO                                         
|EX-32.1 Certification of CEO                                         
|EX-32.2 Certification of CFO                                         







2



---



##### Table of Contents






PART I







|        |         
|------- | --------
|Item 1. | Business

General








| |   |                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Applix improved significantly its position on Gartner
    Inc.s Magic Quadrant for Corporate Performance Management
    Suites, 2004 based upon its ability to execute and completeness
    of vision, and Applix was listed in Gartners Magic
    Quadrant for Business Intelligence platforms.                                                                                 
|
| |  | The OLAP Survey 4 reported that customers of Applixs TM1
    experience high levels of user satisfaction, reflecting the
    technologys ease of use and flexibility. Overall,
    respondents ranked TM1 highest in eight different measures, most
    importantly in achievement of business goals. Additionally, TM1
    was ranked among the top three in six other measures.
|
| |  | Two Applix TM1 customers received industry accolades for their
    efforts in using TM1. Cadbury Schweppes Americas Beverages won
    the 2004 Vision Award for Excellence in Business Performance
    Management and a major worldwide financial institution was
    recognized by the UK National Business Award for its use of TM1
    to prevent fraud.                        



Industry Background








3



---



##### Table of Contents











Applix Products






| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | interactive planning, budgeting, and forecasting applications;   
|
| |  | sales analysis, product profitability, customer profitability;   
|
| |  | personnel planning applications; and                             
|
| |  | dashboarding, scorecarding and key performance indicators (KPIs).





| |           
| | ----------
| | Applix TM1







4



---



##### Table of Contents













| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Familiar spreadsheet interface: Users access Applix TM1
    features and capabilities directly from the familiar environment
    of Microsoft Excel.                                                                                                                             
|
| |  | Instant response times: Because of Applix TM1s
    ability to quickly load vast data sets into memory, it is
    superior to other products that force the customer to
    pre-calculate and re-calculate consolidations and derived values
    before anyone can view the data.
|
| |  | Real-time multi-user read/write and what-if analyses:
    Because of Applix TM1s memory-based approach, users can
    instantly view the results of any updates and what-if analyses
    they perform.                                                                          
|
| |  | Rapid deployment: Applix TM1 typically builds complete
    applications for customers in a fraction of the time required by
    competing products.                                                                                                                              
|
| |  | Scalability: Applix TM1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 TM1
    never resorts to pre-calculating data, it requires much less
    hardware and processing power than other products, which suffer
    from a common data explosion predicament.                                       
|
| |  | Dynamic business workflow: This enables a business to map
    its processes with Applix TM1s workflow capabilities.
    Easy-to-use wizards help ensure compliance with
    organizational and regulatory processes.                                                          
|
| |  | Complex business modeling: Applix TM1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 with respect to its business environment.                                                                                                          

Sales and Marketing




5



---



##### Table of Contents









Customer Training, Maintenance Support, and Professional
Services








Software Product Development






Competition




6



---



##### Table of Contents









Intellectual Property and Proprietary Rights










7



---



##### Table of Contents



Employees









|        |           
|------- | ----------
|Item 2. | Properties








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings










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



Directors and Executive Officers of the Registrant




|                    |  |     |    |  |          |                                                
|------------------- |  | --- | -- |  | -------- | -----------------------------------------------
|Name                |  | Age |    |  | Position
|                    |  |     |    |  |         
|John D. Loewenberg  |  |     | 64 |  |          | Chairman of the Board of Directors             
|Bradley D. Fire     |  |     | 35 |  |          | Director                                       
|Alain J. Hanover    |  |     | 56 |  |          | Director                                       
|Charles F. Kane     |  |     | 47 |  |          | Director                                       
|Peter Gyenes        |  |     | 59 |  |          | Director                                       
|David C. Mahoney    |  |     | 60 |  |          | President, Chief Executive Officer and Director
|Milton A. Alpern    |  |     | 53 |  |          | Chief Financial Officer and Treasurer          
|Craig Cervo         |  |     | 58 |  |          | Vice President, Product Development            
|Michael A. Morrison |  |     | 42 |  |          | Vice President, Worldwide Field Operations     



8



---



##### Table of Contents

















9



---



##### Table of Contents










PART II







|        |                                                                                                                    
|------- | -------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Stock, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|               |  |      |      |  |     |   |      | 
|-------------- |  | ---- | ---- |  | --- | - | ---- | 
|Fiscal 2004    |  | High |      |  | Low |  
|               |  |      |      |  |     |  
|First Quarter  |  | $    | 5.49 |  |     | $ | 3.33 | 
|Second Quarter |  | $    | 5.37 |  |     | $ | 4.04 | 
|Third Quarter  |  | $    | 5.01 |  |     | $ | 3.30 | 
|Fourth Quarter |  | $    | 5.10 |  |     | $ | 3.58 | 

|               |  |      |      |  |     |   |      | 
|-------------- |  | ---- | ---- |  | --- | - | ---- | 
|Fiscal 2003    |  | High |      |  | Low |  
|               |  |      |      |  |     |  
|First Quarter  |  | $    | 2.04 |  |     | $ | 1.05 | 
|Second Quarter |  | $    | 2.40 |  |     | $ | 1.31 | 
|Third Quarter  |  | $    | 3.01 |  |     | $ | 1.51 | 
|Fourth Quarter |  | $    | 4.37 |  |     | $ | 2.65 | 

Dividends




Holders




10



---



##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

|                         |                                                                         |                                       |   |        |      |  |   |        |   |  |      |        |   |      |   |         |   |  |   |         |  
|------------------------ | ----------------------------------------------------------------------- | ------------------------------------- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ---- | - | ------- | - |  | - | ------- | -
|                         |                                                                         | Years Ended December 31,              |  
|                         |                                                                         |                                       |  
|                         |                                                                         | 2004                                  |   |        | 2003 |  |   | 2002   |   |  | 2001 |        |   | 2000 |  
|                         |                                                                         |                                       |   |        |      |  |   |        |   |  |      |        |   |      |  
|                         |                                                                         | (In thousands, except per share data) |  
|Statement of Operations: |                                                                         |                                       |   |        |      |  |   |        |   |  |      |        |   |      |   |         |   |  |   |        
|                         | Software license                                                        |                                       | $ | 16,228 |      |  | $ | 13,222 |   |  | $    | 16,050 |   |      | $ | 18,406  |   |  | $ | 23,735  |  
|                         | Professional services and maintenance                                   |                                       |   | 14,687 |      |  |   | 14,133 |   |  |      | 20,546 |   |      |   | 20,999  |   |  |   | 16,504  |  
|                         | Total revenues                                                          |                                       |   | 30,915 |      |  |   | 27,355 |   |  |      | 36,596 |   |      |   | 39,405  |   |  |   | 40,239  |  
|                         | Sales and marketing                                                     |                                       |   | 10,588 |      |  |   | 10,747 |   |  |      | 15,311 |   |      |   | 21,671  |   |  |   | 25,580  |  
|                         | General and administrative                                              |                                       |   | 6,217  |      |  |   | 7,653  |   |  |      | 5,249  |   |      |   | 4,484   |   |  |   | 4,292   |  
|                         | Product development                                                     |                                       |   | 4,785  |      |  |   | 5,512  |   |  |      | 5,699  |   |      |   | 6,848   |   |  |   | 7,502   |  
|                         | Compensation expenses and amortization of acquired intangible
    asset |                                       |   | 250    |      |  |   | 833    |   |  |      | 2,405  |   |      |   | 1,717   |   |  |   |        |  
|                         | Write down of notes receivable                                          |                                       |   |       |      |  |   |       |   |  |      | 964    |   |      |   |        |   |  |   |        |  
|                         | Restructuring expenses                                                  |                                       |   | 577    |      |  |   | 3,238  |   |  |      | 381    |   |      |   | 1,700   |   |  |   |        |  
|                         | Operating income (loss)                                                 |                                       |   | 4,459  |      |  |   | (7,748 | ) |  |      | (5,442 | ) |      |   | (11,886 | ) |  |   | (12,877 | )
|                         | Net gain from sale of CRM business                                      |                                       |   | 261    |      |  |   | 7,910  |   |  |      |       |   |      |   |        |   |  |   |        |  
|                         | Permanent impairment of cost based investment                           |                                       |   |       |      |  |   |       |   |  |      |       |   |      |   | (1,250  | ) |  |   |        |  
|                         | Income (loss) from continuing operations                                |                                       |   | 4,808  |      |  |   | 167    |   |  |      | (5,570 | ) |      |   | (13,404 | ) |  |   | (15,307 | )
|                         | Net income (loss)                                                       |                                       |   | 4,702  |      |  |   | (10    | ) |  |      | (5,774 | ) |      |   | (12,323 | ) |  |   | (18,912 | )
|Per Share Data:          |                                                                         |                                       |   |        |      |  |   |        |   |  |      |        |   |      |   |         |   |  |   |        
|                         | Net income (loss) per share from continuing operations, basic           |                                       | $ | 0.34   |      |  | $ | 0.01   |   |  | $    | (0.46  | ) |      | $ | (1.13   | ) |  | $ | (1.36   | )
|                         | Net income (loss) per share from continuing operations, diluted         |                                       | $ | 0.31   |      |  | $ | 0.01   |   |  | $    | (0.46  | ) |      | $ | (1.13   | ) |  | $ | (1.36   | )
|                         | Net income (loss) per share, basic                                      |                                       | $ | 0.33   |      |  | $ | (0.00  | ) |  | $    | (0.47  | ) |      | $ | (1.04   | ) |  | $ | (1.68   | )
|                         | Net income (loss) per share, diluted                                    |                                       | $ | 0.30   |      |  | $ | (0.00  | ) |  | $    | (0.47  | ) |      | $ | (1.04   | ) |  | $ | (1.68   | )

|                    |                                                   |                          |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |   |        | 
|------------------- | ------------------------------------------------- | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ------- | - | ------ | - |  | - | ------ | 
|                    |                                                   | Years Ended December 31, |  
|                    |                                                   |                          |  
|                    |                                                   | 2004                     |   |        | 2003 |  |   | 2002   |   |  | 2001 |        |   | 2000(a) |  
|                    |                                                   |                          |   |        |      |  |   |        |   |  |      |        |   |         |  
|                    |                                                   | (In thousands)           |  
|Balance Sheet Data: |                                                   |                          |   |        |      |  |   |        |   |  |      |        |   |         |   |        |   |  |   |       
|                    | Cash, cash equivalents and short-term investments |                          | $ | 15,924 |      |  | $ | 9,241  |   |  | $    | 8,389  |   |         | $ | 8,228  |   |  | $ | 12,546 | 
|                    | Restricted cash                                   |                          |   | 400    |      |  |   | 817    |   |  |      | 933    |   |         |   | 1,050  |   |  |   |       | 
|                    | Working capital (deficit)                         |                          |   | 9,293  |      |  |   | (2,119 | ) |  |      | (4,457 | ) |         |   | (175   | ) |  |   | 12,113 | 
|                    | Total assets                                      |                          |   | 27,185 |      |  |   | 21,949 |   |  |      | 23,547 |   |         |   | 24,938 |   |  |   | 33,074 | 
|                    | Total stockholders equity                        |                          |   | 12,238 |      |  |   | 2,255  |   |  |      | 2,419  |   |         |   | 6,952  |   |  |   | 18,234 | 






|    |                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------
|(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 OF THE COMPANYS OPERATIONS




11



---



##### Table of Contents









CRITICAL ACCOUNTING POLICIES AND ESTIMATES








| |                    
| | -------------------
| | Revenue Recognition





12



---



##### Table of Contents







| |                                 
| | --------------------------------
| | Accounts Receivable and Bad Debt





| |                                                                
| | ---------------------------------------------------------------
| | Goodwill and Other Intangible Assets and Related
    Impairment







| |              
| | -------------
| | Restructuring





| |                      
| | ---------------------
| | Deferred Income Taxes



13



---



##### Table of Contents





RESULTS OF OPERATIONS




| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year
    Ended December 31, 2003

Revenues


|                                                     |                                      |                                    |        |            |         |  |     |      |            |   |         |        |  |            |     |    |         |   |        |        |  |  |     |    |  
|---------------------------------------------------- | ------------------------------------ | ---------------------------------- | ------ | ---------- | ------- |  | --- | ---- | ---------- | - | ------- | ------ |  | ---------- | --- | -- | ------- | - | ------ | ------ |  |  | --- | -- | -
|                                                     |                                      | Year Ended December 31,            |       
|                                                     |                                      |                                    |       
|                                                     |                                      |                                    |        | Percent of |         |  |     |      | Percent of |   |         |        |  | Percent of |    
|                                                     |                                      | 2004                               |        |            | Revenue |  |     | 2003 |            |   | Revenue |        |  | 2002       |     |    | Revenue |  
|                                                     |                                      |                                    |        |            |         |  |     |      |            |   |         |        |  |            |     |    |         |  
|                                                     |                                      | (In thousands, except percentages) |       
|BPM/ BI                                              |                                      | $                                  | 16,228 |            |         |  | 52  | %    |            | $ | 12,969  |        |  |            | 47  | %  |         | $ | 11,114 |        |  |  | 30  | % 
|CRM                                                  |                                      |                                    |       |            |         |  |    | %    |            |   | 253     |        |  |            | 1   | %  |         |   | 4,936  |        |  |  | 14  | % 
|                                                     |                                      |                                    |        |            |         |  |     |      |            |   |         |        |  |            |     |    |         |  
|                                                     | Total Software License Revenues      |                                    |        | 16,228     |         |  |     | 52   | %          |   |         | 13,222 |  |            |     | 48 | %       |   |        | 16,050 |  |  |     | 44 | %
|BPM/ BI                                              |                                      |                                    | 1,413  |            |         |  | 5   | %    |            |   | 2,597   |        |  |            | 9   | %  |         |   | 2,060  |        |  |  | 6   | % 
|CRM                                                  |                                      |                                    |       |            |         |  |    | %    |            |   | 440     |        |  |            | 2   | %  |         |   | 3,812  |        |  |  | 10  | % 
|                                                     |                                      |                                    |        |            |         |  |     |      |            |   |         |        |  |            |     |    |         |  
|                                                     | Total Professional Services Revenues |                                    |        | 1,413      |         |  |     | 5    | %          |   |         | 3,037  |  |            |     | 11 | %       |   |        | 5,872  |  |  |     | 16 | %
|BPM/ BI                                              |                                      |                                    | 13,274 |            |         |  | 43  | %    |            |   | 10,537  |        |  |            | 39  | %  |         |   | 8,046  |        |  |  | 22  | % 
|CRM                                                  |                                      |                                    |       |            |         |  |    | %    |            |   | 559     |        |  |            | 2   | %  |         |   | 6,628  |        |  |  | 18  | % 
|                                                     |                                      |                                    |        |            |         |  |     |      |            |   |         |        |  |            |     |    |         |  
|                                                     | Total Maintenance Revenues           |                                    |        | 13,274     |         |  |     | 43   | %          |   |         | 11,096 |  |            |     | 41 | %       |   |        | 14,674 |  |  |     | 40 | %
|BPM/ BI                                              |                                      |                                    | 14,687 |            |         |  | 48  | %    |            |   | 13,134  |        |  |            | 48  | %  |         |   | 10,106 |        |  |  | 28  | % 
|CRM                                                  |                                      |                                    |       |            |         |  |    | %    |            |   | 999     |        |  |            | 4   | %  |         |   | 10,440 |        |  |  | 28  | % 
|                                                     |                                      |                                    |        |            |         |  |     |      |            |   |         |        |  |            |     |    |         |  
|Total Professional Services and Maintenance Revenues |                                      |                                    | 14,687 |            |         |  | 48  | %    |            |   | 14,133  |        |  |            | 52  | %  |         |   | 20,546 |        |  |  | 56  | % 
|BPM/ BI                                              |                                      |                                    | 30,915 |            |         |  | 100 | %    |            |   | 26,103  |        |  |            | 95  | %  |         |   | 21,220 |        |  |  | 58  | % 
|CRM                                                  |                                      |                                    |       |            |         |  |    | %    |            |   | 1,252   |        |  |            | 5   | %  |         |   | 15,376 |        |  |  | 42  | % 
|                                                     |                                      |                                    |        |            |         |  |     |      |            |   |         |        |  |            |     |    |         |  
|Total Revenues                                       |                                      | $                                  | 30,915 |            |         |  | 100 | %    |            | $ | 27,355  |        |  |            | 100 | %  |         | $ | 36,596 |        |  |  | 100 | % 
|                                                     |                                      |                                    |        |            |         |  |     |      |            |   |         |        |  |            |     |    |         |  





| |                  
| | -----------------
| | Software Licenses



14



---



##### Table of Contents









| |                                      
| | -------------------------------------
| | Professional Services and Maintenance



Cost of Revenues


|                                                        |                                        |                                    |                    |       |        |        |      |     |    |    |       |       |        |        |  |     |    |    |        |       |        |        |  |     |    |    |  
|------------------------------------------------------- | -------------------------------------- | ---------------------------------- | ------------------ | ----- | ------ | ------ | ---- | --- | -- | -- | ----- | ----- | ------ | ------ |  | --- | -- | -- | ------ | ----- | ------ | ------ |  | --- | -- | -- | -
|                                                        |                                        | Year Ended December 31,            |                   
|                                                        |                                        |                                    |                   
|                                                        |                                        | 2004                               |                    |       |        |        | 2003 |     |    |    |       | 2002  |        |        | 
|                                                        |                                        |                                    |                    |       |        |        |      |     |    |    |       |       |        |        | 
|                                                        |                                        | (In thousands, except percentages) |                   
|Cost of Software License                                |                                        |                                    |                    |       |        |        |      |     |    |    |       |       |        |        |  |     |    |    |        |       |        |        |  |    
|                                                        | Revenues                               |                                    | $                  | 427   |        |        |      |     |    |    | $     | 1,850 |        |        |  |     |    |    | $      | 2,040 |        |        |  |     |   
|Cost of Professional Services and Maintenance Revenues: |                                        |                                    |                    |       |        |        |      |     |    |    |       |       |        |        |  |     |    |    |        |       |        |        |  |    
|                                                        | Cost of Professional Services Revenues |                                    |                    | 1,036 |        |        |      |     |    |    |       | 2,594 |        |        |  |     |    |    |        | 5,823 |        |        |  |     |   
|                                                        | Cost of Maintenance Revenues           |                                    |                    | 2,576 |        |        |      |     |    |    |       | 2,676 |        |        |  |     |    |    |        | 4,166 |        |        |  |     |   
|                                                        |                                        |                                    |                    |       |        |        |      |     |    |    |       |       |        |        |  |     |    |   
|                                                        | Total                                  |                                    |                    | 3,612 |        |        |      |     |    |    |       | 5,270 |        |        |  |     |    |    |        | 9,989 |        |        |  |     |   
|                                                        |                                        |                                    |                    |       |        |        |      |     |    |    |       |       |        |        |  |     |    |   
|Total Cost of Revenues                                  |                                        | $                                  | 4,039              |       |        |        |      |     |    | $  | 7,120 |       |        |        |  |     |    | $  | 12,029 |       |        |        |  |    
|                                                        |                                        |                                    |                    |       |        |        |      |     |    |    |       |       |        |        |  |     |    |   
|Gross Margin:                                           |                                        |                                    |                    |       |        |        |      | (A) |    |    |       |       |        |        |  | (A) |    |    |        |       |        |        |  | (A)
|                                                        |                                        | Software License                   |                    | $     | 15,801 |        |      |     | 97 | %  |       | $     | 11,372 |        |  |     | 86 | %  |        | $     | 14,010 |        |  |     | 87 | % 
|Professional Services and Maintenance:                  |                                        |                                    |                    |       |        |        |      |     |    |    |       |       |        |        |  |     |    |    |        |       |        |        |  |    
|                                                        |                                        | Professional Services              |                    |       | 377    |        |      |     | 27 | %  |       |       | 443    |        |  |     | 15 | %  |        |       | 49     |        |  |     | 1  | % 
|                                                        |                                        | Maintenance                        |                    |       | 10,698 |        |      |     | 81 | %  |       |       | 8,420  |        |  |     | 76 | %  |        |       | 10,508 |        |  |     | 72 | % 
|                                                        |                                        |                                    |                    |       |        |        |      |     |    |    |       |       |        |        |  |     |    |   
|                                                        |                                        | Total                              |                    |       | 11,075 |        |      |     | 75 | %  |       |       | 8,863  |        |  |     | 63 | %  |        |       | 10,557 |        |  |     | 51 | % 
|                                                        |                                        |                                    |                    |       |        |        |      |     |    |    |       |       |        |        |  |     |    |   
|                                                        |                                        |                                    | Total Gross Margin |       | $      | 26,876 |      |     |    | 87 | %     |       | $      | 20,235 |  |     |    | 74 | %      |       | $      | 24,567 |  |     |    | 67 | %
|                                                        |                                        |                                    |                    |       |        |        |      |     |    |    |       |       |        |        |  |     |    |   






|    |                                                              
|--- | -------------------------------------------------------------
|(A) | Gross margins calculated as a percentage of related revenues.

15



---



##### Table of Contents





| |                                  
| | ---------------------------------
| | Cost of Software License Revenues





| |                                                           
| | ----------------------------------------------------------
| | Cost of Professional Services and Maintenance
    Revenues



Operating Expenses


|                                                |  |                                    |        |            |         |  |    |      |            |   |         |  |  |            |     |   |         |   |        |  |  |  |    |  
|----------------------------------------------- |  | ---------------------------------- | ------ | ---------- | ------- |  | -- | ---- | ---------- | - | ------- |  |  | ---------- | --- | - | ------- | - | ------ |  |  |  | -- | -
|                                                |  | Year Ended December 31,            |       
|                                                |  |                                    |       
|                                                |  |                                    |        | Percent of |         |  |    |      | Percent of |   |         |  |  | Percent of |    
|                                                |  | 2004                               |        |            | Revenue |  |    | 2003 |            |   | Revenue |  |  | 2002       |     |   | Revenue |  
|                                                |  |                                    |        |            |         |  |    |      |            |   |         |  |  |            |     |   |         |  
|                                                |  | (In thousands, except percentages) |       
|Sales and marketing                             |  | $                                  | 10,588 |            |         |  | 34 | %    |            | $ | 10,747  |  |  |            | 39  | % |         | $ | 15,311 |  |  |  | 42 | %
|General and administrative                      |  |                                    | 6,217  |            |         |  | 20 | %    |            |   | 7,653   |  |  |            | 28  | % |         |   | 5,249  |  |  |  | 14 | %
|Product development                             |  |                                    | 4,785  |            |         |  | 15 | %    |            |   | 5,512   |  |  |            | 20  | % |         |   | 5,699  |  |  |  | 16 | %
|Restructuring expense                           |  |                                    | 577    |            |         |  | 2  | %    |            |   | 3,238   |  |  |            | 12  | % |         |   | 381    |  |  |  | 1  | %
|Compensation expenses related to an acquisition |  |                                    |       |            |         |  |   |      |            |   | 583     |  |  |            | 2   | % |         |   | 2,155  |  |  |  | 6  | %
|Amortization of acquired intangible asset       |  |                                    | 250    |            |         |  | 1  | %    |            |   | 250     |  |  |            | 1   | % |         |   | 250    |  |  |  | 1  | %
|Write down of notes receivable                  |  |                                    |       |            |         |  |   |      |            |   |        |  |  |            |    |   |         |   | 964    |  |  |  | 3  | %
|                                                |  |                                    |        |            |         |  |    |      |            |   |         |  |  |            |     |   |         |  
|Total Operating Expenses                        |  | $                                  | 22,417 |            |         |  | 73 | %    |            | $ | 27,983  |  |  |            | 102 | % |         | $ | 30,009 |  |  |  | 82 | %
|                                                |  |                                    |        |            |         |  |    |      |            |   |         |  |  |            |     |   |         |  



| |                    
| | -------------------
| | Sales and Marketing



16



---



##### Table of Contents







| |                           
| | --------------------------
| | General and Administrative





| |                    
| | -------------------
| | Product Development







| |                      
| | ---------------------
| | Restructuring Expense



17



---



##### Table of Contents







|                          |  |              |           |  |            |   |              |            |            |              |            |   |  |   |   | 
|------------------------- |  | ------------ | --------- |  | ---------- | - | ------------ | ---------- | ---------- | ------------ | ---------- | - |  | - | - | 
|                          |  | Balance at   |           |  |            |   |              |            | Balance at
|                          |  | December 31, |           |  |            |   | Payments and |            |            | December 31,
|                          |  | 2003         |           |  | Adjustment |   |              | Write-Offs |            |              | 2004      
|                          |  |              |           |  |            |   |              |            |            |              |           
|Facility exit costs       |  | $            | 3,050,000 |  |            | $ |             |            |            | $            | (3,050,000 | ) |  | $ |  | 
|Professional service fees |  |              | 350,000   |  |            |   | (27,000      | )          |            |              | (323,000   | ) |  |   |  | 
|                          |  |              |           |  |            |   |              |            |            |              |            |  
|Total                     |  | $            | 3,400,000 |  |            | $ | (27,000      | )          |            | $            | (3,373,000 | ) |  | $ |  | 
|                          |  |              |           |  |            |   |              |            |            |              |            |  





|                    |  |              |   |               |  |   |          |            |              |      |          |   |  |   |         | 
|------------------- |  | ------------ | - | ------------- |  | - | -------- | ---------- | ------------ | ---- | -------- | - |  | - | ------- | 
|                    |  | Balance at   |   |               |  |   |          | Balance at |             
|                    |  | December 31, |   | Restructuring |  |   |          |            | December 31, |     
|                    |  | 2003         |   | Expenses      |  |   | Payments |            |              | 2004 |         
|                    |  |              |   |               |  |   |          |            |              |      |         
|Facility exit costs |  | $            |  |               |  | $ | 467,000  |            |              | $    | (94,000  | ) |  | $ | 373,000 | 
|Other direct costs  |  |              |  |               |  |   | 137,000  |            |              |      | (137,000 | ) |  |   |        | 
|                    |  |              |   |               |  |   |          |            |              |      |          |  
|Total               |  | $            |  |               |  | $ | 604,000  |            |              | $    | (231,000 | ) |  | $ | 373,000 | 
|                    |  |              |   |               |  |   |          |            |              |      |          |  



| |                                             
| | --------------------------------------------
| | Compensation Expenses Related to Acquisition



18



---



##### Table of Contents





| |                                          
| | -----------------------------------------
| | Amortization of Acquired Intangible Asset



Non-Operating Income


|                                        |       |                                    |     |            |         |  |   |      |            |  |         |       |  |            |    |    |         |  |     |    |  |  |   |  | 
|--------------------------------------- | ----- | ---------------------------------- | --- | ---------- | ------- |  | - | ---- | ---------- |  | ------- | ----- |  | ---------- | -- | -- | ------- |  | --- | -- |  |  | - |  | 
|                                        |       |                                    |     | Percent of |         |  |   |      | Percent of |  |         |       |  | Percent of |   
|                                        |       | 2004                               |     |            | Revenue |  |   | 2003 |            |  | Revenue |       |  | 2002       |    |    | Revenue | 
|                                        |       |                                    |     |            |         |  |   |      |            |  |         |       |  |            |    |    |         | 
|                                        |       | (In thousands, except percentages) |    
|Interest and other income (loss), net   |       |                                    | 313 |            |         |  | 1 | %    |            |  | 933     |       |  |            | 3  | %  |         |  | (47 | )  |  |  |  | 
|Net (loss) gain from sale of subsidiary |       |                                    |    |            |         |  |  |      |            |  | (164    | )     |  |            | (1 | )% |         |  | 141 |    |  |  |  | 
|Net gain from sale of CRM business      |       |                                    | 261 |            |         |  | 1 | %    |            |  | 7,910   |       |  |            | 29 | %  |         |  |    |    |  |  |  | 
|                                        |       |                                    |     |            |         |  |   |      |            |  |         |       |  |            |    |    |         | 
|                                        | Total |                                    | $   | 574        |         |  |   |      |            |  | $       | 8,679 |  |            |    |    |         |  | $   | 94 |  |  |   |  | 
|                                        |       |                                    |     |            |         |  |   |      |            |  |         |       |  |            |    |    |         | 



| |                                      
| | -------------------------------------
| | Interest and Other Income (Loss), Net







| |                   
| | ------------------
| | Sale of Subsidiary





| |                                   
| | ----------------------------------
| | Net Gain from Sale of CRM Business





19



---



##### Table of Contents







| |                           
| | --------------------------
| | Provision for Income Taxes





| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to Year
    Ended December 31, 2002











20



---



##### Table of Contents















21



---



##### Table of Contents











Liquidity and Capital Resources










22



---



##### Table of Contents





Contractual Obligations and Off-Balance Sheet Arrangements




|                                   |  |             |           |           |        |   |           |           |  |   |           |  |  |         |           |  |  |   |         | 
|---------------------------------- |  | ----------- | --------- | --------- | ------ | - | --------- | --------- |  | - | --------- |  |  | ------- | --------- |  |  | - | ------- | 
|                                   |  |             |           | Less Than |        |   |           |           |  |   | After     | 
|                                   |  | Total Years |           |           | 1 Year |   |           | 1-3 Years |  |   | 4-5 Years |  |  | 5 Years |          
|                                   |  |             |           |           |        |   |           |           |  |   |           |  |  |         |          
|Non-cancelable operating leases    |  | $           | 5,556,000 |           |        | $ | 1,191,000 |           |  | $ | 1,843,000 |  |  | $       | 1,808,000 |  |  | $ | 714,000 | 
|Non-cancelable capital leases      |  |             | 41,000    |           |        |   | 29,000    |           |  |   | 12,000    |  |  |         |          |  |  |   |        | 
|Purchase obligations               |  |             | 227,000   |           |        |   | 227,000   |           |  |   |          |  |  |         |          |  |  |   |        | 
|                                   |  |             |           |           |        |   |           |           |  |   |           |  |  |         |          
|Total contractual cash obligations |  | $           | 5,824,000 |           |        | $ | 1,447,000 |           |  | $ | 1,855,000 |  |  | $       | 1,808,000 |  |  | $ | 714,000 | 
|                                   |  |             |           |           |        |   |           |           |  |   |           |  |  |         |          

3 4












23



---



##### Table of Contents







| |                              
| | -----------------------------
| | New Accounting Pronouncements

Share-Based Payment Accounting for
Stock-Based Compensation, Accounting for Stock
Issued to Employees,


RISK FACTORS




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





| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                        
|
| |  | the acquisition and retention of key partners;                                                                                                                
|
| |  | changes in generally accepted accounting policies, especially
    those related to the recognition of software revenue; and                                   
|
| |  | new government legislation or regulation.                                                                                                                     



24



---



##### Table of Contents







| |                                                            
| | -----------------------------------------------------------
| | WE MAY NOT BE ABLE TO FULFILL ANY FUTURE CAPITAL
    NEEDS.







| |                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.









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





| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;

25



---



##### Table of Contents





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





| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may have difficulty managing and administering a
    globally-dispersed business;                                                                                                                        
|
| |  | fluctuations in exchange rates may negatively affect our
    operating results;                                                                                                                             
|
| |  | 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 BUSINESS PERFORMANCE MANAGEMENT AND BUSINESS
    INTELLIGENCE MARKETS ARE HIGHLY COMPETITIVE, WE MAY NOT BE ABLE
    TO SUCCEED.





26



---



##### Table of Contents







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





| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO PROTECT
    OUR TRADEMARKS FROM MISUSE BY THIRD PARTIES.





| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | OUR PRODUCTS MAY CONTAIN DEFECTS THAT MAY BE COSTLY TO
    CORRECT, DELAY MARKET ACCEPTANCE OF OUR PRODUCTS AND EXPOSE US
    TO LITIGATION.





27



---



##### Table of Contents








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about Market
    Risk










|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

|                                                                        |  |                                          |        |   |         |   |        |         |  |   |         |   |  |   |        |  
|----------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | ------- | - | ------ | ------- |  | - | ------- | - |  | - | ------ | -
|                                                                        |  | Q1 2004                                  |        |   | Q2 2004 |   |        | Q3 2004 |  |   | Q4 2004 |  
|                                                                        |  |                                          |        |   |         |   |        |         |  |   |         |  
|                                                                        |  | (Unaudited)                              |       
|                                                                        |  | (In thousands, except per share amounts) |       
|Revenue from continuing operations                                      |  | $                                        | 7,383  |   |         | $ | 7,263  |         |  | $ | 6,909   |   |  | $ | 9,360  |  
|Gross margin from continuing operations                                 |  | $                                        | 6,154  |   |         | $ | 6,135  |         |  | $ | 6,046   |   |  | $ | 8,541  |  
|Restructuring expenses                                                  |  | $                                        |       |   |         | $ | (27    | )       |  | $ | 604     |   |  | $ |       |  
|Compensation expenses and amortization of acquired intangible
    asset |  | $                                        | 63     |   |         | $ | 62     |         |  | $ | 63      |   |  | $ | 62     |  
|Net gain from sale of CRM business                                      |  | $                                        | 10     |   |         | $ |       |         |  | $ |        |   |  | $ | 251    |  
|Income from continuing operations                                       |  | $                                        | 764    |   |         | $ | 469    |         |  | $ | 452     |   |  | $ | 3,123  |  
|Loss from discontinued operations                                       |  | $                                        | (26    | ) |         | $ | (18    | )       |  | $ | (36     | ) |  | $ | (26    | )
|Net income                                                              |  | $                                        | 738    |   |         | $ | 451    |         |  | $ | 416     |   |  | $ | 3,097  |  
|Net income per share, basic                                             |  | $                                        | 0.05   |   |         | $ | 0.03   |         |  | $ | 0.03    |   |  | $ | 0.22   |  
|Net income per share, diluted                                           |  | $                                        | 0.05   |   |         | $ | 0.03   |         |  | $ | 0.03    |   |  | $ | 0.20   |  
|Weighted average number of basic shares outstanding                     |  |                                          | 13,466 |   |         |   | 14,158 |         |  |   | 14,243  |   |  |   | 14,281 |  
|Weighted average number of diluted shares outstanding                   |  |                                          | 15,010 |   |         |   | 15,725 |         |  |   | 15,539  |   |  |   | 15,631 |  

28



---



##### Table of Contents



|                                                                        |  |                                          |        |   |         |   |        |         |  |   |         |   |  |   |        |  
|----------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | ------- | - | ------ | ------- |  | - | ------- | - |  | - | ------ | -
|                                                                        |  | Q1 2003                                  |        |   | Q2 2003 |   |        | Q3 2003 |  |   | Q4 2003 |  
|                                                                        |  |                                          |        |   |         |   |        |         |  |   |         |  
|                                                                        |  | (Unaudited)                              |       
|                                                                        |  | (In thousands, except per share amounts) |       
|Revenue from continuing operations                                      |  | $                                        | 6,833  |   |         | $ | 5,942  |         |  | $ | 6,423   |   |  | $ | 8,157  |  
|Gross margin from continuing operations                                 |  | $                                        | 4,687  |   |         | $ | 4,331  |         |  | $ | 4,930   |   |  | $ | 6,287  |  
|Restructuring expenses                                                  |  | $                                        |       |   |         | $ |       |         |  | $ |        |   |  | $ | 3,238  |  
|Compensation expenses and amortization of acquired intangible
    asset |  | $                                        | 646    |   |         | $ | 62     |         |  | $ | 63      |   |  | $ | 62     |  
|Net gain from sale of CRM business                                      |  | $                                        | 8,000  |   |         | $ | (78    | )       |  | $ | (12     | ) |  | $ |       |  
|Income (loss) from continuing operations                                |  | $                                        | 5,094  |   |         | $ | (1,671 | )       |  | $ | (602    | ) |  | $ | (2,654 | )
|Loss from discontinued operations                                       |  | $                                        | (33    | ) |         | $ | (23    | )       |  | $ | (106    | ) |  | $ | (15    | )
|Net income (loss)                                                       |  | $                                        | 5,061  |   |         | $ | (1,694 | )       |  | $ | (708    | ) |  | $ | (2,669 | )
|Net income (loss) per share, basic                                      |  | $                                        | 0.41   |   |         | $ | (0.14  | )       |  | $ | (0.06   | ) |  | $ | (0.21  | )
|Net income (loss) per share, diluted                                    |  | $                                        | 0.40   |   |         | $ | (0.14  | )       |  | $ | (0.06   | ) |  | $ | (0.21  | )
|Weighted average number of basic shares outstanding                     |  |                                          | 12,453 |   |         |   | 12,472 |         |  |   | 12,590  |   |  |   | 12,825 |  
|Weighted average number of diluted shares outstanding                   |  |                                          | 12,649 |   |         |   | 12,472 |         |  |   | 12,590  |   |  |   | 12,825 |  








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








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures







29



---



##### Table of Contents










|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

(a) The following are filed as part of this Annual
Report on Form 10-K.


Consolidated Financial Statements.




Consolidated Financial Statement Schedules.


30



---



##### Table of Contents





Exhibits.




| |    |          |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
| | -- | -------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2  | .1(1)    |  |  |  | Asset Purchase Agreement, dated January 21, 2003, by and
    between iET Acquisition, LLC and the Registrant.                                                                                                                                                                                                                                                 
|
| | 3  | .1(2)    |  |  |  | Restated Articles of Organization.                                                                                                                                                                                                                                                                                                                            
|
| | 3  | .2       |  |  |  | Amended and Restated By-laws.                                                                                                                                                                                                                                                                                                                                 
|
| | 4  | .1(3)    |  |  |  | Form of Rights Agreement, dated as of September 18, 2000,
    between the Registrant 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.
|
| | 4  | .2(10)   |  |  |  | First Amendment to Form of Rights Agreement, dated
    February 27, 2004, between the Registrant and American
    Stock Transfer & Trust Company.                                                                                                                                                                                                             
|
| | 10 | .1(4)   |  |  |  | Applix, Inc. 1994 Equity Incentive Plan, as amended.                                                                                                                                                                                                                                                                                                          
|
| | 10 | .2(2)   |  |  |  | Applix, Inc. 1984 Stock Option Plan.                                                                                                                                                                                                                                                                                                                          
|
| | 10 | .3(5)   |  |  |  | Applix, Inc. 2000 Director Stock Option Plan, as amended.                                                                                                                                                                                                                                                                                                     
|
| | 10 | .4(6)   |  |  |  | Applix, Inc. 2001 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                                               
|
| | 10 | .5(7)    |  |  |  | Single Tenant Commercial Lease by and between Westborough Land
    Realty Trust and the Registrant, dated January 23, 2001.                                                                                                                                                                                                                                   
|
| | 10 | .6(14)   |  |  |  | Letter of Intent Single Tenant Commercial Lease by and between
    Westborough Land Realty Trust and the Registrant, dated
    December 12, 2003.                                                                                                                                                                                                             
|
| | 10 | .7(14)   |  |  |  | First Amendment of Single Tenant Commercial Lease by and between
    Westborough Land Realty Trust and the Registrant dated
    December 31, 2003.                                                                                                                                                                                                            
|
| | 10 | .8(14)   |  |  |  | Second Amendment of Single Tenant Commercial Lease by and
    between Westborough Land Realty Trust and the Registrant dated
    January 22, 2004.                                                                                                                                                                                                            
|
| | 10 | .9(11)  |  |  |  | Severance Agreement, dated February 27, 2003, between the
    Registrant and Alan Goldsworthy.                                                                                                                                                                                                                                                                
|
| | 10 | .10(6)  |  |  |  | Executive Stock Option Acceleration Agreement between the
    Registrant and Craig Cervo, dated June 9, 2000.                                                                                                                                                                                                                                                 
|
| | 10 | .11(12) |  |  |  | Executive Change-in-Control Agreement between the Registrant and
    Craig Cervo, dated April 9, 2003.                                                                                                                                                                                                                                                        
|
| | 10 | .12(13) |  |  |  | Retention Agreement between the Registrant and David C. Mahoney,
    dated May 1, 2003.                                                                                                                                                                                                                                                                       
|
| | 10 | .13(13) |  |  |  | Retention Agreement between the Registrant and Milton A. Alpern,
    dated June 16, 2003.                                                                                                                                                                                                                                                                     
|
| | 10 | .14(14)  |  |  |  | Purchase Agreement by and between Brad Fire and the Registrant,
    dated February 27, 2004.                                                                                                                                                                                                                                                                  
|
| | 10 | .15(14)  |  |  |  | Purchase Agreement by and between Jeffrey A. Dryer and the
    Registrant, dated February 27, 2004.                                                                                                                                                                                                                                                           
| | 10 | .16(14)  |  |  |  | Loan and Security Agreement, dated March 19, 2004 between
    the Registrant and Silicon Valley Bank.                                                                                                                                                                                                                                                         
|
| | 10 | .17(9)  |  |  |  | Applix, Inc. 2003 Director Equity Plan.                                                                                                                                                                                                                                                                                                                       
|
| | 10 | .18(15) |  |  |  | Retention Agreement between the Registrant and Michael Morrison,
    dated as of June 1, 2004.                                                                                                                                                                                                                                                                
|
| | 10 | .19(15) |  |  |  | Applix, Inc. 2004 Equity Incentive Plan.                                                                                                                                                                                                                                                                                                                      
|
| | 10 | .20(15) |  |  |  | Form of Incentive Stock Option Agreement for the 2004 Equity
    Incentive Plan.                                                                                                                                                                                                                                                                              
|
| | 10 | .21(15) |  |  |  | Form of Nonstatutory Stock Option Agreement for the 2004 Equity
    Incentive Plan.                                                                                                                                                                                                                                                                           
|
| | 10 | .22(16) |  |  |  | Summary of 2004 Management Incentive Compensation Plan.                                                                                                                                                                                                                                                                                                       
|
| | 10 | .23(16) |  |  |  | Form of Stock Option Agreement for 2003 Director Equity
    Plan.                                                                                                                                                                                                                                                                                             
|
| | 10 | .24     |  |  |  | Summary of Compensation Policy for Directors of Applix, Inc.                                                                                                                                                                                                                                                                                                  

31



---



##### Table of Contents



| |    |    |  |   |  |                                                                                                                                                                                    
| | -- | -- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 21 | .1 |  |  |  | Subsidiaries of the Registrant.                                                                                                                                                    
|
| | 23 | .1 |  |  |  | Consent of Independent Registered Public Accounting Firm,
    Deloitte & Touche LLP.                                                                                               
|
| | 23 | .2 |  |  |  | Consent of Independent Registered Public Accounting Firm,
    Ernst & Young LLP.                                                                                                   
|
| | 31 | .1 |  |  |  | Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of
    the Exchange Act, as Adopted Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
|
| | 31 | .2 |  |  |  | Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of
    the Exchange Act, as Adopted Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
|
| | 32 | .1 |  |  |  | Certification Pursuant to 18 U.S.C. Section 1350
    (Chief Executive Officer).                                                                                                    
|
| | 32 | .2 |  |  |  | Certification Pursuant to 18 U.S.C. Section 1350
    (Chief Financial Officer).                                                                                                    






|   |                                                                                                                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Incorporated by reference from the Registrants Current
    Report on Form 8-K, as filed with the Commission on
    February 5, 2003.                                                                            
|  
|2. | Incorporated by reference from the Registrants
    Registration Statement on Form S-1 (File No. 33-85688).                                                                                                      
|  
|3. | Incorporated by reference to the Registrants Registration
    Statement on Form 8-A dated September 20, 2000.                                                                                                   
|  
|4. | Incorporated by reference to the Registrants Proxy
    Statement on Schedule 14A, as filed with the Commission on
    April 3, 2001.                                                                            
|  
|5. | Incorporated by reference to the Registrants Report on
    Form 10-Q for the fiscal quarter ended June 30, 2002,
    as filed with the Commission on August 14, 2002.                                           
|  
|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 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.
|  
|8. | Incorporated by reference to the Registrants Report on
    Form 10-K for the fiscal year ended December 31, 2001,
    as originally filed with the Commission on April 1, 2002.                                 
|  
|9. | Incorporated by reference to the Registrants Proxy
    Statement on Schedule 14A, as filed with the Commission on
    April 30, 2003.                                                                           



|    |                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. | Incorporated by reference to the Registrants Current
    Report on Form 8-K/ A, as filed with the Commission on
    March 4, 2004.                                                         
|   
|11. | Incorporated by reference to the Registrants Annual Report
    on Form 10-K for the fiscal year ended December 31,
    2002, as originally filed with the Commission on March 31,
    2003.
|   
|12. | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    March 31, 2003, as filed with the Commission on
    May 15, 2003.          
|   
|13. | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    June 30, 2003, as filed with the Commission on
    August 14, 2003.        
|   
|14. | Incorporated by reference to the Registrants Annual Report
    on Form 10-K for the fiscal year ended December 31,
    2003, as filed with the Commission on March 30, 2004.               
|   
|15. | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    June 30, 2004, as filed with the Commission on
    August 13, 2004.        
|   
|16. | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    September 30, 2004, as filed with the Commission on
    November 15, 2004. 



|  |                                          
|- | -----------------------------------------
| | Management contract or compensatory plan.

32



---



##### Table of Contents






SIGNATURES






| |             
| | ------------
| | Applix, Inc.



| |     |                     
| | --- | --------------------
| | By: | /s/ David C. Mahoney

| |                                      
| | -------------------------------------
| |                                      
| | David C. Mahoney                     
| | President and Chief Executive Officer



|                                             |  |                                                                                            |  |                |  | 
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | -------------- |  | 
|Signature                                    |  | Title                                                                                      |  | Date          
|                                             |  |                                                                                            |  |               
|                                            
|/s/ David C. MahoneyDavid
    C. Mahoney     |  | President and Chief Executive Officer
    (Principal Executive Officer)                    |  | March 31, 2005
|                                            
|/s/ Milton A. AlpernMilton
    A. Alpern     |  | Chief Financial Officer and Treasurer
    (Principal Financial and
    Accounting Officer) |  | March 31, 2005
|                                            
|/s/ John D. LoewenbergJohn
    D. Loewenberg |  | Chairman of the Board of Directors                                                         |  | March 31, 2005
|                                            
|/s/ Bradley D. FireBradley
    D. Fire       |  | Director                                                                                   |  | March 31, 2005
|                                            
|/s/ Peter GyenesPeter
    Gyenes             |  | Director                                                                                   |  | March 31, 2005
|                                            
|/s/ Alain J. HanoverAlain
    J. Hanover     |  | Director                                                                                   |  | March 31, 2005
|                                            
|/s/ Charles F. KaneCharles
    F. Kane       |  | Director                                                                                   |  | March 31, 2005

33



---



##### Table of Contents



Index to Consolidated Financial Statements


|                                                                                                                                             |  |      |    | 
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                             |  | Page |   
|                                                                                                                                             |  |      |   
|Report of Deloitte & Touche LLP,
    Independent Registered Public Accounting Firm                                                           |  |      | 35 | 
|Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm                                                               |  |      | 36 | 
|Consolidated Balance Sheets at
    December 31, 2004 and 2003                                                                                |  |      | 37 | 
|Consolidated Statements of Operations for
    the years ended December 31, 2004, 2003 and 2002                                               |  |      | 38 | 
|Consolidated Statements of
    Stockholders Equity and Comprehensive Income (Loss) for
    the years ended December 31, 2004, 2003 and 2002 |  |      | 39 | 
|Consolidated Statements of Cash Flows for
    the years ended December 31, 2004, 2003 and 2002                                               |  |      | 40 | 
|Notes to Consolidated Financial
    Statements                                                                                               |  |      | 41 | 

34



---



##### Table of Contents






Report of Independent Registered Public Accounting Firm










Deloitte &
Touche LLP






35



---



##### Table of Contents






Report of Independent Registered Public Accounting Firm














| |                          
| | -------------------------
| | /s/ Ernst & Young
    LLP









36



---



##### Table of Contents



APPLIX, INC.





CONSOLIDATED BALANCE SHEETS


December 31, 2004 and 2003


(In thousands, except share and per share amounts)


|                                                                                                   |                      |                                                                                                                                                                                                 |        |        |         |   |        |        |         |  
|-------------------------------------------------------------------------------------------------- | -------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------ | ------- | - | ------ | ------ | ------- | -
|                                                                                                   |                      | 2004                                                                                                                                                                                            |        |        | 2003    |  
|                                                                                                   |                      |                                                                                                                                                                                                 |        |        |         |  
|ASSETS                                                                                            
|Current assets:                                                                                    |                      |                                                                                                                                                                                                 |        |        |         |   |        |       
|                                                                                                   |                      | Cash and cash equivalents                                                                                                                                                                       |        | $      | 15,924  |   |        | $      | 9,241   |  
|                                                                                                   |                      | Accounts receivable, less allowance for doubtful accounts of
    $227 and $252, respectively                                                                                                    |        |        | 6,171   |   |        |        | 5,715   |  
|                                                                                                   |                      | Other current assets                                                                                                                                                                            |        |        | 1,207   |   |        |        | 2,125   |  
|                                                                                                   |                      | Deferred tax assets                                                                                                                                                                             |        |        | 496     |   |        |        |        |  
|                                                                                                   |                      |                                                                                                                                                                                                 |        |        |         |  
|                                                                                                   | Total current assets |                                                                                                                                                                                                 |        | 23,798 |         |   |        | 17,081 |        
|Restricted cash                                                                                    |                      |                                                                                                                                                                                                 | 400    |        |         |   | 817    |       
|Property and equipment, net                                                                        |                      |                                                                                                                                                                                                 | 580    |        |         |   | 973    |       
|Capitalized software costs, net of accumulated amortization of
    $1,840 and $1,575, respectively |                      |                                                                                                                                                                                                 |       |        |         |   | 265    |       
|Other assets                                                                                       |                      |                                                                                                                                                                                                 | 687    |        |         |   | 843    |       
|Intangible assets, net of accumulated amortization of $938 and
    $688, respectively              |                      |                                                                                                                                                                                                 | 562    |        |         |   | 812    |       
|Goodwill                                                                                           |                      |                                                                                                                                                                                                 | 1,158  |        |         |   | 1,158  |       
|                                                                                                   |                      |                                                                                                                                                                                                 |        |        |         |  
|TOTAL ASSETS                                                                                       |                      | $                                                                                                                                                                                               | 27,185 |        |         | $ | 21,949 |       
|                                                                                                   |                      |                                                                                                                                                                                                 |        |        |         |  
|                                                                                                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                              
|Current liabilities:                                                                               |                      |                                                                                                                                                                                                 |        |        |         |   |        |       
|                                                                                                   |                      | Accounts payable                                                                                                                                                                                |        | $      | 795     |   |        | $      | 1,083   |  
|                                                                                                   |                      | Accrued expenses                                                                                                                                                                                |        |        | 5,177   |   |        |        | 6,657   |  
|                                                                                                   |                      | Accrued restructuring expenses, current portion                                                                                                                                                 |        |        | 112     |   |        |        | 3,400   |  
|                                                                                                   |                      | Deferred revenues                                                                                                                                                                               |        |        | 8,421   |   |        |        | 8,060   |  
|                                                                                                   |                      |                                                                                                                                                                                                 |        |        |         |  
|Total current liabilities                                                                          |                      |                                                                                                                                                                                                 | 14,505 |        |         |   | 19,200 |       
|Accrued restructuring expenses, long term portion                                                  |                      |                                                                                                                                                                                                 | 261    |        |         |   |       |       
|Other long term liabilities                                                                        |                      |                                                                                                                                                                                                 | 181    |        |         |   | 494    |       
|Commitments and contingencies (Note 17)                                                            |                      |                                                                                                                                                                                                 |        |        |         |   |        |       
|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; 14,290,584 and 13,220,950 shares issued,
    respectively, and 14,290,584 and 12,863,323 shares
    outstanding, respectively |        |        | 36      |   |        |        | 33      |  
|                                                                                                   |                      | Additional paid-in capital                                                                                                                                                                      |        |        | 54,348  |   |        |        | 50,497  |  
|                                                                                                   |                      | Accumulated deficit                                                                                                                                                                             |        |        | (40,673 | ) |        |        | (45,375 | )
|                                                                                                   |                      | Accumulated other comprehensive loss                                                                                                                                                            |        |        | (1,473  | ) |        |        | (1,539  | )
|                                                                                                   |                      |                                                                                                                                                                                                 |        |        |         |  
|                                                                                                   |                      |                                                                                                                                                                                                 | 12,238 |        |         |   | 3,616  |       
|                                                                                                   |                      | Less: treasury stock, 0 and 357,627 shares at cost,
    respectively (Note 6)                                                                                                                   |        |        |        |   |        |        | (1,361  | )
|                                                                                                   |                      |                                                                                                                                                                                                 |        |        |         |  
|Total stockholders equity                                                                         |                      |                                                                                                                                                                                                 | 12,238 |        |         |   | 2,255  |       
|                                                                                                   |                      |                                                                                                                                                                                                 |        |        |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                         |                      | $                                                                                                                                                                                               | 27,185 |        |         | $ | 21,949 |       
|                                                                                                   |                      |                                                                                                                                                                                                 |        |        |         |  



37



---



##### Table of Contents



APPLIX, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


Years Ended December 31, 2004, 2003 and 2002


(In thousands, except per share amounts)


|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |        |   |        |        |        |  
|------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                  |                                                                                                                                                                  | 2004                              |        |        | 2003   |   |        | 2002   |       
|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |       
|Revenues:                                         |                                                                                                                                                                  |                                   |        |        |        |   |        |        |        |   |        |       
|                                                  | Software license                                                                                                                                                 |                                   | $      | 16,228 |        |   | $      | 13,222 |        |   | $      | 16,050 |       
|                                                  | Professional services and maintenance                                                                                                                            |                                   |        | 14,687 |        |   |        | 14,133 |        |   |        | 20,546 |       
|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |       
|                                                  |                                                                                                                                                                  | Total revenues                    |        |        | 30,915 |   |        |        | 27,355 |   |        |        | 36,596 |  
|Cost of revenues:                                 |                                                                                                                                                                  |                                   |        |        |        |   |        |        |        |   |        |       
|                                                  | Software license                                                                                                                                                 |                                   |        | 427    |        |   |        | 1,850  |        |   |        | 2,040  |       
|                                                  | Professional services and maintenance                                                                                                                            |                                   |        | 3,612  |        |   |        | 5,270  |        |   |        | 9,989  |       
|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |       
|                                                  |                                                                                                                                                                  | Total cost of revenues            |        |        | 4,039  |   |        |        | 7,120  |   |        |        | 12,029 |  
|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |       
|Gross margin                                      |                                                                                                                                                                  |                                   | 26,876 |        |        |   | 20,235 |        |        |   | 24,567 |       
|Operating expenses:                               |                                                                                                                                                                  |                                   |        |        |        |   |        |        |        |   |        |       
|                                                  | Sales and marketing (includes $23 of stock-based compensation
    for the year ended December 31, 2003)                                                          |                                   |        | 10,588 |        |   |        | 10,747 |        |   |        | 15,311 |       
|                                                  | General and administrative (includes $60 and $267 of stock based
    compensation for the years ended December 31, 2004 and
    December 31, 2003, respectively) |                                   |        | 6,217  |        |   |        | 7,653  |        |   |        | 5,249  |       
|                                                  | Product development                                                                                                                                              |                                   |        | 4,785  |        |   |        | 5,512  |        |   |        | 5,699  |       
|                                                  | Restructuring expense                                                                                                                                            |                                   |        | 577    |        |   |        | 3,238  |        |   |        | 381    |       
|                                                  | Compensation expenses and amortization of acquired intangible
    asset                                                                                          |                                   |        | 250    |        |   |        | 833    |        |   |        | 2,405  |       
|                                                  | Write down of notes receivable                                                                                                                                   |                                   |        |       |        |   |        |       |        |   |        | 964    |       
|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |       
|                                                  |                                                                                                                                                                  | Total operating expenses          |        |        | 22,417 |   |        |        | 27,983 |   |        |        | 30,009 |  
|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |       
|Operating income (loss)                           |                                                                                                                                                                  |                                   | 4,459  |        |        |   | (7,748 | )      |        |   | (5,442 | )     
|Non-operating income (expenses):                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |        |   |        |       
|Interest and other income (expense), net          |                                                                                                                                                                  |                                   | 313    |        |        |   | 933    |        |        |   | (47    | )     
|Net (loss) gain from sale of subsidiary (Note 11) |                                                                                                                                                                  |                                   |       |        |        |   | (164   | )      |        |   | 141    |       
|Net gain from sale of CRM business (Note 12)      |                                                                                                                                                                  |                                   | 261    |        |        |   | 7,910  |        |        |   |       |       
|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |       
|Income (loss) before taxes                        |                                                                                                                                                                  |                                   | 5,033  |        |        |   | 931    |        |        |   | (5,348 | )     
|Provision for income taxes                        |                                                                                                                                                                  |                                   | (225   | )      |        |   | (764   | )      |        |   | (222   | )     
|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |       
|Income (loss) from continuing operations          |                                                                                                                                                                  |                                   | 4,808  |        |        |   | 167    |        |        |   | (5,570 | )     
|Discontinued operations:                          |                                                                                                                                                                  |                                   |        |        |        |   |        |        |        |   |        |       
|                                                  |                                                                                                                                                                  | Loss from discontinued operations |        |        | (106   | ) |        |        | (177   | ) |        |        | (204   | )
|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |       
|Net income (loss)                                 |                                                                                                                                                                  | $                                 | 4,702  |        |        | $ | (10    | )      |        | $ | (5,774 | )     
|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |       
|Net income (loss) per share, basic and diluted:   |                                                                                                                                                                  |                                   |        |        |        |   |        |        |        |   |        |       
|                                                  | Continuing operations, basic                                                                                                                                     |                                   | $      | 0.34   |        |   | $      | 0.01   |        |   | $      | (0.46  | )     
|                                                  | Continuing operations, diluted                                                                                                                                   |                                   | $      | 0.31   |        |   | $      | 0.01   |        |   | $      | (0.46  | )     
|                                                  | Discontinued operations                                                                                                                                          |                                   |        | (0.01  | )      |   |        | (0.01  | )      |   |        | (0.02  | )     
|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |       
|                                                  | Net income (loss) per share, basic                                                                                                                               |                                   | $      | 0.33   |        |   | $      | (0.00  | )      |   | $      | (0.47  | )     
|                                                  | Net income (loss) per share, diluted                                                                                                                             |                                   | $      | 0.30   |        |   | $      | (0.00  | )      |   | $      | (0.47  | )     
|                                                  |                                                                                                                                                                  |                                   |        |        |        |   |        |        |       
|Weighted average number of shares outstanding:    |                                                                                                                                                                  |                                   |        |        |        |   |        |        |        |   |        |       
|                                                  | Basic                                                                                                                                                            |                                   |        | 14,038 |        |   |        | 12,601 |        |   |        | 12,223 |       
|                                                  | Diluted                                                                                                                                                          |                                   |        | 15,482 |        |   |        | 13,197 |        |   |        | 12,223 |       



38



---



##### Table of Contents



APPLIX, INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


AND COMPREHENSIVE INCOME (LOSS)


Years Ended December 31, 2004, 2003 and 2002


(In thousands, except share amounts)


|                                                    |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   |        |               |  |   |        |   |  |   |        |  
|--------------------------------------------------- |  | ------ | -- | ---------- | ------- | - | ------ | ----------- | ----- | ----- | ------------- | ---------- |  | --------- | ------ | - | -------- | - | ------ | ------------- |  | - | ------ | - |  | - | ------ | -
|                                                    |  |        |    |            |         |   |        |             |       | Notes |               |            |  |           |       
|                                                    |  |        |    |            |         |   |        | Accumulated |       |       | Receivable    |            |  |           |        |  
|                                                    |  |        |    | Additional |         |   |        |             | Other |       |               | from Stock |  |           |        |   | Total    |  
|                                                    |  | Common |    |            | Paid-In |   |        | Accumulated |       |       | Comprehensive |            |  | Purchase  |        |   | Treasury |   |        | Stockholders | 
|                                                    |  | Stock  |    |            | Capital |   |        | Deficit     |       |       | (Loss) Income |            |  | Agreement |        |   | Stock    |   |        | Equity        | 
|                                                    |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   |        |               | 
|Balance, January 1, 2002                            |  | $      | 31 |            |         | $ | 49,212 |             |       | $     | (39,591       | )          |  | $         | (503   | ) |          | $ | (1,120 | )             |  | $ | (1,077 | ) |  | $ | 6,952  |  
|Stock issued under stock plans (355,080 shares)     |  |        | 1  |            |         |   | 388    |             |       |       |               |            |  |           |        |   |          |   |        |               |  |   |        |   |  |   | 389    |  
|Write down of notes receivable                      |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   | 1,120  |               |  |   | (284   | ) |  |   | 836    |  
|Net loss                                            |  |        |    |            |         |   |        |             |       |       | (5,774        | )          |  |           |        |   |          |   |        |               |  |   |        |   |  |   | (5,774 | )
|Foreign currency exchange translation adjustment    |  |        |    |            |         |   |        |             |       |       |               |            |  |           | 16     |   |          |   |        |               |  |   |        |   |  |   | 16     |  
|                                                    |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   |        |               | 
|Comprehensive loss                                  |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   |        |               |  |   |        |   |  |   | (5,758 | )
|                                                    |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   |        |               | 
|Balance, December 31, 2002                          |  |        | 32 |            |         |   | 49,600 |             |       |       | (45,365       | )          |  |           | (487   | ) |          |   |       |               |  |   | (1,361 | ) |  |   | 2,419  |  
|Stock issued under stock plans (549,573 shares)     |  |        | 1  |            |         |   | 897    |             |       |       |               |            |  |           |        |   |          |   |        |               |  |   |        |   |  |   | 898    |  
|Net loss                                            |  |        |    |            |         |   |        |             |       |       | (10           | )          |  |           |        |   |          |   |        |               |  |   |        |   |  |   | (10    | )
|Foreign currency exchange translation adjustment    |  |        |    |            |         |   |        |             |       |       |               |            |  |           | (1,052 | ) |          |   |        |               |  |   |        |   |  |   | (1,052 | )
|                                                    |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   |        |               | 
|Comprehensive loss                                  |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   |        |               |  |   |        |   |  |   | (1,062 | )
|                                                    |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   |        |               | 
|Balance, December 31, 2003                          |  |        | 33 |            |         |   | 50,497 |             |       |       | (45,375       | )          |  |           | (1,539 | ) |          |   |       |               |  |   | (1,361 | ) |  |   | 2,255  |  
|Stock issued under stock plans (769,367 shares)     |  |        | 2  |            |         |   | 1,993  |             |       |       |               |            |  |           |        |   |          |   |        |               |  |   |        |   |  |   | 1,995  |  
|Sale of common stock to affiliates (657,894 shares) |  |        | 2  |            |         |   | 2,987  |             |       |       |               |            |  |           |        |   |          |   |        |               |  |   |        |   |  |   | 2,989  |  
|Executive loans settlement                          |  |        |    |            |         |   | 179    |             |       |       |               |            |  |           |        |   |          |   |        |               |  |   | 52     |   |  |   | 231    |  
|Elimination of treasury shares                      |  |        | (1 | )          |         |   | (1,308 | )           |       |       |               |            |  |           |        |   |          |   |        |               |  |   | 1,309  |   |  |   |       |  
|Net income                                          |  |        |    |            |         |   |        |             |       |       | 4,702         |            |  |           |        |   |          |   |        |               |  |   |        |   |  |   | 4,702  |  
|Foreign currency exchange translation adjustment    |  |        |    |            |         |   |        |             |       |       |               |            |  |           | 66     |   |          |   |        |               |  |   |        |   |  |   | 66     |  
|                                                    |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   |        |               | 
|Comprehensive income                                |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   |        |               |  |   |        |   |  |   | 4,768  |  
|                                                    |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   |        |               | 
|Balance, December 31, 2004                          |  | $      | 36 |            |         | $ | 54,348 |             |       | $     | (40,673       | )          |  | $         | (1,473 | ) |          | $ |       |               |  | $ |       |   |  | $ | 12,238 |  
|                                                    |  |        |    |            |         |   |        |             |       |       |               |            |  |           |        |   |          |   |        |               | 



39



---



##### Table of Contents



APPLIX, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


Years Ended December 31, 2004, 2003 and 2002


|                                                 |                                                                                                        |                                                          |                                                 |       |        |       |       |      |        |        |       |        |        |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------ | -------------------------------------------------------- | ----------------------------------------------- | ----- | ------ | ----- | ----- | ---- | ------ | ------ | ----- | ------ | ------ | ------ | -
|                                                 |                                                                                                        | 2004                                                     |                                                 |       | 2003   |       |       | 2002 |       
|                                                 |                                                                                                        |                                                          |                                                 |       |        |       |       |      |       
|                                                 |                                                                                                        | (In thousands)                                           |                                                
|Cash flows from operating activities:            |                                                                                                        |                                                          |                                                 |       |        |       |       |      |        |        |       |       
|                                                 | Net income (loss)                                                                                      |                                                          | $                                               | 4,702 |        |       | $     | (10  | )      |        | $     | (5,774 | )     
|                                                 | Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities: |                                                          |                                                 |       |        |       |       |      |        |        |       |        |       
|                                                 |                                                                                                        | Depreciation                                             |                                                 |       | 573    |       |       |      | 941    |        |       |        | 1,097  |       
|                                                 |                                                                                                        | Amortization                                             |                                                 |       | 515    |       |       |      | 1,445  |        |       |        | 1,387  |       
|                                                 |                                                                                                        | Net gain on sale of CRM business                         |                                                 |       | (261   | )     |       |      | (7,910 | )      |       |        |       |       
|                                                 |                                                                                                        | Loss on disposal of property and equipment               |                                                 |       | 99     |       |       |      |       |        |       |        |       |       
|                                                 |                                                                                                        | Net loss (gain) on sale of subsidiary                    |                                                 |       |       |       |       |      | 164    |        |       |        | (141   | )     
|                                                 |                                                                                                        | Non-cash restructuring expenses                          |                                                 |       |       |       |       |      | 50     |        |       |        |       |       
|                                                 |                                                                                                        | Write down of notes receivable                           |                                                 |       |       |       |       |      |       |        |       |        | 964    |       
|                                                 |                                                                                                        | Non-cash stock compensation expense                      |                                                 |       | 60     |       |       |      | 290    |        |       |        |       |       
|                                                 |                                                                                                        | Deferred income taxes                                    |                                                 |       | (496   | )     |       |      |       |        |       |        | (131   | )     
|                                                 | Changes in operating assets and liabilities:                                                           |                                                          |                                                 |       |        |       |       |      |        |        |       |        |       
|                                                 |                                                                                                        | (Increase) decrease in accounts receivable               |                                                 |       | (144   | )     |       |      | 1,048  |        |       |        | (1,358 | )     
|                                                 |                                                                                                        | Sale of accounts receivables                             |                                                 |       |       |       |       |      |       |        |       |        | 2,323  |       
|                                                 |                                                                                                        | Decrease (increase) in other assets                      |                                                 |       | 955    |       |       |      | (909   | )      |       |        | (558   | )     
|                                                 |                                                                                                        | Decrease in restricted cash                              |                                                 |       | 417    |       |       |      | 117    |        |       |        | 117    |       
|                                                 |                                                                                                        | (Decrease) increase in accounts payable                  |                                                 |       | (309   | )     |       |      | (1,243 | )      |       |        | 182    |       
|                                                 |                                                                                                        | (Decrease) increase in accrued expenses                  |                                                 |       | (1,612 | )     |       |      | (1,530 | )      |       |        | 2,156  |       
|                                                 |                                                                                                        | (Decrease) increase in accrued restructuring expenses    |                                                 |       | (3,027 | )     |       |      | 3,279  |        |       |        | (695   | )     
|                                                 |                                                                                                        | (Decrease) increase in other liabilities                 |                                                 |       | (304   | )     |       |      | 9      |        |       |        |       |       
|                                                 |                                                                                                        | Increase (decrease) in deferred revenue                  |                                                 |       | 385    |       |       |      | (10    | )      |       |        | 2,247  |       
|                                                 |                                                                                                        |                                                          |                                                 |       |        |       |       |      |       
|                                                 |                                                                                                        |                                                          | Cash provided by (used in) operating activities |       |        | 1,553 |       |      |        | (4,269 | )     |        |        | 1,816  |  
|Cash flows from investing activities:            |                                                                                                        |                                                          |                                                 |       |        |       |       |      |        |        |       |       
|                                                 |                                                                                                        | Property and equipment expenditures                      |                                                 |       | (321   | )     |       |      | (194   | )      |       |        | (680   | )     
|                                                 |                                                                                                        | Capitalized software costs                               |                                                 |       |       |       |       |      |       |        |       |        | (1,553 | )     
|                                                 |                                                                                                        | Net proceeds from CRM sale                               |                                                 |       |       |       |       |      | 5,263  |        |       |        |       |       
|                                                 |                                                                                                        | Proceeds (payments) from sale of subsidiary              |                                                 |       | 195    |       |       |      | (145   | )      |       |        | 362    |       
|                                                 |                                                                                                        |                                                          |                                                 |       |        |       |       |      |       
|                                                 |                                                                                                        |                                                          | Cash (used in) provided by investing activities |       |        | (126  | )     |      |        | 4,924  |       |        |        | (1,871 | )
|Cash flows from financing activities:            |                                                                                                        |                                                          |                                                 |       |        |       |       |      |        |        |       |       
|                                                 |                                                                                                        | Proceeds from issuance of common stock under stock plans |                                                 |       | 1,935  |       |       |      | 898    |        |       |        | 389    |       
|                                                 |                                                                                                        | Proceeds from issuance of common stock to affiliate      |                                                 |       | 2,989  |       |       |      |       |        |       |        |       |       
|                                                 |                                                                                                        | Proceeds from settlement of executive loans              |                                                 |       | 231    |       |       |      |       |        |       |        |       |       
|                                                 |                                                                                                        | Payment on short-term borrowing                          |                                                 |       |       |       |       |      | (237   | )      |       |        | (368   | )     
|                                                 |                                                                                                        | Proceeds from short-term borrowing                       |                                                 |       |       |       |       |      |       |        |       |        | 237    |       
|                                                 |                                                                                                        |                                                          |                                                 |       |        |       |       |      |       
|                                                 |                                                                                                        |                                                          | Cash provided by financing activities           |       |        | 5,155 |       |      |        | 661    |       |        |        | 258    |  
|Effect of exchange rate changes on cash          |                                                                                                        |                                                          | 101                                             |       |        |       | (464  | )    |        |        | (42   | )     
|                                                 |                                                                                                        |                                                          |                                                 |       |        |       |       |      |       
|Increase in cash and cash equivalents            |                                                                                                        |                                                          | 6,683                                           |       |        |       | 852   |      |        |        | 161   |       
|Cash and cash equivalents at beginning of period |                                                                                                        |                                                          | 9,241                                           |       |        |       | 8,389 |      |        |        | 8,228 |       
|                                                 |                                                                                                        |                                                          |                                                 |       |        |       |       |      |       
|Cash and cash equivalents at end of period       |                                                                                                        | $                                                        | 15,924                                          |       |        | $     | 9,241 |      |        | $      | 8,389 |       
|                                                 |                                                                                                        |                                                          |                                                 |       |        |       |       |      |       
|Supplemental disclosure of cash flow information |                                                                                                        |                                                          |                                                 |       |        |       |       |      |        |        |       |       
|                                                 |                                                                                                        | Cash paid for income tax                                 |                                                 | $     | 949    |       |       | $    | 574    |        |       | $      | 319    |       



40



---



##### Table of Contents



APPLIX, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |            
|-- | -----------
|1. | THE COMPANY







|   |                                
|-- | -------------------------------
|2. | SIGNIFICANT ACCOUNTING POLICIES



| |                            
| | ---------------------------
| | Principles of Consolidation





| |                 
| | ----------------
| | Use of Estimates





| |                    
| | -------------------
| | Revenue Recognition





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Persuasive evidence of an arrangement exists, which is typically
    when a non-cancelable sales and software license agreement has
    been signed, or purchase order has been received;                                                                                                                                                                                                                                                                                                                              
|
| |  | Delivery has occurred. If the assumption by the customer of the
    risks and rewards of its licensing rights occurs upon the
    delivery to the carrier (FOB Shipping Point), then delivery
    occurs upon shipment (which is typically the case). If
    assumption of such risks and rewards occurs upon delivery to the
    customer (FOB Destination), then delivery occurs upon receipt by
    the customer. In all instances, delivery includes electronic
    delivery of authorization keys to the customer;
|
| |  | The customers fee is deemed to be fixed or determinable
    and free of contingencies or significant uncertainties;                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Collectibility is probable; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Vendor specific objective evidence of fair value exists for all
    undelivered elements, typically maintenance and professional
    services.                                                                                                                                                                                                                                                                                                                                                                         

41



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)
















42



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                          
| | -------------------------
| | Cash and Cash Equivalents







| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Concentrations of Credit Risk, Accounts Receivable and
    Allowance for Doubtful Accounts





43



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                           |  |      |      |   |      |   |        |      |  |   |       |  
|-------------------------- |  | ---- | ---- | - | ---- | - | ------ | ---- |  | - | ----- | -
|                           |  | 2004 |      |   | 2003 |   |        | 2002 | 
|                           |  |      |      |   |      |   |        |      | 
|Balance, beginning of year |  | $    | 252  |   |      | $ | 2,098  |      |  | $ | 1,446 |  
|Bad debt expense           |  |      | 79   |   |      |   | 15     |      |  |   | 1,198 |  
|Write-offs of accounts     |  |      | (104 | ) |      |   | (1,861 | )    |  |   | (546  | )
|                           |  |      |      |   |      |   |        |      | 
|Balance, end of year       |  | $    | 227  |   |      | $ | 252    |      |  | $ | 2,098 |  
|                           |  |      |      |   |      |   |        |      | 



| |                       
| | ----------------------
| | Property and Equipment



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

|                        |                                                 |                |       |        |      |   |        |         |  
|----------------------- | ----------------------------------------------- | -------------- | ----- | ------ | ---- | - | ------ | ------- | -
|                        |                                                 | December 31,   |      
|                        |                                                 |                |      
|                        |                                                 | 2004           |       |        | 2003 |  
|                        |                                                 |                |       |        |      |  
|                        |                                                 | (In thousands) |      
|Property and equipment: |                                                 |                |       |        |      |   |        |        
|                        | Computer equipment and software                 |                | $     | 1,849  |      |   | $      | 11,064  |  
|                        | Furniture, equipment and leasehold improvements |                |       | 1,241  |      |   |        | 2,340   |  
|                        |                                                 |                |       |        |      |  
|                        |                                                 | $              | 3,090 |        |      | $ | 13,404 |        
|                        | Less: accumulated depreciation and amortization |                |       | (2,510 | )    |   |        | (12,431 | )
|                        |                                                 |                |       |        |      |  
|                        |                                                 | $              | 580   |        |      | $ | 973    |        
|                        |                                                 |                |       |        |      |  





| |                          
| | -------------------------
| | Product Development Costs



44



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                               
| | ------------------------------
| | Goodwill and Intangible Assets







|     |  |   |         | 
|---- |  | - | ------- | 
|2005 |  | $ | 250,000 | 
|2006 |  | $ | 250,000 | 
|2007 |  | $ | 62,000  | 



| |             
| | ------------
| | Income Taxes



45



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                            
| | ---------------------------
| | Net Income (Loss) Per Share



|                                                                                    |                         |                                   |        |       |      |   |        |       |       |   |        |       |       |  
|----------------------------------------------------------------------------------- | ----------------------- | --------------------------------- | ------ | ----- | ---- | - | ------ | ----- | ----- | - | ------ | ----- | ----- | -
|                                                                                    |                         | Year Ended December 31,           |       
|                                                                                    |                         |                                   |       
|                                                                                    |                         | 2004                              |        |       | 2003 |   |        | 2002  |      
|                                                                                    |                         |                                   |        |       |      |   |        |       |      
|                                                                                    |                         | (In thousands, except per share   |       
|                                                                                    |                         | amounts)                          |       
|Numerator:                                                                          |                         |                                   |        |       |      |   |        |       |       |   |        |      
|Income (loss) from continuing operations                                            |                         | $                                 | 4,808  |       |      | $ | 167    |       |       | $ | (5,570 | )    
|Loss from discontinued operations                                                   |                         |                                   | (106   | )     |      |   | (177   | )     |       |   | (204   | )    
|                                                                                    |                         |                                   |        |       |      |   |        |       |      
|Net income (loss)                                                                   |                         | $                                 | 4,702  |       |      | $ | (10    | )     |       | $ | (5,774 | )    
|                                                                                    |                         |                                   |        |       |      |   |        |       |      
|Denominator:                                                                        |                         |                                   |        |       |      |   |        |       |       |   |        |      
|Denominator for basic net income (loss) per share 
    Weighted shares outstanding |                         |                                   | 14,038 |       |      |   | 12,601 |       |       |   | 12,223 |      
|Diluted effect of assumed exercise of stock options                                 |                         |                                   | 1,444  |       |      |   | 596    |       |       |   |       |      
|                                                                                    |                         |                                   |        |       |      |   |        |       |      
|Denominator for diluted net income (loss) per share                                 |                         |                                   | 15,482 |       |      |   | 13,197 |       |       |   | 12,223 |      
|                                                                                    |                         |                                   |        |       |      |   |        |       |      
|Basic net income (loss) per share                                                   |                         |                                   |        |       |      |   |        |       |       |   |        |      
|                                                                                    | Continuing operations   |                                   | $      | 0.34  |      |   | $      | 0.01  |       |   | $      | (0.46 | )    
|                                                                                    | Discontinued operations |                                   | $      | (0.01 | )    |   | $      | (0.01 | )     |   | $      | (0.02 | )    
|                                                                                    |                         |                                   |        |       |      |   |        |       |      
|                                                                                    |                         | Total net income (loss) per share |        | $     | 0.33 |   |        | $     | (0.00 | ) |        | $     | (0.47 | )
|                                                                                    |                         |                                   |        |       |      |   |        |       |      
|Diluted net income (loss) per share                                                 |                         |                                   |        |       |      |   |        |       |       |   |        |      
|                                                                                    | Continuing operations   |                                   | $      | 0.31  |      |   | $      | 0.01  |       |   | $      | (0.46 | )    
|                                                                                    | Discontinued operations |                                   | $      | (0.01 | )    |   | $      | (0.01 | )     |   | $      | (0.02 | )    
|                                                                                    |                         |                                   |        |       |      |   |        |       |      
|                                                                                    |                         | Total net income (loss) per share |        | $     | 0.30 |   |        | $     | (0.00 | ) |        | $     | (0.47 | )
|                                                                                    |                         |                                   |        |       |      |   |        |       |      



46



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                             
| | ----------------------------
| | Foreign Currency Translation









| |                            
| | ---------------------------
| | Comprehensive Income (Loss)





| |                    
| | -------------------
| | Advertising Expense





| |                         
| | ------------------------
| | Stock-Based Compensation



47



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                |  |      |      |   |      |  |      |      |  |  |      |  
|------------------------------- |  | ---- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                                |  | 2004 |      |   | 2003 |  |      | 2002 | 
|                                |  |      |      |   |      |  |      |      | 
|Expected life (years)           |  |      | 4    |   |      |  | 4    |      |  |  | 4    |  
|Expected stock price volatility |  |      | 80.0 | % |      |  | 83.5 | %    |  |  | 97.1 | %
|Risk free interest rate         |  |      | 3.00 | % |      |  | 2.61 | %    |  |  | 3.82 | %



|                                                                                                                           |  |                         |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                           |  | Year Ended December 31, |       
|                                                                                                                           |  |                         |       
|                                                                                                                           |  | 2004                    |        |   | 2003 |   |        | 2002 | 
|                                                                                                                           |  |                         |        |   |      |   |        |      | 
|Net income (loss), as reported                                                                                             |  | $                       | 4,702  |   |      | $ | (10    | )    |  | $ | (5,774 | )
|Add: Stock-based employee compensation expense included in
    reported net loss, net of related tax effects               |  |                         | 60     |   |      |   | 290    |      |  |   |       |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value method, net of related tax effects |  |                         | (1,291 | ) |      |   | (2,370 | )    |  |   | (2,258 | )
|                                                                                                                           |  |                         |        |   |      |   |        |      | 
|Pro forma net income (loss)                                                                                                |  | $                       | 3,471  |   |      | $ | (2,090 | )    |  | $ | (8,032 | )
|                                                                                                                           |  |                         |        |   |      |   |        |      | 
|Net income (loss) per share:                                                                                               |  |                         |        |   |      |   |        |      |  |   |        |  
|Basic  as reported                                                                                                        |  | $                       | 0.33   |   |      | $ | (0.00  | )    |  | $ | (0.47  | )
|Diluted  as reported                                                                                                      |  | $                       | 0.30   |   |      | $ | (0.00  | )    |  | $ | (0.47  | )
|Basic  pro forma                                                                                                          |  | $                       | 0.25   |   |      | $ | (0.17  | )    |  | $ | (0.66  | )
|Diluted  pro forma                                                                                                        |  | $                       | 0.23   |   |      | $ | (0.17  | )    |  | $ | (0.66  | )
|Weighted average number of shares outstanding:                                                                             |  |                         |        |   |      |   |        |      |  |   |        |  
|Basic                                                                                                                      |  |                         | 14,038 |   |      |   | 12,601 |      |  |   | 12,223 |  
|Diluted                                                                                                                    |  |                         | 15,187 |   |      |   | 12,601 |      |  |   | 12,223 |  



| |                              
| | -----------------------------
| | New Accounting Pronouncements

Share-Based Payment Accounting for
Stock-Based Compensation, Accounting for Stock
Issued to Employees,


48



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                        
|-- | -----------------------
|3. | DISCONTINUED OPERATIONS





|   |                 
|-- | ----------------
|4. | ACCRUED EXPENSES



|                            |  |      |       |  |      |   |       | 
|--------------------------- |  | ---- | ----- |  | ---- | - | ----- | 
|                            |  | 2004 |       |  | 2003 |  
|                            |  |      |       |  |      |  
|Income taxes                |  | $    | 1,044 |  |      | $ | 748   | 
|Sales and value added taxes |  |      | 844   |  |      |   | 2,351 | 
|Compensation and benefits   |  |      | 1,707 |  |      |   | 2,171 | 
|Other                       |  |      | 1,582 |  |      |   | 1,387 | 
|                            |  |      |       |  |      |  
|Total                       |  | $    | 5,177 |  |      | $ | 6,657 | 
|                            |  |      |       |  |      |  



|   |             
|-- | ------------
|5. | INCOME TAXES



|                                                                                                                   |                   |       |                            |      |       |      |        |      |     |     |        |      |        |      |  
|------------------------------------------------------------------------------------------------------------------ | ----------------- | ----- | -------------------------- | ---- | ----- | ---- | ------ | ---- | --- | --- | ------ | ---- | ------ | ---- | -
|                                                                                                                   |                   | 2004  |                            |      | 2003  |      |        | 2002 |    
|                                                                                                                   |                   |       |                            |      |       |      |        |      |    
|Domestic                                                                                                           |                   | $     | 3,875                      |      |       | $    | (1,018 | )    |     | $   | (6,183 | )   
|Foreign                                                                                                            |                   |       | 1,158                      |      |       |      | 1,949  |      |     |     | 835    |     
|                                                                                                                   |                   |       |                            |      |       |      |        |      |    
|                                                                                                                   |                   | Total |                            | $    | 5,033 |      |        | $    | 931 |     |        | $    | (5,348 | )   
|                                                                                                                   |                   |       |                            |      |       |      |        |      |    
|The components of the income tax provision (benefit) from
    continuing operations are as follows (in thousands): |                   |       |                            |      |       |      |        |      |     |     |        |     
|Current:                                                                                                           |                   |       |                            |      |       |      |        |      |     |     |        |     
|                                                                                                                   | Federal and state |       |                            | (98  | )     |      |        | (128 | )   |     |        | 68   |       
|                                                                                                                   | Foreign           |       |                            | 819  |       |      |        | 892  |     |     |        | 285  |       
|                                                                                                                   |                   |       |                            |      |       |      |        |      |    
|                                                                                                                   |                   |       | Total Current              |      |       | 721  |        |      |     | 764 |        |      |        | 353  |  
|                                                                                                                   |                   |       |                            |      |       |      |        |      |    
|Deferred:                                                                                                          |                   |       |                            |      |       |      |        |      |     |     |        |     
|                                                                                                                   | Federal and state |       |                            |     |       |      |        |     |     |     |        |     |       
|                                                                                                                   | Foreign           |       |                            | (496 | )     |      |        |     |     |     |        | (131 | )     
|                                                                                                                   |                   |       |                            |      |       |      |        |      |    
|                                                                                                                   |                   |       | Total Deferred             |      |       | (496 | )      |      |     |    |        |      |        | (131 | )
|                                                                                                                   |                   |       |                            |      |       |      |        |      |    
|                                                                                                                   |                   |       | Total income tax provision |      | $     | 225  |        |      | $   | 764 |        |      | $      | 222  |  
|                                                                                                                   |                   |       |                            |      |       |      |        |      |    

49



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                  |  |      |         |   |      |   |         |  
|--------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                  |  | 2004 |         |   | 2003 |  
|                                  |  |      |         |   |      |  
|Net operating loss carryforwards  |  | $    | 9,572   |   |      | $ | 10,080  |  
|Accounts receivable               |  |      | 59      |   |      |   | 5       |  
|Accrued expenses                  |  |      | 535     |   |      |   | 1,491   |  
|Accrued compensation and benefits |  |      | 371     |   |      |   | 171     |  
|Software/fixed assets             |  |      | 80      |   |      |   | 137     |  
|Tax credit carryforwards          |  |      | 3,507   |   |      |   | 2,506   |  
|Deferred tax liability            |  |      | (169    | ) |      |   | (207    | )
|Valuation allowance               |  |      | (13,459 | ) |      |   | (14,183 | )
|                                  |  |      |         |   |      |  
|Net deferred tax asset            |  | $    | 496     |   |      | $ |        |  
|                                  |  |      |         |   |      |  



|                                                      |  |      |        |   |      |   |       |      |  |   |        |  
|----------------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                                      |  | 2004 |        |   | 2003 |   |       | 2002 | 
|                                                      |  |      |        |   |      |   |       |      | 
|U.S. federal statutory rate                           |  | $    | 1,711  |   |      | $ | (402  | )    |  | $ | (1,818 | )
|State and foreign current tax provision, net          |  |      | 743    |   |      |   | (803  | )    |  |   | (368   | )
|Foreign deferred tax provision                        |  |      | (496   | ) |      |   |      |      |  |   |       |  
|Research and experimentation tax credit               |  |      |       |   |      |   |      |      |  |   | (366   | )
|Permanent items                                       |  |      | 32     |   |      |   | 24    |      |  |   | 16     |  
|Other                                                 |  |      | (206   | ) |      |   |      |      |  |   |       |  
|(Benefit from utilization of NOLs)Unbenefitted losses |  |      | (1,559 | ) |      |   | 1,945 |      |  |   | 2,758  |  
|                                                      |  |      |        |   |      |   |       |      | 
|Income tax provision                                  |  | $    | 225    |   |      | $ | 764   |      |  | $ | 222    |  
|                                                      |  |      |        |   |      |   |       |      | 





|                                        |  |   |        | 
|--------------------------------------- |  | - | ------ | 
|Reported in the statement of operations |  | $ | 13,459 | 
|Reported in capital in excess of par    |  |   |       | 
|                                        |  |   |       
|                                        |  | $ | 13,459 | 
|                                        |  |   |       



50



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                     
|-- | --------------------
|6. | STOCKHOLDERS EQUITY



| |                
| | ---------------
| | Preferred Stock





| |             
| | ------------
| | Common Stock







| |               
| | --------------
| | Treasury Stock





| |                             
| | ----------------------------
| | Common Stock Purchase Rights





51



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












52



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                   
| | ------------------
| | Stock Option Plans











53



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                      |  |               |            |                     |        |  |                  |                |  |   |      | 
|----------------------------------------------------- |  | ------------- | ---------- | ------------------- | ------ |  | ---------------- | -------------- |  | - | ---- | 
|                                                      |  |               |            | Options Outstanding |       
|                                                      |  |               |            |                     |       
|                                                      |  | Available for |            |                     |        |  | Weighted Average |               
|                                                      |  | Grant         |            |                     | Number |  |                  | Exercise Price | 
|                                                      |  |               |            |                     |        |  |                  |                | 
|Balance at December 31, 2001                          |  |               | 989,931    |                     |        |  | 3,661,600        |                |  | $ | 4.52 | 
|                                                      |  |               |            |                     |        |  |                  |                | 
|Additional authorized                                 |  |               | 150,000    |                     |        |  |                 |                |  |   |     | 
|Expiration of options under 1984 Plan and Sinper Plan |  |               | (534       | )                   |        |  |                 |                |  |   |     | 
|Options granted                                       |  |               | (711,000   | )                   |        |  | 711,000          |                |  | $ | 1.53 | 
|Options exercised                                     |  |               |           |                     |        |  | (14,214          | )              |  | $ | 1.42 | 
|Options cancelled                                     |  |               | 1,184,404  |                     |        |  | (1,184,404       | )              |  | $ | 3.94 | 
|                                                      |  |               |            |                     |        |  |                  |                | 
|Balance at December 31, 2002                          |  |               | 1,612,801  |                     |        |  | 3,173,982        |                |  | $ | 4.08 | 
|                                                      |  |               |            |                     |        |  |                  |                | 
|Additional authorized                                 |  |               | 300,000    |                     |        |  |                 |                |  |   |     | 
|Stock issued                                          |  |               | (44,558    | )                   |        |  |                 |                |  |   |     | 
|Expiration of options under 1984 Plan and Sinper Plan |  |               | (12,580    | )                   |        |  |                 |                |  |   |     | 
|Options granted                                       |  |               | (1,620,900 | )                   |        |  | 1,620,900        |                |  | $ | 1.80 | 
|Options exercised                                     |  |               |           |                     |        |  | (269,424         | )              |  | $ | 1.46 | 
|Options cancelled                                     |  |               | 834,418    |                     |        |  | (834,418         | )              |  | $ | 3.31 | 
|Shares repurchased (treasury stock, at cost)          |  |               | 51,429     |                     |        |  |                 |                |  | $ |     | 
|                                                      |  |               |            |                     |        |  |                  |                | 
|Balance at December 31, 2003                          |  |               | 1,120,610  |                     |        |  | 3,691,040        |                |  | $ | 3.44 | 
|                                                      |  |               |            |                     |        |  |                  |                | 
|Additional authorized                                 |  |               | 1,000,000  |                     |        |  |                 |                |  |   |     | 
|Stock issued                                          |  |               | (17,094    | )                   |        |  |                 |                |  |   |     | 
|Expiration of options                                 |  |               | (906,178   | )                   |        |  |                 |                |  |   |     | 
|Options granted                                       |  |               | (1,125,500 | )                   |        |  | 1,125,500        |                |  | $ | 4.08 | 
|Options exercised                                     |  |               |           |                     |        |  | (617,915         | )              |  | $ | 2.64 | 
|Options cancelled                                     |  |               | 712,510    |                     |        |  | (712,510         | )              |  | $ | 7.50 | 
|                                                      |  |               |            |                     |        |  |                  |                | 
|Balance at December 31, 2004                          |  |               | 784,348    |                     |        |  | 3,486,115        |                |  | $ | 2.96 | 
|                                                      |  |               |            |                     |        |  |                  |                | 



|                         |  |                     |           |                  |                     |  |     |                  |  |   |             |  |  |                  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ---------------- | ------------------- |  | --- | ---------------- |  | - | ----------- |  |  | ---------------- | --------- |  |  | - | ----- | 
|                         |  | Options Outstanding |           |                  | Options Exercisable | 
|                         |  |                     |           |                  |                     | 
|                         |  |                     |           | Weighted Average |                     |  |     |                  | 
|                         |  | Number              |           |                  | Remaining           |  |     | Weighted Average |  |   | Number      |  |  | Weighted Average |          
|Range of Exercise Prices |  | Outstanding         |           |                  | Contractual Life    |  |     | Exercise Prices  |  |   | Exercisable |  |  | Exercise Prices  |          
|                         |  |                     |           |                  |                     |  |     |                  |  |   |             |  |  |                  |          
|$ .61-$  .99             |  |                     | 9,125     |                  |                     |  | 3.8 |                  |  | $ | 0.82        |  |  |                  | 6,375     |  |  | $ | 0.83  | 
|$1.00-$ 1.65             |  |                     | 1,215,821 |                  |                     |  | 4.8 |                  |  | $ | 1.51        |  |  |                  | 584,419   |  |  | $ | 1.46  | 
|$1.66-$ 2.95             |  |                     | 887,787   |                  |                     |  | 4.9 |                  |  | $ | 2.07        |  |  |                  | 315,945   |  |  | $ | 2.03  | 
|$2.96-$ 4.88             |  |                     | 1,171,237 |                  |                     |  | 6.7 |                  |  | $ | 4.18        |  |  |                  | 241,166   |  |  | $ | 4.13  | 
|$4.89-$ 9.81             |  |                     | 131,445   |                  |                     |  | 1.9 |                  |  | $ | 5.71        |  |  |                  | 122,632   |  |  | $ | 5.76  | 
|$9.82-$18.06             |  |                     | 70,700    |                  |                     |  | 2.0 |                  |  | $ | 14.22       |  |  |                  | 70,700    |  |  | $ | 14.22 | 
|                         |  |                     |           |                  |                     |  |     |                  |  |   |             |  |  |                  |          
|                         |  |                     | 3,486,115 |                  |                     |  | 5.3 |                  |  | $ | 2.96        |  |  |                  | 1,341,237 |  |  | $ | 3.14  | 
|                         |  |                     |           |                  |                     |  |     |                  |  |   |             |  |  |                  |          

54



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                             
| | ----------------------------
| | Employee Stock Purchase Plan





| |                                                    
| | ---------------------------------------------------
| | Notes Receivable from Stock Purchase
    Agreements



55



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                      
|-- | ---------------------
|7. | EMPLOYEE BENEFIT PLAN





|   |                                                  
|-- | -------------------------------------------------
|8. | MAJOR CUSTOMER AND GEOGRAPHIC SEGMENT INFORMATION





|                                   |                                          |      |   |        |      |  |   |        |  |  |   |        | 
|---------------------------------- | ---------------------------------------- | ---- | - | ------ | ---- |  | - | ------ |  |  | - | ------ | 
|Geographic Segment Information     |                                          | 2004 |   |        | 2003 |  |   | 2002   | 
|                                   |                                          |      |   |        |      |  |   |        | 
|Revenue from continuing operations |                                          |      |   |        |      |  |   |        |  |  |   |       
|                                   | United States                            |      | $ | 10,764 |      |  | $ | 8,991  |  |  | $ | 15,078 | 
|                                   | Europe                                   |      |   | 15,334 |      |  |   | 13,062 |  |  |   | 17,055 | 
|                                   | Pacific Rim                              |      |   | 4,817  |      |  |   | 5,302  |  |  |   | 4,463  | 
|                                   |                                          |      |   |        |      |  |   |        | 
|                                   | Total revenue from continuing operations |      | $ | 30,915 |      |  | $ | 27,355 |  |  | $ | 36,596 | 
|                                   |                                          |      |   |        |      |  |   |        | 



|                            |  |                      |     |  |               |   |     |        |  |   |             |  |  |   |    | 
|--------------------------- |  | -------------------- | --- |  | ------------- | - | --- | ------ |  | - | ----------- |  |  | - | -- | 
|                            |  | At December 31, 2004 |    
|                            |  |                      |    
|                            |  | Total                |     |  | United States |   |     | Europe |  |   | Pacific Rim | 
|                            |  |                      |     |  |               |   |     |        |  |   |             | 
|Property and equipment, net |  | $                    | 580 |  |               | $ | 432 |        |  | $ | 137         |  |  | $ | 11 | 
|Other assets                |  |                      | 687 |  |               |   | 6   |        |  |   | 681         |  |  |   |   | 

|                            |  |                      |     |  |               |   |     |        |  |   |             |  |  |   |    | 
|--------------------------- |  | -------------------- | --- |  | ------------- | - | --- | ------ |  | - | ----------- |  |  | - | -- | 
|                            |  | At December 31, 2003 |    
|                            |  |                      |    
|                            |  | Total                |     |  | United States |   |     | Europe |  |   | Pacific Rim | 
|                            |  |                      |     |  |               |   |     |        |  |   |             | 
|Property and equipment, net |  | $                    | 973 |  |               | $ | 773 |        |  | $ | 177         |  |  | $ | 23 | 
|Other assets                |  |                      | 843 |  |               |   | 228 |        |  |   | 615         |  |  |   |   | 



|   |            
|-- | -----------
|9. | ACQUISITION



56



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                       
|--- | ----------------------
|10. | BANK CREDIT FACILITIES





|    |                     
|--- | --------------------
|11. | SALE OF SUBSIDIARIES







|    |                                   
|--- | ----------------------------------
|12. | NET GAIN FROM SALE OF CRM BUSINESS







57



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|    |                       
|--- | ----------------------
|13. | RESTRUCTURING EXPENSES









58



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                          |  |            |   |               |  |   |           |            |              |      |         |  |            |              |            |            |              |   |         |   |  |   |            |   |  |   |   | 
|------------------------- |  | ---------- | - | ------------- |  | - | --------- | ---------- | ------------ | ---- | ------- |  | ---------- | ------------ | ---------- | ---------- | ------------ | - | ------- | - |  | - | ---------- | - |  | - | - | 
|                          |  | Balance at |   |               |  |   |           | Balance at |              |      |         |  |            |              | Balance at
|                          |  | January 1, |   | Restructuring |  |   |           |            | December 31, |      |         |  |            | Payments and |            |            | December 31,
|                          |  | 2003       |   | Expenses      |  |   | Reclass   |            |              | 2003 |         |  | Adjustment |              |            | Write-Offs |              |   | 2004   
|                          |  |            |   |               |  |   |           |            |              |      |         |  |            |              |            |            |              |   |        
|Facility exit costs       |  | $          |  |               |  | $ | 2,888,000 |            |              | $    | 162,000 |  |            | $            | 3,050,000  |            |              | $ |        |   |  | $ | (3,050,000 | ) |  | $ |  | 
|Professional service fees |  |            |  |               |  |   | 350,000   |            |              |      |        |  |            |              | 350,000    |            |              |   | (27,000 | ) |  |   | (323,000   | ) |  |   |  | 
|                          |  |            |   |               |  |   |           |            |              |      |         |  |            |              |            |            |              |   |         |   | 
|Total                     |  | $          |  |               |  | $ | 3,238,000 |            |              | $    | 162,000 |  |            | $            | 3,400,000  |            |              | $ | (27,000 | ) |  | $ | (3,373,000 | ) |  | $ |  | 
|                          |  |            |   |               |  |   |           |            |              |      |         |  |            |              |            |            |              |   |         |   | 





|                    |  |              |   |               |  |   |          |            |              |      |          |   |  |   |         | 
|------------------- |  | ------------ | - | ------------- |  | - | -------- | ---------- | ------------ | ---- | -------- | - |  | - | ------- | 
|                    |  | Balance at   |   |               |  |   |          | Balance at |             
|                    |  | December 31, |   | Restructuring |  |   |          |            | December 31, |     
|                    |  | 2003         |   | Expenses      |  |   | Payments |            |              | 2004 |         
|                    |  |              |   |               |  |   |          |            |              |      |         
|Facility exit costs |  | $            |  |               |  | $ | 467,000  |            |              | $    | (94,000  | ) |  | $ | 373,000 | 
|Other direct costs  |  |              |  |               |  |   | 137,000  |            |              |      | (137,000 | ) |  |   |        | 
|                    |  |              |   |               |  |   |          |            |              |      |          |  
|Total               |  | $            |  |               |  | $ | 604,000  |            |              | $    | (231,000 | ) |  | $ | 373,000 | 
|                    |  |              |   |               |  |   |          |            |              |      |          |  



|    |                           
|--- | --------------------------
|14. | RELATED PARTY TRANSACTIONS









59



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                 
|--- | --------------------------------
|15. | NON-RECOURSE SALE OF RECEIVABLES





|    |                            
|--- | ---------------------------
|16. | EXECUTIVE TERMINATION COSTS







|    |                              
|--- | -----------------------------
|17. | COMMITMENTS AND CONTINGENCIES



| |              
| | -------------
| | Contingencies







60



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                 
| | ----------------
| | Indemnifications







61



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |            
| | -----------
| | Commitments



|                             |  |                  |       | 
|---------------------------- |  | ---------------- | ----- | 
|                             |  | Operating Leases |      
|                             |  |                  |      
|                             |  | (In thousands)   |      
|2005                         |  | $                | 1,220 | 
|2006                         |  |                  | 972   | 
|2007                         |  |                  | 883   | 
|2008                         |  |                  | 905   | 
|2009                         |  |                  | 903   | 
|2010 and after               |  |                  | 714   | 
|                             |  |                  |      
|Total minimum lease payments |  | $                | 5,597 | 
|                             |  |                  |      



62



---



##### Table of Contents






EXHIBIT INDEX


| |    |          |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
| | -- | -------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2  | .1(1)    |  |  |  | Asset Purchase Agreement, dated January 21, 2003, by and
    between iET Acquisition, LLC and the Registrant.                                                                                                                                                                                                                                                 
|
| | 3  | .1(2)    |  |  |  | Restated Articles of Organization.                                                                                                                                                                                                                                                                                                                            
|
| | 3  | .2       |  |  |  | Amended and Restated By-laws.                                                                                                                                                                                                                                                                                                                                 
|
| | 4  | .1(3)    |  |  |  | Form of Rights Agreement, dated as of September 18, 2000,
    between the Registrant 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.
|
| | 4  | .2(10)   |  |  |  | First Amendment to Form of Rights Agreement, dated
    February 27, 2004, between the Registrant and American
    Stock Transfer & Trust Company.                                                                                                                                                                                                             
|
| | 10 | .1(4)   |  |  |  | Applix, Inc. 1994 Equity Incentive Plan, as amended.                                                                                                                                                                                                                                                                                                          
|
| | 10 | .2(2)   |  |  |  | Applix, Inc. 1984 Stock Option Plan.                                                                                                                                                                                                                                                                                                                          
|
| | 10 | .3(5)   |  |  |  | Applix, Inc. 2000 Director Stock Option Plan, as amended.                                                                                                                                                                                                                                                                                                     
|
| | 10 | .4(6)   |  |  |  | Applix, Inc. 2001 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                                               
|
| | 10 | .5(7)    |  |  |  | Single Tenant Commercial Lease by and between Westborough Land
    Realty Trust and the Registrant, dated January 23, 2001.                                                                                                                                                                                                                                   
|
| | 10 | .6(14)   |  |  |  | Letter of Intent Single Tenant Commercial Lease by and between
    Westborough Land Realty Trust and the Registrant, dated
    December 12, 2003.                                                                                                                                                                                                             
|
| | 10 | .7(14)   |  |  |  | First Amendment of Single Tenant Commercial Lease by and between
    Westborough Land Realty Trust and the Registrant dated
    December 31, 2003.                                                                                                                                                                                                            
|
| | 10 | .8(14)   |  |  |  | Second Amendment of Single Tenant Commercial Lease by and
    between Westborough Land Realty Trust and the Registrant dated
    January 22, 2004.                                                                                                                                                                                                            
|
| | 10 | .9(11)  |  |  |  | Severance Agreement, dated February 27, 2003, between the
    Registrant and Alan Goldsworthy.                                                                                                                                                                                                                                                                
|
| | 10 | .10(6)  |  |  |  | Executive Stock Option Acceleration Agreement between the
    Registrant and Craig Cervo, dated June 9, 2000.                                                                                                                                                                                                                                                 
|
| | 10 | .11(12) |  |  |  | Executive Change-in-Control Agreement between the Registrant and
    Craig Cervo, dated April 9, 2003.                                                                                                                                                                                                                                                        
|
| | 10 | .12(13) |  |  |  | Retention Agreement between the Registrant and David C. Mahoney,
    dated May 1, 2003.                                                                                                                                                                                                                                                                       
|
| | 10 | .13(13) |  |  |  | Retention Agreement between the Registrant and Milton A. Alpern,
    dated June 16, 2003.                                                                                                                                                                                                                                                                     
|
| | 10 | .14(14)  |  |  |  | Purchase Agreement by and between Brad Fire and the Registrant,
    dated February 27, 2004.                                                                                                                                                                                                                                                                  
|
| | 10 | .15(14)  |  |  |  | Purchase Agreement by and between Jeffrey A. Dryer and the
    Registrant, dated February 27, 2004.                                                                                                                                                                                                                                                           
|
| | 10 | .16(14)  |  |  |  | Loan and Security Agreement, dated March 19, 2004 between
    the Registrant and Silicon Valley Bank.                                                                                                                                                                                                                                                         
|
| | 10 | .17(9)  |  |  |  | Applix, Inc. 2003 Director Equity Plan.                                                                                                                                                                                                                                                                                                                       

63



---



##### Table of Contents



| |    |          |  |   |  |                                                                                                                                                                                    
| | -- | -------- |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10 | .18(15) |  |  |  | Retention Agreement between the Registrant and Michael Morrison,
    dated as of June 1, 2004.                                                                                     
|
| | 10 | .19(15) |  |  |  | Applix, Inc. 2004 Equity Incentive Plan.                                                                                                                                           
|
| | 10 | .20(15) |  |  |  | Form of Incentive Stock Option Agreement for the 2004 Equity
    Incentive Plan.                                                                                                   
|
| | 10 | .21(15) |  |  |  | Form of Nonstatutory Stock Option Agreement for the 2004 Equity
    Incentive Plan.                                                                                                
|
| | 10 | .22(16) |  |  |  | Summary of 2004 Management Incentive Compensation Plan.                                                                                                                            
|
| | 10 | .23(16) |  |  |  | Form of Stock Option Agreement for 2003 Director Equity
    Plan.                                                                                                                  
|
| | 10 | .24     |  |  |  | Summary of Compensation Policy for Directors of Applix, Inc.                                                                                                                       
|
| | 21 | .1       |  |  |  | Subsidiaries of the Registrant.                                                                                                                                                    
|
| | 23 | .1       |  |  |  | Consent of Independent Registered Public Accounting Firm,
    Deloitte & Touche LLP.                                                                                               
|
| | 23 | .2       |  |  |  | Consent of Independent Registered Public Accounting Firm,
    Ernst & Young LLP.                                                                                                   
|
| | 31 | .1       |  |  |  | Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of
    the Exchange Act, as Adopted Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
|
| | 31 | .2       |  |  |  | Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of
    the Exchange Act, as Adopted Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
|
| | 32 | .1       |  |  |  | Certification Pursuant to 18 U.S.C. Section 1350
    (Chief Executive Officer).                                                                                                    
|
| | 32 | .2       |  |  |  | Certification Pursuant to 18 U.S.C. Section 1350
    (Chief Financial Officer).                                                                                                    






|   |                                                                                                                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | Incorporated by reference from the Registrants Current
    Report on Form 8-K, as filed with the Commission on
    February 5, 2003.                                                                            
|  
|2. | Incorporated by reference from the Registrants
    Registration Statement on Form S-1 (File No. 33-85688).                                                                                                      
|  
|3. | Incorporated by reference to the Registrants Registration
    Statement on Form 8-A dated September 20, 2000.                                                                                                   
|  
|4. | Incorporated by reference to the Registrants Proxy
    Statement on Schedule 14A, as filed with the Commission on
    April 3, 2001.                                                                            
|  
|5. | Incorporated by reference to the Registrants Report on
    Form 10-Q for the fiscal quarter ended June 30, 2002,
    as filed with the Commission on August 14, 2002.                                           
|  
|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 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.
|  
|8. | Incorporated by reference to the Registrants Report on
    Form 10-K for the fiscal year ended December 31, 2001,
    as originally filed with the Commission on April 1, 2002.                                 
|  
|9. | Incorporated by reference to the Registrants Proxy
    Statement on Schedule 14A, as filed with the Commission on
    April 30, 2003.                                                                           



|    |                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. | Incorporated by reference to the Registrants Current
    Report on Form 8-K/ A, as filed with the Commission on
    March 4, 2004.                                                         
|   
|11. | Incorporated by reference to the Registrants Annual Report
    on Form 10-K for the fiscal year ended December 31,
    2002, as originally filed with the Commission on March 31,
    2003.
|   
|12. | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    March 31, 2003, as filed with the Commission on
    May 15, 2003.          
|   
|13. | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    June 30, 2003, as filed with the Commission on
    August 14, 2003.        

64



---



##### Table of Contents





|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|14. | Incorporated by reference to the Registrants Annual Report
    on Form 10-K for the fiscal year ended December 31,
    2003, as filed with the Commission on March 30, 2004.              
|   
|15. | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    June 30, 2004, as filed with the Commission on
    August 13, 2004.       
|   
|16. | Incorporated by reference to the Registrants Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    September 30, 2004, as filed with the Commission on
    November 15, 2004.



|  |                                          
|- | -----------------------------------------
| | Management contract or compensatory plan.

65