##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

FORM 10-K

For Annual and Transitional Reports Pursuant to Sections 13
or 15(d)



|  |  |                                                                                                 
|- |  | ------------------------------------------------------------------------------------------------
|x |  | Annual Report Pursuant to Section 13 or
    15(d)
    of the Securities Exchange Act of 1934    
| 
|  |  | For the fiscal year ended December 31, 2002                                                     
| 
|o |  | Transition Report Pursuant to Section 13
    or 15(d)
    of the Securities Exchange Act of 1934

Commission File No. 0-25040

APPLIX, INC.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Massachusetts                                                      |  | 04-2781676                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|289 Turnpike Road, Westborough,
    Massachusetts                  |  | 01581-2831                              
|(Address of principal executive offices)                           |  | (Zip Code)                              

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

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

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

Common Stock, $.0025 par value per share

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

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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Securities Exchange Act of
1934).     Yes o          No x

The aggregate market value of Common Stock held
by non-affiliates of the registrant was 18,909,527 based on the
closing price of the Common Stock on the Nasdaq National Market
on June 28, 2002.

The number of shares of Common Stock outstanding
as of March 21, 2003 was 12,516,235.

Documents Incorporated By Reference

|                                                                                                                                                                          |  |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------
|Document Part                                                                                                                                                             |  | Form 10-K
|                                                                                                                                                                          |  |          
|Definitive Proxy Statement with respect to the
    Annual Meeting of Stockholders to be held on June 12, 2003
    to be filed with the Securities and Exchange Commission |  | Part III 



---

TABLE OF CONTENTS



|                                                 |                                                                                                         |  |  |  |  |  |  | 
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                          
|                                                 | Item 1. Business                                                                                       
|                                                 | Item 2. Properties                                                                                     
|                                                 | Item 3. Legal Proceedings                                                                              
|                                                 | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II                                         
|                                                 | Item 5. Market for Registrants Common Stock and Related Stockholder Matters                           
|                                                 | Item 6. Selected Financial Data                                                                        
|                                                 | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                                 | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                    
|                                                 | Item 8. Financial Statements and Supplementary Data                                                    
|                                                 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III                                        
|                                                 | Item 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. Controls and Procedures                                                                       
|PART IV                                         
|                                                 | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                              
|SIGNATURES                                      
|CERTIFICATIONS                                  
|EXHIBIT INDEX                                   
|EX-10.7 Consulting Agreement                    
|EX-10.8 Severance Agreement                     
|EX-21.1 Subsidiaries of the Registrant          
|EX-23.1 Consent of Ernst & Young LLP            
|EX-23.2 Consent of PricewaterhouseCoopers LLP   
|EX-99.1 Certification of Chief Executive Officer
|EX-99.2 Certification of Chief Financial Officer



---



##### Table of Contents



APPLIX, INC.

FORM 10-K

TABLE OF CONTENTS

|         |  |                                                                                                    |  |      |    | 
|-------- |  | -------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                                    |  | Page
|         |  |                                                                                                    |  |     
|PART I  
|        
|Item 1.  |  | Business                                                                                           |  |      | 2  | 
|Item 2.  |  | Properties                                                                                         |  |      | 7  | 
|Item 3.  |  | Legal Proceedings                                                                                  |  |      | 7  | 
|Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                            |  |      | 7  | 
|PART II 
|        
|Item 5.  |  | Market for the Registrants Common Equity
    and Related Stockholder Matters                      |  |      | 8  | 
|Item 6.  |  | Selected Financial Data                                                                            |  |      | 9  | 
|Item 7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |  |      | 9  | 
|Item 7A. |  | Quantitative and Qualitative Disclosures about
    Market Risk                                     |  |      | 28 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                                        |  |      | 29 | 
|Item 9.  |  | Changes in and Disagreements with Accountants on
    Accounting and Financial
    Disclosure       |  |      | 29 | 
|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 | 
|PART IV 
|        
|Item 14. |  | Controls and Procedures                                                                            |  |      | 30 | 
|Item 15. |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                               |  |      | 30 | 

Applix TM1, Applix Integra, Applix Interactive
Planning, and Applix Service Analytics are trademarks of Applix,
Inc. All other trademarks and company names mentioned are the
property of their respective owners. All rights reserved.

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

1



---



##### Table of Contents






PART I




Item 1.     Business

General

Applix, Inc. (Applix or the
Company) is a global provider of business
intelligence (BI) and business performance
management (BPM) solutions, focused on interactive
planning, budgeting and analytics. These solutions enable
customers to continuously manage and monitor performance across
financial, operational, customer and organizational functions
within the enterprise. More than 1,600 customers worldwide,
including many Fortune 100 companies, use Applixs
adaptable, scalable and real-time solutions to manage their
business performance and respond to the marketplace in real
time. Incorporated in 1983 and headquartered in Westborough, MA,
Applix maintains offices in North America, the U.K., Germany and
the Pacific Rim.

Historically, Applix also provided customer
relationship management (CRM) solutions. In January 2003,
Applix sold its CRM business to an affiliate of Platinum Equity,
LLC in order to focus all of its resources on its core business
in the BI and emerging BPM markets.

In 2002, Applix was honored with several
prestigious awards for its leading-edge technologies, including
The DM Review 100 Award as a leading provider of
business intelligence and analytics applications.

Industry Background

The harsh economy of recent years has forced
companies to adopt rigorous methods for assessing the impact
that any future investments would have on their business. With
reduced resources, many enterprises are pressed to make
difficult decisions as to where to increase and decrease
spending in their businesses. Although many companies are
focused on incremental investments in IT projects and reductions
in plans for cutting-edge technologies and large infrastructure
initiatives. However, analysts predict that the BI and BPM
markets will be among the few growth markets in 2003.

The business intelligence market is a large and
well-established market focused on leveraging the data collected
in operational systems throughout an organization. BI is
associated with the data warehousing market and involves the
analysis of large amounts of historical data. The historical
data is aggregated before it is analyzed and this aggregation
process frequently requires several hours or days before any
analyses can be performed. Often, the analyses are performed by
a few highly trained individuals within an organization.

The business performance management market is an
emerging market that extends the capabilities of business
intelligence solutions. BPM solutions tend to focus on
proactive, rather than reactive, historical analyses and they
rely on recently updated or real-time data feeds. BPM solutions
also tend to involve data from across an organization and
involve more diverse groups of users than do BI solutions.
According to the Gartner Group, as of October 2002, there were
no clear leaders in this market segment. Gartner also predicted
that two categories of vendors will have the best chance for
success in this emerging market: enterprise resource
planning (ERP) vendors and BI vendors.

Factors driving the growth in the need for BI and
BPM solutions include increasingly fierce business competition,
the need for financial transparency across the enterprise, the
rapid explosion of data, and more decentralized decision-making.
In November 2002, Gartner Group published results of its survey
of corporations relating to the BI market. Over 62% of the
respondents expected to increase their BI spending in 2003.
While Gartner expected less than 10% of enterprises to have
implemented corporate performance management solutions
(Gartners term for BPM) by the end of 2002, they expect
40% of them to adopt such solutions by 2005. According to a
January 2003 report by AMR Research, enterprise performance
management (AMRs term for BPM) spending is expected to be
strong, supporting market growth of approximately 23%. By 2006,
this market is predicted to grow to $12.2 billion annually,
from $5.6 billion estimated in 2001. In a 2002 study of
chief financial officers, CFO Research Services, in conjunction
with

2



---



##### Table of Contents



Cap Gemini Ernst & Young, stated that
While a great majority of respondents (81%) said that
accurate earnings and revenue forecasting is a high priority,
63% are saddled with inadequate, non- or partially-integrated
budgeting, forecasting, and decision support systems.


These strong projected growth rates validate
Applixs conviction that in todays competitive
corporate marketplace, companies can no longer succeed by solely
automatingtheir day-to-day transactions. Companies must
also incorporate analytic processes into their daily operations
to monitor and react to key business performance metrics such as
customer retention and product profitability.

Applix TM1 has over 15 years of success
in the BI market. Applix is also well positioned to deliver BPM
solutions, as evidenced by the growing number of customers who
have selected Applix software solutions to maximize business
performance. In 2002, more than 200 new customers selected
Applix BI and BPM products, and revenues for those products
increased by 12% over 2001.

Applix Products

The Applix product family helps customers
automate, analyze and optimize their operational and analytical
business processes throughout their extended enterprises. The
Applix product family consists of the platforms Applix TM1
and Applix Integra and the applications Applix Interactive
Planning and Applix Service Analytics. The Applix family of
products enable solutions including:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | sales analysis, product profitability, customer
    profitability and personnel planning applications,
|
| |  | interactive planning, budgeting, and forecasting
    applications, and                                
|
| |  | analytics, to manage and analyze all aspects of
    Service Desk and Help Desk operations.            

In October 2002, Applix introduced Applix
Integra, which combined the Companys application
development platform with Applix TM1, to provide
enterprise-wide workflow within a web enabled business planning
solution. Applix Integra strengthens Applix TM1, enabling
analytics solutions for both the back-and front office. Applix
Interactive Planning and Applix Service Analytics applications,
which are based on the Applix TM1 and Applix Integra
platforms, were released in October 2002 and December 2002,
respectively.

The Applix product family represents one
principal business segment.

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

Applix and its partners also deliver standardized
template solutions, customer-specific applications for planning
and customer interaction applications for specific vertical
markets. Modifiable template solutions enable customer
requirements to be met quickly while retaining the high level of
flexibility for which Applix products are renowned.



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

Applixs leading revenue product,
Applix TM1, an on-line analytical processing (OLAP)
engine, helps improve business performance by enabling
effective, real-time decision making at all organization levels.
Applix TM1 provides consistent reporting and analysis of
data captured from across the extended enterprise.

Applix TM1s unique real-time approach to
consolidating, viewing and even editing large volumes of
multidimensional data is an undisputable differentiator in the
OLAP market. With over 40,000 users, including many
Fortune 100 companies, Applix TM1 has been one of the
leading multi-dimensional databases for highly complex business
and financial analytical applications for over fifteen years.

3



---



##### Table of Contents



Applix TM1 solutions expand the scope of
business planning processes to support continuously changing
customer demands, operational requirements and evolving
application needs in the new economy. It also allows for the
quick and effortless integration of information from enterprise
resource planning (ERP), financial systems, CRM, human
resources, and other legacy databases in order to
allow a business to run according to its supply of resources and
its customer demand.

Applix TM1 allows business users to access
their critical data via Microsoft Excel, a Microsoft Windows
client or the world wide web using Applix Integra technology and
a browser. With its powerful client-server database engine and
an elegant, easy-to-use interface, users are able to spend more
time analyzing information and less time maintaining data.

Applix TM1 provides the following benefits:



| |   |                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Instantaneous 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 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.                                                               
|
| |  | 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 customers data, it requires much less
    hardware and processing power than other products, which suffer
    from a common data explosion predicament.                 
|
| |  | Rapid deployment:Applix TM1 typically builds
    complete applications for customers in a fraction of the time
    required by competing products.                                                                                                                   
|
| |  | Familiar spreadsheet
    interface:Users access
    Applix TM1 features and capabilities directly from the
    familiar environment of Microsoft Excel.                                                                                                              



| |               
| | --------------
| | Applix Integra

Applix Integra integrates real-time planning,
analytics, business workflow, collaboration, exception alerting
and forecasting functions. Applix Integra enables businesses to
set their key performance indicators, plan and budget, and
manage performance with all the planners in the business
function. The flexible modeling within Applix TM1, which is
incorporated in Applix Integra, also supports
organizations complex and changing business models, a key
demand in todays mercurial business environment.

Applix Integras benefits include:



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

4



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Integrated application and deployment
    platform.Applix Integra blends the
    best of the Companys application development platform and
    the Applix TM1 platform, which means a business can easily
    develop and deploy Applix Integra solutions. Using Applix
    Integras XML-compliant development environment, a company
    can develop complex solutions with simple drag-and-drop objects.

Technology Platforms

Applix products owe their adaptability to the
robust platforms that power them. All of Applixs software
solutions are based on the Applix TM1 and Applix Integra
technology platforms.

The Applix TM1 technology platform provides
64-bit OLAP technology to analyze large and increasing volumes
of multi-dimensional data. Applix TM1 includes a
multi-tier, highly scalable engine, whose efficient, in-memory
methods for building multidimensional cubes and calculating
their values are fully leveraged by Applix TM1 software
solutions. Its flexible, scalable products  designed
to adapt to companies unique and competitive business
processes  provide analysis, planning, measurement
and response to changing customer requirements and business
dynamics, all in real time.

The Applix Integra technology platform provides a
multi-tier, highly scalable architecture featuring an
XML-compliant development environment named
Developers Studio, a central data schema, a
wizard-driven business rule generator, and other tools that
drive application development.

By integrating Applix BPM solutions with Applix
Integras solid, full-featured technology platform, Applix
is able to adapt its software to customers needs, rather
than forcing customers to compromise their business processes by
adapting to the software.

Marketing and Sales

The Company focuses its marketing efforts on
companies committed to improving business analytics at the
departmental level and business performance management at the
company-wide level. The Company markets its products to the
financial services, banking, healthcare, pharmaceuticals,
telecommunications, manufacturing, and consumer packaged goods
industries. The Company believes that these industry sectors
are, and will continue to be, some of the fastest growing
sectors for its products. A key part of the Companys
marketing strategy is an emphasis on its high-performance
Applix TM1 OLAP engine for financial modeling, real-time
calculations, and continuous planning; the rapid deployment of
its products; the lower total cost of ownership of its
solutions; and the Companys fully integrated applications.

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

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

Customer Training, Maintenance Support, and
Professional Services

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

5



---



##### Table of Contents



house consultants, the Company works closely with
partner organizations to provide additional resources and domain
expertise.


The Companys in-house consultants assist in
the sales process by working directly with potential customers,
educating them as to the benefits of the Companys
products. In addition, the Companys consultants work
directly with customer personnel in both information technology
departments and in the functional areas relevant to the
application, to assist them in the planning and deploying of
Applix solutions.

Customers may elect to purchase a maintenance
support plan for an annual fee that is generally 18% of the list
license fee for covered products. Included in the maintenance
support plans are product upgrades and interim fixes to reported
problems. Maintenance support plan revenues accounted for
approximately 71% of the Companys professional services
and maintenance revenue in 2002 compared to approximately 59% of
professional services and maintenance revenue in 2001. In 2002,
86% of Applix customers elected to renew their maintenance
agreements.

Product Development

The Company believes strongly that the path to
success is predicated upon constantly being at the forefront of
technology and product innovation. With a strong commitment to
the future, Applix has continued its long history of investing
in product research and development. In 2002, Applix invested
approximately $7.3 million, or 20% of total revenues, in
product research and development (including capitalized software
costs).

Competition

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

The markets for the Companys products are
highly competitive and subject to rapid change.

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

Many of the Companys competitors have
significantly greater financial, technological, and marketing
resources than the Company. No assurance can be given that the
Company will be able to compete successfully against current and
future competition or that the competitive pressures faced by
the Company will not adversely affect its financial performance.

Proprietary Rights

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

6



---



##### Table of Contents



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

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

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

Employees

As of March 28, 2003, the Company had 142
total employees. Domestically, the Company had
91 employees, which include 31 employees in product
research and development, 27 employees in sales and
marketing, 14 employees in professional services,
5 employees in information systems, and 14 employees
in finance, operation, administration and facilities.
Internationally, the Company had 51 employees, which
includes 32 employees in sales and marketing,
17 employees in professional services and 2 in finance.
None of the Companys employees are represented by a labor
union, and the Company believes that its employee relations are
good.




Item 2.     Properties

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




Item 3.     Legal
Proceedings

Not applicable.




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

Not applicable.

Executive Officers of the
Registrant

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

|                 |  |     |    |          |  |                                      
|---------------- |  | --- | -- | -------- |  | -------------------------------------
|Name             |  | Age |    | Position
|                 |  |     |    |         
|David C. Mahoney |  |     | 58 |          |  | President and Chief Executive Officer
|Walt Hilger      |  |     | 37 |          |  | Chief Financial Officer and Treasurer
|Craig Cervo      |  |     | 55 |          |  | Chief Technology Officer             

7



---



##### Table of Contents



Mr. Mahoney was elected interim President
and Chief Executive Officer of Applix on February 27, 2003.
Mr. Mahoney has also been a director of the Company since
October 1992. Mr. Mahoney served as Chief Executive Officer
of Verbind, Inc., a provider of real-time behavioral analysis
and event triggering technology, from May 2001 until February
2003. Prior to joining Verbind, Mr. Mahoney served as
Chairman of the Board of Directors of LeadingSide, Inc.
(formerly Dataware Technologies, Incorporated), an e-business
solutions provider, from February 2000 to May 2001, and
President and Chief Executive Officer of LeadingSide from
January 1999 to February 2000. LeadingSide filed for bankruptcy
protection in April 2001. Mr. Mahoney served as President
and Chief Executive Officer of Sovereign Hill Software, Inc., a
collaborative knowledge discovery software provider, from
January 1998 to December 1998, when it merged with Dataware
Technologies. He served as president of Falcon Group Consulting,
a consulting firm, from May 1997 to January 1998.
Mr. Mahoney served as Chairman of the Board and Chief
Executive Officer of ePresence, Inc. (formerly Banyan Systems,
Inc.), a networking software company, from 1983 until May 1997.

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

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

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




PART II




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

The Companys common stock is listed on the
Nasdaq National Market (Nasdaq) under the symbol
APLX. The table below reflects the range of high and
low sales price per share of common stock, as reported on Nasdaq
for the periods indicated.

|               |  |             |        |             |  |      |        |     |  |   |        |  |  |   |        | 
|-------------- |  | ----------- | ------ | ----------- |  | ---- | ------ | --- |  | - | ------ |  |  | - | ------ | 
|               |  |             |        |            
|               |  | Fiscal 2002 |        | Fiscal 2001
|               |  |             |        |            
|Period         |  | High        |        | Low         |  | High |        | Low
|               |  |             |        |             |  |      |        |    
|First Quarter  |  | $           | 2.2500 |             |  | $    | 1.2900 |     |  | $ | 6.0000 |  |  | $ | 2.1300 | 
|Second Quarter |  | $           | 2.1400 |             |  | $    | 1.4000 |     |  | $ | 2.8800 |  |  | $ | 1.5900 | 
|Third Quarter  |  | $           | 1.7900 |             |  | $    | 0.9400 |     |  | $ | 1.9900 |  |  | $ | 0.6400 | 
|Fourth Quarter |  | $           | 1.5000 |             |  | $    | 0.9000 |     |  | $ | 2.0000 |  |  | $ | 0.4300 | 

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

The approximate number of holders of record of
the Companys common stock on March 18, 2003 was 193.
This number does not include shareholders for whom shares are
held in a nominee or street name.

8



---



##### Table of Contents






Item 6.     Selected
Financial Data

|                             |                                                                  |                                       |   |        |   |      |   |         |   |      |   |         |   |  |   |        |   |  |   |         |  
|---------------------------- | ---------------------------------------------------------------- | ------------------------------------- | - | ------ | - | ---- | - | ------- | - | ---- | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                             |                                                                  | 2002                                  |   | 2001   |   | 2000 |   | 1999    |   | 1998
|                             |                                                                  |                                       |   |        |   |      |   |         |   |     
|                             |                                                                  |                                      
|                             |                                                                  | (In thousands, except per share data)
|Statement of Operations Data |                                                                  |                                       |   |        |   |      |   |         |   |      |   |         |   |  |   |        |   |  |   |        
|                             | Total revenues                                                   |                                       | $ | 36,596 |   |      | $ | 39,405  |   |      | $ | 40,239  |   |  | $ | 36,871 |   |  | $ | 29,062  |  
|                             | Restructuring and other charges                                  |                                       |   | 381    |   |      |   | 1,700   |   |      |   |        |   |  |   |       |   |  |   |        |  
|                             | Compensation expense and amortization of acquired
    intangible |                                       |   | 2,405  |   |      |   | 186     |   |      |   |        |   |  |   |       |   |  |   |        |  
|                             | Write down of notes receivable                                   |                                       |   | 964    |   |      |   |        |   |      |   |        |   |  |   |       |   |  |   |        |  
|                             | Operating loss                                                   |                                       |   | (5,442 | ) |      |   | (10,355 | ) |      |   | (12,877 | ) |  |   | (7,624 | ) |  |   | (10,901 | )
|                             | Permanent impairment of cost based investment                    |                                       |   |       |   |      |   | (1,250  | ) |      |   |        |   |  |   |       |   |  |   |        |  
|                             | Net loss from continuing operations                              |                                       |   | (5,570 | ) |      |   | (11,873 | ) |      |   | (15,307 | ) |  |   | (4,251 | ) |  |   | (6,259  | )
|                             | Net income (loss)                                                |                                       |   | (5,774 | ) |      |   | (10,792 | ) |      |   | (18,912 | ) |  |   | 2,380  |   |  |   | 1,187   |  
|Per Share Data               |                                                                  |                                       |   |        |   |      |   |         |   |      |   |         |   |  |   |        |   |  |   |        
|                             | Basic and diluted loss per share from continuing
    operation   |                                       | $ | (0.46  | ) |      | $ | (1.00   | ) |      | $ | (1.36   | ) |  | $ | (0.40  | ) |  | $ | (0.61   | )
|                             | Basic and diluted income (loss) per share                        |                                       | $ | (0.47  | ) |      | $ | (0.91   | ) |      | $ | (1.68   | ) |  | $ | 0.22   |   |  | $ | 0.12    |  

|                   |                                                   |                                       |   |        |   |         |   |        |  |      |   |        |  |  |   |        |  |  |   |        | 
|------------------ | ------------------------------------------------- | ------------------------------------- | - | ------ | - | ------- | - | ------ |  | ---- | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                   |                                                   | 2002                                  |   | 2001   |   | 2000(a) |   | 1999   |  | 1998
|                   |                                                   |                                       |   |        |   |         |   |        |  |     
|                   |                                                   |                                      
|                   |                                                   | (In thousands, except per share data)
|Balance Sheet Data |                                                   |                                       |   |        |   |         |   |        |  |      |   |        |  |  |   |        |  |  |   |       
|                   | Cash, cash equivalents and short-term investments |                                       | $ | 8,389  |   |         | $ | 8,228  |  |      | $ | 12,546 |  |  | $ | 25,476 |  |  | $ | 21,445 | 
|                   | Restricted cash                                   |                                       |   | 933    |   |         |   | 1,050  |  |      |   |       |  |  |   |       |  |  |   |       | 
|                   | Working capital (deficit)                         |                                       |   | (2,768 | ) |         |   | 1,356  |  |      |   | 12,113 |  |  |   | 28,455 |  |  |   | 24,866 | 
|                   | Total assets                                      |                                       |   | 23,547 |   |         |   | 24,938 |  |      |   | 33,074 |  |  |   | 54,681 |  |  |   | 45,613 | 
|                   | Long-term debt                                    |                                       |   |       |   |         |   |       |  |      |   |       |  |  |   | 1,080  |  |  |   |       | 
|                   | Total stockholders equity                        |                                       |   | 4,108  |   |         |   | 8,483  |  |      |   | 18,234 |  |  |   | 35,713 |  |  |   | 29,575 | 



---



|    |  |                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|(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

The Company is a global provider of business
intelligence (BI) and business performance management
(BPM) solutions, focused on interactive planning, budgeting
and analytics. Historically, the Company also provided customer
relationship management (CRM) solutions. The Company sold
its CRM business in January 2003. The Companys operating
results reflect the CRM business for all periods presented.

In December 2000, the Company committed to a plan
to dispose of the operations of its VistaSource business. On
March 30, 2001, the Company completed the sale of the
VistaSource business unit to Real Time International, Inc.
(Real-Time), a subsidiary of Parallax Capital
Partners, LLC, for $1,300,000 and a 19% equity interest in
Real-Time. The results of operations including revenue,
operating expenses, other income and expense, and income taxes
of the VistaSource business unit for 2001 and 2000 were
reclassified in the accompanying statements of operations as a
discontinued operation. The Companys balance sheet at
December 31, 2002 reflects no remaining liabilities from
its discontinued operation and its

9



---



##### Table of Contents



balance sheet at December 31, 2001 reflects
the net liabilities of the VistaSource business as net
liabilities of discontinued operation within current
liabilities. The Company recorded a gain of $1,081,000 on the
disposal of the discontinued operations for the year ended
December 31, 2001 due to the actual results of operations
through the date of disposal, changes in the net assets
delivered at closing and changes in estimates of certain
obligations. The Companys results of operations for the
year ended December 31, 2002 included $204,000 in expenses
primarily relating to certain defense costs incurred from a
claim filed against VistaSource (See Note 18) and the
write-down of a receivable owed to the Company by VistaSource.


On March 31, 2001, the Company acquired all
of the outstanding capital stock of Dynamic Decisions Pty
Limited, its primary Australian reseller, to improve its market
presence and increase the Companys sales in the Pac Rim
region, for total cost of approximately $5,867,000 consisting of
$5,640,000 in maximum cash consideration to be paid and
100,000 shares of the Companys common stock which had
a fair market value of $227,000. The acquisition was accounted
for under the purchase method of accounting, and the purchase
price was allocated based on the estimated fair value of the
assets acquired and liabilities assumed. An intangible asset,
acquired customer relationships of $1,500,000, was recorded
based on the fair value of the asset at the time of acquisition
and is being amortized on a straight-line basis over its
estimated useful life of six years. The excess of the purchase
price over the fair value of the net assets acquired of $934,000
was recorded as goodwill. Goodwill is no longer amortized under
the provision of SFAS 142.

Per the terms of the purchase and sale agreement,
total maximum cash consideration relating to the purchase of
Dynamic Decisions was $5,150,000 payable in installments over a
maximum of 30 months beginning on July 1, 2001. During
2001, the Company had paid $1,267,000 of the maximum cash
consideration, which was accounted for as purchase price. The
purchase price exceeded the fair market value of the net assets
purchased due in part to the revenues, profitability and
expected future cash flow from the established customer base. In
addition, the Company made four additional cash payments in 2002
totaling $2,155,000, which have been accounted for as
compensation expense within operating expenses as the payments
were contingent upon the continued employment of two key
executives of Dynamic Decisions. The remaining cash payments of
approximately $2,400,000 will continue to be accounted for as
compensation expense within operating expense as they are
contingent upon the future employment of the two key executives.
The results of operations of Dynamic Decisions are included in
the financial statements from the date of acquisition.

In December 2002, the Company sold the stock of
its Dutch subsidiary, a remote sales office, for $362,000 and
recorded a net gain of $141,000. The transaction included
substantially all of the subsidiarys assets and
liabilities and an amendment to the existing distribution
agreement between the Company and the purchaser to provide the
purchaser the exclusive rights to resell the Companys CRM
products in the Netherlands.

CRITICAL ACCOUNTING POLICIES AND
ESTIMATES

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

10



---



##### Table of Contents



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

Revenue
Recognition

Revenue from software licensing and service fees
is recognized in accordance with Statement of Position
(SOP) 97-2, Software Revenue
Recognition, and SOP 98-9 Software Revenue
Recognition with Respect to Certain Transactions.
Substantially all of the Companys product license revenue
is earned from licenses of off-the-shelf software requiring no
customization. Accordingly, the Company recognizes revenue from
software licensing when all of the following criteria are
met: (1) persuasive evidence of an arrangement exists
via a signed agreement or purchase order; (2) delivery has
occurred including authorization keys; (3) the fee is fixed
or determinable representing amounts that are due
unconditionally with no future obligations under customary
payment terms; and (4) collectibility is probable.

Revenue from consulting and training is
recognized at the time the services are rendered. For contracts
with multiple obligations (e.g., deliverable and undeliverable
products, support obligations, consulting, and training
services), the Company allocates revenue to each element of the
contract based on vendor specific objective evidence (VSOE) of
the fair value of the elements. The Company has determined fair
value based upon prices it charges customers when these elements
are sold separately. Maintenance contracts are generally sold
with the initial licenses. The related maintenance revenue is
deferred based upon VSOE, which is determined by the renewal
price of the annual maintenance contract, and is recognized
ratably over the maintenance contract period. The Company
recognizes consulting and training service revenues, including
those sold with license fees, as the services are performed
based upon their established VSOE. The Company determines the
amount of revenue to allocate to the licenses sold with services
or maintenance using the residual method of
accounting. Under the residual method, the Company allocates the
total value of the arrangement first to the undelivered elements
based on their VSOE and the remainder to the delivered element,
the software license.

In those instances in which indirect channel
partners provides certain support services under the maintenance
support contracts to the end-user customer, the Company accounts
for amounts received in these arrangements in accordance with
Emerging Issues Task Force 99-19, Reporting Revenue
Gross as a Principal versus Net as an Agent. The Company
must make certain judgments in these types of arrangements
including whether the Company or the indirect channel partners
is in the principal obligor in the arrangement with the end-user
customer.

Accounts
Receivable and Bad Debt

The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments. The Company
continuously monitors collections and payments from its
customers and determines the allowance for doubtful accounts
based upon analysis of aged accounts receivable, historical
experience and specific customer collection issues. An allowance
for doubtful accounts is provided for accounts which management
believes may not be collected due to a customers financial
circumstance (e.g. bankruptcy), and for all accounts which
are over 180 days past due, absent evidence which supports
their collectibility. If the financial condition of the
Companys customers were to deteriorate, resulting in an
impairment of their ability to make payments, or the
Companys overdue receivables balance were to increase
significantly, additional allowances may be required. The
Company generally invoices the customer in the same local
currency as to be paid by the customer. The Company does not
hedge its foreign customer receivables due to the relatively
small exposure from foreign currency rate fluctuations.

Software
Development Costs

The Company accounts for software development
costs in accordance with SFAS No. 86, Accounting for
the Costs of Computer Software to Be Sold, Leased, or
Marketed. SFAS No. 86

11



---



##### Table of Contents



specifies that software development costs
incurred internally should be expensed as incurred until
technological feasibility has been established. Once
technological feasibility has been established, all software
development costs should be capitalized until the product is
available for general release to customers. Judgment is required
in determining when the technological feasibility of products is
established. The Company considers technological feasibility to
be achieved when a product design and working model of the
software product have been completed and the software product is
ready for initial customer testing. Capitalized software
development costs are amortized as a cost of software license
revenue over the estimated product life. Development costs not
capitalized under the policy are classified as a development
expense in the same period as incurred. If management determines
that the recoverability of these unamortized capitalized
software costs is not probable based on its cash flow estimates,
these costs may require adjustment to their net realizable
value, which could affect the results of the reporting period.


Accounting For
Cost-Based Investments

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

Goodwill and
Other Intangible Assets and Related Impairment

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

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

Restructuring

During 2002 and 2001, the Company recorded
charges in connection with its restructuring programs. These
charges include estimates pertaining to employee separation
costs and the settlements of contractual obligations resulting
from the Companys actions. Although the Company does not
anticipate significant changes, the actual costs may differ from
these estimates, which would result in adjustments to the
original estimates.

12



---



##### Table of Contents



Deferred
Taxes

The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards
No. 109 Accounting for Income Taxes (SFAS
No. 109) which requires that deferred tax assets and
liabilities be recognized using enacted tax rates for the effect
of temporary differences between the book and tax bases of
recorded assets and liabilities. SFAS No. 109 also requires that
deferred tax assets be reduced by a valuation allowance if it is
more likely than not that some portion or all of the deferred
tax asset will not be realized. The Company evaluates quarterly
the realizability of its deferred tax assets by assessing its
valuation allowance and by adjusting the amount of such
allowance, if necessary. At December 31, 2002 and
December 31, 2001, the Companys deferred tax assets
were fully reserved. In the event the Company were to determine
in the future that it would be able to realize its deferred tax
assets in excess of its net-recorded amount, an adjustment to
the deferred tax asset would increase income in the period such
determination was made.

RESULTS OF OPERATIONS



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared
    to Year Ended December 31, 2001

Revenues

|                                               |             |                         |            |            |  |      |     |            |   |      |            |            |  |  |     |    |   |   |            |           |  |  |     |    |  
|---------------------------------------------- | ----------- | ----------------------- | ---------- | ---------- |  | ---- | --- | ---------- | - | ---- | ---------- | ---------- |  |  | --- | -- | - | - | ---------- | --------- |  |  | --- | -- | -
|                                               |             |                        
|                                               |             | Year Ended December 31,
|                                               |             |                        
|                                               |             |                         |            | Percent of |  |      |     | Percent of |   |      |            | Percent of
|                                               |             | 2002                    |            | Revenue    |  | 2001 |     | Revenue    |   | 2000 |            | Revenue   
|                                               |             |                         |            |            |  |      |     |            |   |      |            |           
|Software License                               |             | $                       | 16,050,000 |            |  |      | 44  | %          |   | $    | 18,406,000 |            |  |  | 47  | %  |   | $ | 23,735,000 |           |  |  | 59  | % 
|Professional Services and Maintenance Training |             |                         | 483,000    |            |  |      | 1   | %          |   |      | 829,000    |            |  |  | 2   | %  |   |   | 796,000    |           |  |  | 2   | % 
|                                               | Consulting  |                         |            | 5,389,000  |  |      |     | 15         | % |      |            | 7,783,000  |  |  |     | 20 | % |   |            | 7,661,000 |  |  |     | 19 | %
|                                               | Maintenance |                         |            | 14,674,000 |  |      |     | 40         | % |      |            | 12,387,000 |  |  |     | 31 | % |   |            | 8,047,000 |  |  |     | 20 | %
|                                               |             |                         |            |            |  |      |     |            |   |      |            |            |  |  |     |    |   |   |            |           |  |  |     |   
|                                               |             |                         | 20,546,000 |            |  |      | 56  | %          |   |      | 20,999,000 |            |  |  | 53  | %  |   |   | 16,504,000 |           |  |  | 41  | % 
|                                               |             |                         |            |            |  |      |     |            |   |      |            |            |  |  |     |    |   |   |            |           |  |  |     |   
|Total Revenues                                 |             | $                       | 36,596,000 |            |  |      | 100 | %          |   | $    | 39,405,000 |            |  |  | 100 | %  |   | $ | 40,239,000 |           |  |  | 100 | % 
|                                               |             |                         |            |            |  |      |     |            |   |      |            |            |  |  |     |    |   |   |            |           |  |  |     |   

Total revenues for the year ended
December 31, 2002 were $36,596,000, a 7% decrease from
revenue of $39,405,000 for the year ended December 31,
2001. The overall revenues decrease was primarily due to the
decline in the global economy, the continued slowdown in
information technology spending and weakness in the CRM market.
The weakness in the CRM market was partially offset by the
strengthening of the Companys position in the business
analytics market.

Software
Licenses

The following table sets forth the software
license revenues by market:

|                                |  |              |            |            |  |        |     |            |  |        |            |            |  |  |     |   |  |  |            |  |  |  |     |  
|------------------------------- |  | ------------ | ---------- | ---------- |  | ------ | --- | ---------- |  | ------ | ---------- | ---------- |  |  | --- | - |  |  | ---------- |  |  |  | --- | -
|                                |  |             
|                                |  | December 31,
|                                |  |             
|                                |  |              |            |            |  |       
|                                |  | 2002         |            | 2001       |  | 2000  
|                                |  |              |            |            |  |       
|                                |  |              |            | Percent of |  |        |     | Percent of |  |        |            | Percent of
|Market                          |  | Amount       |            | Revenue    |  | Amount |     | Revenue    |  | Amount |            | Revenue   
|                                |  |              |            |            |  |        |     |            |  |        |            |           
|BPM and BI                      |  |              | 11,114,000 |            |  |        | 69  | %          |  |        | 9,928,000  |            |  |  | 54  | % |  |  | 10,507,000 |  |  |  | 44  | %
|CRM                             |  |              | 4,936,000  |            |  |        | 31  | %          |  |        | 8,478,000  |            |  |  | 46  | % |  |  | 13,228,000 |  |  |  | 56  | %
|                                |  |              |            |            |  |        |     |            |  |        |            |            |  |  |     |   |  |  |            |  |  |  |     |  
|Total Software License Revenues |  |              | 16,050,000 |            |  |        | 100 | %          |  |        | 18,406,000 |            |  |  | 100 | % |  |  | 23,735,000 |  |  |  | 100 | %
|                                |  |              |            |            |  |        |     |            |  |        |            |            |  |  |     |   |  |  |            |  |  |  |     |  

Software license revenue in 2002 of $16,050,000
was approximately 13% lower than 2001 software license revenues
of $18,406,000. Software license revenues decreased primarily
due to the continued weakness in the CRM market. The decline was
predominately in Europe. The overall decrease in CRM software
license revenues was partially offset by the Companys
strength in BPM and BI revenues, which increased 12% to
$11,114,000 in 2002 from $9,928,000 a year earlier. As a result
of the success of its BPM

13



---



##### Table of Contents



and BI products and the decline in CRM sales, the
Companys software license revenues mix was shifting
towards BPM and BI prior to the Companys sale of the CRM
business.


The following table sets forth the software
license revenues by sales office geography:

|                             |                                 |              |           |            |  |        |    |            |   |        |            |            |  |  |    |     |   |  |            |            |  |  |    |     |  
|---------------------------- | ------------------------------- | ------------ | --------- | ---------- |  | ------ | -- | ---------- | - | ------ | ---------- | ---------- |  |  | -- | --- | - |  | ---------- | ---------- |  |  | -- | --- | -
|                             |                                 |             
|                             |                                 | December 31,
|                             |                                 |             
|                             |                                 |              |           |            |  |       
|                             |                                 | 2002         |           | 2001       |  | 2000  
|                             |                                 |              |           |            |  |       
|                             |                                 |              |           | Percent of |  |        |    | Percent of |   |        |            | Percent of
|                             |                                 | Amount       |           | Revenue    |  | Amount |    | Revenue    |   | Amount |            | Revenue   
|                             |                                 |              |           |            |  |        |    |            |   |        |            |           
|North America                |                                 |              | 7,288,000 |            |  |        | 45 | %          |   |        | 6,776,000  |            |  |  | 37 | %   |   |  | 8,064,000  |            |  |  | 34 | %  
|PacRim                       |                                 |              | 2,083,000 |            |  |        | 13 | %          |   |        | 2,586,000  |            |  |  | 14 | %   |   |  | 2,852,000  |            |  |  | 12 | %  
|Europe                       |                                 |              | 6,679,000 |            |  |        | 42 | %          |   |        | 9,044,000  |            |  |  | 49 | %   |   |  | 12,819,000 |            |  |  | 54 | %  
|                             |                                 |              |           |            |  |        |    |            |   |        |            |            |  |  |    |     |   |  |            |            |  |  |    |    
|Total International revenues |                                 |              | 8,762,000 |            |  |        | 55 | %          |   |        | 11,630,000 |            |  |  | 63 | %   |   |  | 15,671,000 |            |  |  | 66 | %  
|                             |                                 |              |           |            |  |        |    |            |   |        |            |            |  |  |    |     |   |  |            |            |  |  |    |    
|                             | Total software license revenues |              |           | 16,050,000 |  |        |    | 100        | % |        |            | 18,406,000 |  |  |    | 100 | % |  |            | 23,735,000 |  |  |    | 100 | %
|                             |                                 |              |           |            |  |        |    |            |   |        |            |            |  |  |    |     |   |  |            |            |  |  |    |    

Domestic software license revenue increased 8% to
$7,288,000 in 2002 from $6,776,000 in 2001. International
software license revenue decreased 25% to $8,762,000 in 2002
from $11,630,000 in 2001. The decrease was primarily due to the
decline in the global economy especially in the European market
and the continued slowdown in CRM market.

The Company markets its products through its
direct sales force and indirect partners. The Company continues
to focus on complementing its direct sales force with indirect
channel partners, which consist of original equipment
manufacturers (OEMs), value added resellers
(VARS), independent distributors and sales agents.

Professional
Services and Maintenance

Professional services and maintenance revenues
decreased 2% to $20,546,000 in 2002 as compared to $20,999,000
in 2001. Maintenance revenues increased 18% to $14,674,000 in
2002 compared to $12,387,000 in 2001, while consulting and
training revenues decreased 32% to $5,872,000 in 2002 compared
to $8,612,000 in 2001. Consulting and training revenues declined
in 2002 as a result of the Companys focus on more
selective consulting engagements, greater reliance on external
authorized Applix partners and the increase in business
analytics implementations, which require fewer consulting hours
to implement the solutions. The Companys maintenance
revenues have continued to increase both sequentially and on a
year-over-year basis, due to an improvement in the customer base
satisfaction with the software and support and their election to
renew their support agreements. The Company expects the
maintenance revenues as a component of total professional
service and maintenance revenues to continue to increase due to
strong customer renewal rates, the greater use of authorized
Applix partners for professional services and the increase in
business analytics implementations.

The following table sets forth the professional
services and maintenance revenues generated by domestic and
international market:

|                                                         |  |          |           |               |  |          |            |               |  |          |           |               |  |   |            |  |  |   |           |  |  |   |            | 
|-------------------------------------------------------- |  | -------- | --------- | ------------- |  | -------- | ---------- | ------------- |  | -------- | --------- | ------------- |  | - | ---------- |  |  | - | --------- |  |  | - | ---------- | 
|                                                         |  |          |           |               |  |         
|                                                         |  | 2002     |           | 2001          |  | 2000    
|                                                         |  |          |           |               |  |         
|                                                         |  | Domestic |           | International |  | Domestic |            | International |  | Domestic |           | International
|                                                         |  |          |           |               |  |          |            |               |  |          |           |              
|Maintenance Revenues                                     |  | $        | 6,426,000 |               |  | $        | 8,248,000  |               |  | $        | 5,563,000 |               |  | $ | 6,824,000  |  |  | $ | 3,420,000 |  |  | $ | 4,627,000  | 
|Professional services revenues                           |  |          | 1,364,000 |               |  |          | 4,508,000  |               |  |          | 1,817,000 |               |  |   | 6,795,000  |  |  |   | 2,582,000 |  |  |   | 5,875,000  | 
|                                                         |  |          |           |               |  |          |            |               |  |          |           |               |  |   |            |  |  |   |           |  |  |   |            | 
|Total Professional Services and Maintenance
    Revenues |  | $        | 7,790,000 |               |  | $        | 12,756,000 |               |  | $        | 7,380,000 |               |  | $ | 13,619,000 |  |  | $ | 6,002,000 |  |  | $ | 10,502,000 | 
|                                                         |  |          |           |               |  |          |            |               |  |          |           |               |  |   |            |  |  |   |           |  |  |   |            | 

14



---



##### Table of Contents



Cost of Revenues

|                                                           |                               |                         |                    |             |            |            |    |             |   |      |            |             |            |            |   |     |   |   |            |            |            |            |   |     |   |  | 
|---------------------------------------------------------- | ----------------------------- | ----------------------- | ------------------ | ----------- | ---------- | ---------- | -- | ----------- | - | ---- | ---------- | ----------- | ---------- | ---------- | - | --- | - | - | ---------- | ---------- | ---------- | ---------- | - | --- | - |  | 
|                                                           |                               |                        
|                                                           |                               | Year Ended December 31,
|                                                           |                               |                        
|                                                           |                               |                         |                    | Percent of  |            |            |    | Percent of  |   |      |            | Percent of 
|                                                           |                               | 2002                    |                    | Revenue (A) |            | 2001       |    | Revenue (A) |   | 2000 |            | Revenue (A)
|                                                           |                               |                         |                    |             |            |            |    |             |   |      |            |            
|Cost of Software License Revenues                          |                               | $                       | 2,040,000          |             |            |            | 13 | %           |   | $    | 1,214,000  |             |            |            | 7 | %   |   | $ | 1,985,000  |            |            |            | 8 | %  
|Cost of Professional Services and Maintenance
    Revenues |                               |                         |                    |             |            |            |    |             |   |      |            |             |            |            |   |     |   |   |            |            |            |            |   |    
|                                                           | Cost of Professional Services |                         |                    | 5,823,000   |            |            |    | 99          | % |      |            | 9,899,000   |            |            |   | 115 | % |   |            | 10,520,000 |            |            |   | 124 | %
|                                                           | Cost of Maintenance Revenues  |                         |                    | 4,166,000   |            |            |    | 28          | % |      |            | 3,758,000   |            |            |   | 32  | % |   |            | 3,237,000  |            |            |   | 40  | %
|                                                           |                               |                         |                    |             |            |            |    |             |   |      |            |             |            |            |   |     |   |   |            |            |            |            |   |    
|                                                           |                               |                         | 9,989,000          |             |            |            |    |             |   |      | 13,657,000 |             |            |            |   |     |   |   | 13,757,000 |            |            |            |   |    
|                                                           |                               |                         |                    |             |            |            |    |             |   |      |            |             |            |            |   |     |   |   |            |            |            |            |   |    
|Total Cost of Revenues                                     |                               | $                       | 12,029,000         |             |            |            |    |             |   | $    | 14,871,000 |             |            |            |   |     |   | $ | 15,742,000 |            |            |            |   |    
|                                                           |                               |                         |                    |             |            |            |    |             |   |      |            |             |            |            |   |     |   |   |            |            |            |            |   |    
|Gross Margin Software License                              |                               | $                       | 14,010,000         |             |            |            |    |             |   | $    | 17,192,000 |             |            |            |   |     |   | $ | 21,750,000 |            |            |            |   |    
|                                                           |                               | Professional Services   |                    |             | 49,000     |            |    |             |   |      |            |             | (1,287,000 | )          |   |     |   |   |            |            | (2,063,000 | )          |   |     |   | 
|                                                           |                               | Maintenance             |                    |             | 10,508,000 |            |    |             |   |      |            |             | 8,629,000  |            |   |     |   |   |            |            | 4,810,000  |            |   |     |   | 
|                                                           |                               |                         |                    |             |            |            |    |             |   |      |            |             |            |            |   |     |   |   |            |            |            |            |   |    
|                                                           |                               |                         | Total Gross Margin |             | $          | 24,567,000 |    |             |   |      |            |             | $          | 24,534,000 |   |     |   |   |            |            | $          | 24,497,000 |   |     |   |  | 
|                                                           |                               |                         |                    |             |            |            |    |             |   |      |            |             |            |            |   |     |   |   |            |            |            |            |   |    



---

(A) Percentage represent:



| |       |                                                                                             
| | ----- | --------------------------------------------------------------------------------------------
| | (i)   | Cost of software license revenues as a percentage
    of software license revenues;         
|
| | (ii)  | Cost of professional services revenues as a
    percentage of professional service revenues;
|
| | (iii) | Cost of maintenance revenues as percentage of
    maintenance revenues.                     

Cost
of Software License Revenues

Cost of software license revenues consist
primarily of third-party software royalties, cost of product
packaging, documentation materials, order fulfillment employees
and amortization of capitalized software costs. The amortization
of capitalized software costs begins upon general release of the
software to customers. Cost of software license revenues
increased 68% to $2,040,000 in 2002, compared to $1,214,000 for
2001. As a percentage of software license revenues, cost of
software license revenues increased to 13% for 2002 as compared
to 7% in 2001. Cost of software license revenues increased
primarily due to an increase in amortization of capitalized
software development costs related to the Companys new
product development and third-party royalties. The increase as a
percentage of software license revenues was also due to the
decline in software license revenues.

Cost of
Professional Services and Maintenance Revenues

The cost of professional services and maintenance
revenues consists primarily of personnel salaries and benefits,
facilities and system costs incurred to provide consulting,
training and customer support and payments to indirect channel
partners to provide first level support to end-user customers,
which is generally amortized over the 12-month maintenance
support period of the underlying contract with the end-user
customer. Cost of professional services and maintenance revenue
decreased 27% to $9,989,000 in 2002 from $13,657,000 in 2001.
Cost of professional services and maintenance revenue as a
percentage of professional services and maintenance revenue was
49% in 2002 as compared to 65% in 2001. The improvement in
professional services and maintenance revenue gross margin is
due to higher utilization of the Companys service
professionals, and a change in revenue mix from lower margin
consulting revenues to higher margin maintenance revenues.

15



---



##### Table of Contents



Operating Expenses

|                                                                   |  |                         |            |            |  |      |    |            |  |      |            |            |  |  |    |   |  |   |            |  |  |  |    |  
|------------------------------------------------------------------ |  | ----------------------- | ---------- | ---------- |  | ---- | -- | ---------- |  | ---- | ---------- | ---------- |  |  | -- | - |  | - | ---------- |  |  |  | -- | -
|                                                                   |  |                        
|                                                                   |  | Year Ended December 31,
|                                                                   |  |                        
|                                                                   |  |                         |            | Percent of |  |      |    | Percent of |  |      |            | Percent of
|                                                                   |  | 2002                    |            | Revenue    |  | 2001 |    | Revenue    |  | 2000 |            | Revenue   
|                                                                   |  |                         |            |            |  |      |    |            |  |      |            |           
|Sales and marketing                                                |  |                         | 15,311,000 |            |  |      | 42 | %          |  |      | 21,671,000 |            |  |  | 55 | % |  |   | 25,580,000 |  |  |  | 64 | %
|Product development                                                |  |                         | 5,699,000  |            |  |      | 16 | %          |  |      | 6,848,000  |            |  |  | 17 | % |  |   | 7,502,000  |  |  |  | 19 | %
|General and administrative                                         |  |                         | 5,249,000  |            |  |      | 14 | %          |  |      | 4,484,000  |            |  |  | 11 | % |  |   | 4,292,000  |  |  |  | 11 | %
|Compensation expenses and amortization of
    acquired intangibles |  |                         | 2,405,000  |            |  |      | 7  | %          |  |      | 186,000    |            |  |  | 0  | % |  |   |           |  |  |  |   |  
|Compensation expense related to executive stock
    loans          |  |                         | 964,000    |            |  |      | 3  | %          |  |      |           |            |  |  |   |   |  |   |           |  |  |  |   |  
|Restructuring expense                                              |  |                         | 381,000    |            |  |      | 1  | %          |  |      | 1,700,000  |            |  |  | 4  | % |  |   |           |  |  |  |   |  
|                                                                   |  |                         |            |            |  |      |    |            |  |      |            |            |  |  |    |   |  |   |            |  |  |  |    |  
|Total Operating Expenses                                           |  | $                       | 30,009,000 |            |  |      | 82 | %          |  | $    | 34,889,000 |            |  |  | 89 | % |  | $ | 37,374,000 |  |  |  | 93 | %
|                                                                   |  |                         |            |            |  |      |    |            |  |      |            |            |  |  |    |   |  |   |            |  |  |  |    |  

Sales and
Marketing

Sales and marketing expenses consist primarily of
bad debt expense, salaries, commissions and bonuses earned by
sales and marketing personnel, field office expenses, travel and
entertainment, promotional and advertising expenses and the cost
of the Companys international operations, which are sales
operations. Sales and marketing expenses decreased 29% to
$15,311,000 in 2002 from $21,671,000 in 2001. Sales and
marketing expenses were 42% of total revenues in 2002 compared
to 55% in 2001. The decrease, which was partially offset by an
increase in bad debt expense, was primarily due to the
Companys cost control initiatives and the decrease in
sales commissions that resulted from a decrease in the
Companys software license revenues. In response to the
weakening global economy, the Company reduced its expenditures
in 2002. The Companys cost control initiatives included
decreased staffing levels and reducing advertising, travel and
other discretionary expenditures. The Company expects to
continue to closely monitor discretionary expenditures and to
continue its cost control initiatives.

Product
Development

Product development expenses include costs
associated with the development of new products, enhancements of
existing products and quality assurance activities, and consist
primarily of employee salaries and benefits, consulting costs
and the cost of software development tools. The Company
capitalizes product development costs during the required
capitalization period once the Company has reached technological
feasibility through general release of its software products.
The Company considers technological feasibility to be achieved
when a product design and working model of the software product
have been completed and the software product is ready for
initial customer testing. Capitalized software development costs
are then amortized on a product-by-product basis over the
estimated product life of between one to two years and are
included in the cost of software license revenue. Product
development costs not meeting the requirements for
capitalization are expensed as incurred. Applix product
development utilizes a total management (TQM) approach to
software development and participates in a self-management
process measurement using Carnegie Mellons Software
Engineering Institutes Capability Maturity Model
(self-assessment only).

Product development decreased 17% to $5,699,000
in 2002 from $6,848,000 in 2001. The decrease is primarily due
to an increase of the capitalization of product development
costs as a result of the development for the new Applix Integra
technology platform and Integra related applications, which was
ready for general release in the third quarter of 2002, and
capitalization of costs for related applications in the fourth
quarter of 2002. The capitalization of product development costs
was $1,553,000 in 2002 compared to $844,000 in 2001. The Company
anticipates that it will continue to devote substantial

16



---



##### Table of Contents



resources to develop new products, new versions
of its existing products including Applix Integra and related
Applix Integra applications.


General and
Administrative

General and administrative expenses consist
primarily of salaries and occupancy costs for administrative,
executive and finance, information technology (IT)
and human resource personnel. General and administrative
expenses from continuing operations increased 17% to $5,249,000
in 2002 from $4,484,000 in 2001. The increase was primarily due
to increased rent and related costs of the Companys new
corporate headquarters, legal and auditing fees, and corporate
insurance premiums. As a percentage of total revenues, general
and administrative expenses were 14% in 2002 compared to 11% in
2001. The increase in general and administrative expenses as a
percentage of total revenues in 2002 as compared to 2001 was due
in part to the decrease in total revenues.

Compensation
Expenses and Amortization of Acquired Intangibles

Compensation expenses and amortization of
acquired intangibles consist primarily of contingent
consideration cash payments relating to the Companys March
2001 acquisition of Dynamic Decisions and the amortization of an
identified intangible asset, consisting of customer
relationships, associated with the acquisition. Per the terms of
the purchase and sale agreement, total maximum cash
consideration relating to the purchase of Dynamic Decisions was
$5,150,000 payable in installments over a maximum of
30 months beginning on July 1, 2001. During 2001, the
Company had paid $1,267,000 of the maximum cash consideration,
which was accounted for as purchase price. In 2002, the Company
made contingent cash payments of $2,155,000, which have been
accounted for as compensation expense as the payments were
contingent upon the continued employment of two key executives
of Dynamic Decisions. The remaining cash payments of
approximately $2,400,000 will continue to be accounted for as
compensation expense, as they are contingent upon the future
employment of the two key executives. In 2002 and 2001, the
amortization expense for customer relationships associated with
the Dynamic Decisions acquisition was $252,000 and $186,000,
respectively.

Write down of
Notes Receivable

In September 2000, the Company sold 256,002
shares of common stock to certain company executives. The
purchases of such shares were funded by loans from the Company
to the executives evidenced by full-recourse promissory notes
due and payable on July 31, 2005. Interest on the
promissory notes is calculated on the unpaid principal balance
at a rate of 6% per year, compounded annually until paid in
full. In the event that the executive sells any shares prior to
July 31, 2005, the net proceeds from such sale shall become
immediately due and payable without notice or demand. In the
event the executive leaves the Company, voluntarily or for
cause, the loan shall become immediately due and payable.
Repayment terms were extended to the original maturity date for
several employees who subsequently left the Company. The
aggregate principal amount of the notes totaled $1,120,000 at
December 31, 2002 and 2001. These loans are secured by the
common stock purchased. Certain of these loans are and have been
past due for some time, and subsequent to December 31,
2002, in connection with a severance arrangement, the Company
forgave one of the loans. As a result of the foregoing,
consistent with EITF 00-23, Issues Related to the Accounting
for Stock Compensation under APB Opinion No. 25 and FASB
Interpretation 44, for accounting purposes only the Company
has characterized all of the notes as non-recourse. In this
regard, the accounting for these notes has been treated as a
repurchase of stock and the issuance of options. As of
December 31, 2002, the Company recorded a charge of
$964,000 for the difference between the amounts due on the
loans, including accrued interest of $128,000, and the fair
value of the underlying stock at December 31, 2002. The
Company may incur compensation charges if the fair value of the
underlying stock appreciates over the original purchase price,
plus interest. These loans continue to be full recourse, and the
Company intends to enforce collection of those amounts that are
outstanding.

17



---



##### Table of Contents



Restructuring
Expense

In 2001 and 2002, the Company adopted several
plans of restructuring aimed at reducing operating costs
company-wide, strengthening the Companys financial
position, and reallocating resources to pursue the
Companys future operating strategies.

In the second quarter of 2001, the Company
adopted a plan of restructuring aimed at reducing operating
costs company-wide. In connection with this plan, 28
non-management employees, primarily sales, marketing, and
administrative personnel, and 2 executive level employees, were
terminated. The Companys restructuring plan also included
the closure of the Companys sales office in France. As a
result of the restructuring plan, the Company recorded a
restructuring charge of $512,000. The restructuring charge
consisted of $449,000 for severance costs and $63,000 for the
loss on disposal of the Companys French subsidiary, which
was sold on June 30, 2001. In connection with the sale, the
Company paid $100,000 to the purchaser, which is included in the
restructuring charge. The restructuring charge was fully paid as
of December 31, 2002.

In the third quarter of 2001, the Company adopted
a plan of restructuring to further reduce operating costs
company-wide. In connection with this plan, the Company recorded
an additional restructuring charge of $438,000 for severance
related to the termination of 26 non-management employees,
primarily sales, marketing, and administrative personnel.
Subsequent to the initial recording of the charge, adjustments
totaling $90,000 were recorded, reducing the charge to $348,000.
The restructuring charge was fully paid as of December 31, 2002.

In the fourth quarter of 2001, the Company
adopted a plan of restructuring to further reduce operating
costs. The plan included the further reduction of headcount of
one senior level executive and 16 non-management employees,
primarily professional services, sales, and administrative
personnel. The plan also included the closure of several
domestic offices and the consolidation of space within one
European office and the abandonment of leasehold improvements
and support assets associated with these locations, which were
removed from service shortly after the implementation of the
plan. As a result of the restructuring plan, the Company
recorded a charge of $840,000, which included $92,000 in
non-cash charges relating to impaired assets. In the second
quarter of 2002, the Company negotiated an early lease
cancellation for a certain office lease for an amount less than
the remaining lease obligation, which reduced the charge by
$140,000. The restructuring charge was fully paid as of
December 31, 2002.

In the second quarter of 2002, the Company
adopted a plan of restructuring to further reduce operating
costs. The plan included the further reduction of headcount of
five non-management employees, four sales people and one
administrative employee. The plan also included the closure of
two foreign offices. As a result of the restructuring plan, the
Company recorded a charge of $103,000 comprising of $74,000 for
workforce reduction and $29,000 for office closures. The
restructuring charge was fully paid as of December 31, 2002.

In the third quarter of 2002, the Company adopted
a plan of restructuring to further reduce operating costs. The
plan included a reduction of headcount of twenty-one
non-management and three management employees, primarily
professional services, sales, marketing, and customer support
personnel. The plan also included the closure of one foreign
office. As a result of the restructuring plan, the Company
recorded a charge of $398,000, which is comprised of $372,000
for workforce reduction, $20,000 related termination costs, and
$6,000 for office closure. During the fourth quarter of 2002,
the Company recorded an adjustment to increase this charge by
$20,000. In addition, the Company adjusted the amounts within
workforce, office closures and other contractual obligations as
changes in estimates but did not change the total amount of the
charge except as disclosed. These changes are not significant.
The remaining unpaid balance of $71,000 as of December 31,
2002 is expected to be paid in full during the first quarter of
2003.

18



---



##### Table of Contents



The components of the restructuring cash charges,
as well as the Companys 2002 payments made against
accruals are detailed as follows:

|                              |  |              |         |             |  |          |          |              |  |   |            |   |  |   |        | 
|----------------------------- |  | ------------ | ------- | ----------- |  | -------- | -------- | ------------ |  | - | ---------- | - |  | - | ------ | 
|                              |  | Balance at   |         | Adjustment/ |  |          |          | Balance at  
|Cash charges                  |  | December 31, |         | Charge      |  | Payments |          | December 31,
|Restructuring                 |  | 2001         |         | Incurred    |  | Made     |          | 2002        
|                              |  |              |         |             |  |          |          |             
|Work force reduction          |  | $            | 311,000 |             |  | $        | 548,000  |              |  | $ | (807,000   | ) |  | $ | 52,000 | 
|Office closures               |  |              | 274,000 |             |  |          | (113,000 | )            |  |   | (144,000   | ) |  |   | 17,000 | 
|Other contractual obligations |  |              | 111,000 |             |  |          | (54,000  | )            |  |   | (55,000    | ) |  |   | 2,000  | 
|                              |  |              |         |             |  |          |          |              |  |   |            |   |  |   |        | 
|Total restructuring           |  | $            | 696,000 |             |  | $        | 381,000  |              |  | $ | (1,006,000 | ) |  | $ | 71,000 | 
|                              |  |              |         |             |  |          |          |              |  |   |            |   |  |   |        | 

Non-Operating Income/Expenses

|                                              |  |      |         |            |  |      |   |            |  |      |            |            |  |  |    |    |  |   |           |  |  |  |   |  
|--------------------------------------------- |  | ---- | ------- | ---------- |  | ---- | - | ---------- |  | ---- | ---------- | ---------- |  |  | -- | -- |  | - | --------- |  |  |  | - | -
|                                              |  |      |         | Percent of |  |      |   | Percent of |  |      |            | Percent of
|                                              |  | 2002 |         | Revenue    |  | 2001 |   | Revenue    |  | 2000 |            | Revenue   
|                                              |  |      |         |            |  |      |   |            |  |      |            |           
|Permanent impairment of cost based investment |  |      |        |            |  |      |  |            |  | $    | (1,250,000 | )          |  |  | (3 | )% |  |   |          |  |  |  |  |  
|Interest and other income (expense), net      |  | $    | (47,000 | )          |  |      |  |            |  |      | 290,000    |            |  |  | 1  | %  |  | $ | 1,153,000 |  |  |  | 3 | %
|Net gain from sale of subsidiary              |  |      | 141,000 |            |  |      |  |            |  |      |           |            |  |  |   |    |  |   |          |  |  |  |  |  



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

Interest and other income (expense), net
decreased to an expense of $47,000 in 2002 from other income of
$290,000 in 2001. This decrease is primarily attributable to the
amortization of deferred financing costs relating to the
Companys credit facilities, a decrease in interest income
from a decline in the average cash and cash equivalents balance,
a decrease in interest rates, the impact of foreign currency
fluctuations, and transaction fees associated with the sale of
one of its investments.



| |                               
| | ------------------------------
| | Net Gain on Sale of Subsidiary

In December 2002, the Company sold the stock of
its Dutch subsidiary, a remote sale office, for $362,000 and
recorded a net gain of $141,000. The transaction included
substantially all of the subsidiarys assets and
liabilities and an amendment to the existing distribution
agreement between the company and the purchaser to provide the
purchaser the exclusive rights to resell the Companys CRM
products in the Netherlands.



| |                                                  
| | -------------------------------------------------
| | Permanent Impairment of Cost-Based
    Investment

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



| |                                         
| | ----------------------------------------
| | Provision (benefit) for Income
    Taxes

The provision for income taxes represents the
Companys state and foreign income tax obligations and
amortization of a deferred tax liability. The Company recorded a
provision for income taxes of $222,000 in 2002 as compared to a
provision of $558,000 in 2001. This decrease is primarily
attributable to lower taxable income in certain foreign
jurisdictions and a benefit of $131,000 recorded in 2002 for the
amortization of a deferred tax liability relating to the
Companys acquisition of Dynamic Decisions.

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

Total revenue from continuing operations
decreased to $39,405,000 in 2001 from $40,239,000 in 2000.
Software license revenue in 2001 of $18,406,000 was
approximately 22% lower than 2000 at $23,735,000 and represented
47% of revenue from continuing operations for 2001 and 59% of
revenue from continuing

19



---



##### Table of Contents



operations for 2000. Domestic software license
revenue from continuing operations decreased 16% to $6,776,000
in 2001 from $8,064,000 in 2000. International software license
revenue from continuing operations decreased 26% to $11,630,000
in 2001 from $15,671,000 in 2000. The decreases were primarily
due to the decline in the global economy and the continued
slowdown in information technology spending. The Companys
three largest customers (including resellers) comprised a total
of 13% and 9% of total software license revenue from continuing
operations during 2001 and 2000, respectively.


Professional services and maintenance revenue
from continuing operations increased 27% to $20,999,000 in 2001
from $16,504,000 in 2000 and represented 53% and 41% of total
revenue from continuing operations for 2001 and 2000,
respectively. Domestic professional services and maintenance
revenue from continuing operations increased 23% to $7,380,000
in 2001 from $6,002,000 in 2000. International professional
services and maintenance revenue increased 30% to $13,619,000 as
compared to $10,502,000 in 2000. The increase was primarily due
to increased maintenance revenue as a result of the improved
renewal rates for maintenance from existing customers.
Maintenance revenues increased $4,340,000 to $12,387,000 in 2001
from $8,047,000 in 2000. Maintenance revenue continues to grow
as a higher percentage of existing customers are choosing to
extend maintenance support contracts.

Gross margin from continuing operations increased
to 62% in 2001 from 61% in 2000. Software license revenue gross
margin from continuing operations increased to 93% in 2001 from
92% in 2000. Professional services and maintenance revenue gross
margin from continuing operations increased to 35% in 2001 from
17% in 2000, due to a change in revenue mix from lower margin
consulting revenues to higher margin maintenance revenues.

Selling and marketing expenses from continuing
operations decreased 15% to $21,671,000 in 2001 from $25,580,000
in 2000. Selling and marketing expenses from continuing
operations decreased as a percentage of total revenue to 55% in
2001 from 64% in 2000. Decreases in selling and marketing
expenses are related primarily to completion of the corporate
rebranding and remarketing effort that was initiated in 2000.
The decrease also reflects the declining staffing levels
associated with corporate restructuring initiatives including
reduction in headcount during 2001.

Product research and development expenses from
continuing operations decreased 9% to $6,848,000 in 2001 from
$7,502,000 in 2000. The Companys investment in product
research and development represented 17% and 19% of total
revenue from continuing operations for 2001 and 2000,
respectively. The Companys product research and
development costs decreased slightly due to productivity gains
recognized during 2001. The development costs reflect continued
investments in features and functionality for the core Applix
TM1 and Applix CRM products and the development of the product
platform supporting Applix Integra.

General and administrative expenses from
continuing operations increased 4% to $4,484,000 in 2001 from
$4,292,000 in 2000. A decrease in staff costs as a result of
restructuring actions was more than offset by an increase in the
amortization expense from acquisition activity. General and
administrative expenses from continuing operations remained at
11% of revenue in 2001 and 2000.

The Company initiated three restructuring actions
in 2001 involving strategic decisions and continues to
re-evaluate the current state of on-going businesses. These
restructuring changes are discussed under Year Ended
December 31, 2002 Compared to Year Ended December 31,
2001.

Net interest income from continuing operations
decreased to $290,000 in 2001 from $1,153,000 in 2000 due to
lower interest rates earned on investments and a decrease in the
Companys average cash position.

As a result of net operating losses incurred in
2001 and 2000 and after evaluating the Companys
anticipated performance over its normal planning horizon, the
Company has provided a full valuation allowance for its net
operating loss carryforwards and other net deferred tax assets
for federal and state tax purposes as of December 31, 2001.
The provision in 2000 includes $7,832,000 relating to the
establishment of a valuation allowance against the deferred tax
asset that was established following the decision to dispose of
VistaSource and based on the Companys historical operating
losses from continuing operations.

20



---



##### Table of Contents



The valuation allowance was established during
the fourth quarter of 2000 and reflects the reversal of the
income tax benefits recognized in the first three quarters of
2000 as well as the deferred tax asset at December 31,
1999. Additionally, the Company generates taxable income in many
of the foreign jurisdictions in which it transacts business.
Accordingly, the Company has a recorded a tax provision of
$558,000 for the year ended December 31, 2001, for state
and foreign income tax liabilities, as compared to a provision
of $3,583,000 for the year ended December 31, 2000, which
included $582,000 for state and foreign income taxes.




| |                                
| | -------------------------------
| | Liquidity and Capital Resources

The Company derives its liquidity and capital
resources primarily from the Companys cash flow from
operating activities and from its working capital. The
Companys cash and cash equivalent balance was $9,322,000
and $9,278,000 as of December 31, 2002 and 2001,
respectively, which included restricted cash of $933,000 and
$1,050,000 as of 2002 and 2001, respectively. The Companys
days sales outstanding (DSO) in accounts
receivable was 53 days as of December 31, 2002, which
reflected a 6-day decrease in the Companys DSO from the
write-off of certain accounts receivable, and 74 days as of
December 31, 2001. The Company has a non-recourse accounts
receivable purchase facility. The Companys non-recourse
accounts receivable purchase arrangement allows the Company from
time to time to sell qualifying accounts receivable to the bank,
in an aggregate amount of up to $2 million outstanding, at
a purchase price equal to the balance of the accounts less a
discount rate and a fee. On or about December 31, 2002, the
Company factored certain accounts receivable to the bank
pursuant to the purchase arrangement in the amount of $905,000.
The Company sold $729,000 in accounts receivable on or about
December 31, 2001. Certain of those accounts receivables
sold qualified as a sale and decreased the Companys DSO by
approximately 6 days as of December 31, 2002 and by
3 days as of December 31, 2001. The Company does not
have any off-balance-sheet arrangements with unconsolidated
entities or related parties, and as such, the Companys
liquidity and capital resources are not subject to off-balance
sheet risks from unconsolidated entities.

In accordance with SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, the Company recognized
a sale for those accounts receivable balances for which there
was no future obligation to the customer, in the amount of
$2,323,000 and $361,000 for years ended December 31, 2002
and 2001. The Company has concluded that these accounts have
been legally isolated, and accordingly, these amounts have been
excluded from the Companys accounts receivable balance at
December 31, 2002 and 2001. The loss from the sale of the
financial assets and retained interest for cash collection were
not material to the Companys results of operations or
financial position. At December 31, 2002 and 2001, the
Company had recorded a net amount of $237,000 and $368,000,
respectively, as financing transactions and recognized as a
liability because the sale of these receivables do not qualify
to be recorded as a sale under SFAS No. 140.

Cash provided by the Companys operating
activities was $1,658,000 in, 2002 compared to cash used in
operating activities of $3,225,000 in 2001. The net loss of
$5,774,000 for the year ended December 31, 2002 was
partially offset by the increase in operating assets and
liabilities of $3,604,000, which was primarily due to an
increase in accrued liabilities of $1,303,000 and deferred
revenue of $2,247,000 offset by a net decrease in accounts
receivables, including the sale of receivables, of $313,000.

Cash used in investing activities totaled
$1,871,000 in 2002 as compared to cash used in investing
activities of $2,233,000 in 2001. The increase in cash used in
investing activities resulted from the increase in capitalized
software costs of $1,553,000 and property and equipment
expenditures of $680,000, which were partially offset by the
proceeds received from the sale of the Companys Dutch
subsidiary of $362,000.

Cash provided by financing activities totaled
$258,000 in 2002, which consisted of net payments of $131,000,
from the accounts receivable factoring arrangement for the
amounts owed to the bank at December 31, 2002 which were
not accounted for a sale, and proceeds from issuance of stock
under stock plans of $389,000. This compares to total cash
provided in financing activities of $1,105,000 in 2001.

21



---



##### Table of Contents



The Company had two revolving credit facilities
with a bank, providing for loans and other financial
accommodations, totaling approximately $5 million. The
facilities expired on December 5, 2002. The Company is
evaluating the replacement of these facilities.

In connection with the Companys acquisition
of Dynamic Decisions, the Company expects to pay out additional
contingent cash consideration of $2,400,000 in four quarterly
installments between January 1, 2003 and October 1,
2003.

As of December 31, 2002, the Company had
future cash commitments for the cash payments pertaining to its
obligation under its non-cancelable leases. The Companys
future minimum operating lease payments for its office
facilities and certain equipment are:

|                             |  |           |            | 
|---------------------------- |  | --------- | ---------- | 
|                             |  | Operating
|                             |  | Leases   
|                             |  |          
|2003                         |  | $         | 2,170,000  | 
|2004                         |  |           | 2,116,000  | 
|2005                         |  |           | 2,046,000  | 
|2006                         |  |           | 1,834,000  | 
|2007 and thereafter          |  |           | 11,798,000 | 
|                             |  |           |            | 
|Total minimum lease payments |  | $         | 19,964,000 | 
|                             |  |           |            | 

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

The Company currently expects to attempt to
sublease space at its headquarters. In the event that space is
sublet and not used by the Company, dependent on market rates at
the time, the Company could incur a loss. If all space the
Company expects to sublease were vacated and were subleased, the
Company could incur a loss of $1,750,000, which is based upon
the aggregate difference over the remaining eleven-year term
between the Companys committed lease rate and the
estimated market rates at December 31, 2002 of a
prospective sublease arrangement.

On January 21, 2003, the Company completed
the sale of certain of its assets relating to its customer
relationship management software solutions (the CRM
Business) to iET Acquisition, LLC (iET), a
wholly-owned subsidiary of Platinum Equity, LLC, for a purchase
price of $5,750,000 in cash (the Purchase Price) and
the assumption of approximately $3.0 million in net assumed
liabilities. Excluded from the sale were approximately
$2.8 million in net accounts receivable generated from the
sale of CRM products prior to the transaction. iET paid
$4,250,000 of the Purchase Price in cash at the initial closing
and paid an additional $1,500,000 in cash on March 17, 2003
upon completion of the closing of certain of the assets of the
Companys German subsidiary, Applix GmbH. The purchase
price is subject to possible post closing adjustments. The
disposition was effected pursuant to an Asset Purchase
Agreement, dated as of January 21, 2003 (the Purchase
Agreement), by and between iET and the Company, on behalf
of itself and its subsidiaries.

As a result of the transactions contemplated by
the Purchase Agreement, Applix sold substantially all of the
assets used or held for use in connection with the CRM Business
and assigned to iET certain specified liabilities relating to
the CRM Business. In addition to tangible assets, the Company
also sold certain intangible assets, principally the
Companys intellectual property used or held for use
exclusively or primarily in the CRM Business.

The Company has incurred losses from continuing
operations for the last several years. As of December 31,
2002, the Company had an accumulated deficit of
$43.8 million. Operating losses and negative cash flows may
continue because of costs and expenses relating to brand
development, marketing and other promotional activities,
continued development of the Companys information
technology infrastructure, expansion of product offerings and
development of relationships with other businesses.
Managements plans include increasing revenue and
generating positive cash flows from operations. The

22



---



##### Table of Contents



Company made progress in 2002 towards decreasing
operating losses for the year compared to the prior year.
Additionally, the Company improved its 2002 cash flow and
improved its cash position at December 31, 2002. The
Company currently expects that the principal sources of funding
for its operating expenses, capital expenditures and other
liquidity needs will be a combination of its available cash
balances, which includes funds received from the sale of the
Companys CRM business (See Note 19) and funds
generated from operations and its accounts receivable purchase
facility. The Company believes that its currently available
sources of funds will be sufficient to fund its operations for
at least the next 12 months. However, there are a number of
factors that may negatively impact the Companys available
sources of funds. The amount of cash generated from operations
will be dependent upon such factors as the successful execution
of the Companys business plan, the market acceptance of
Applix Integra, and worldwide economic conditions including
information technology spending. Should the Company not meet its
plans to generate sufficient revenue or positive cash flows, it
may need to raise additional capital or reduce spending.


New
Accounting Pronouncements

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, and nullified Emerging Issues Task Force
(EITF) Issue No. 94-3. SFAS No. 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred,
whereas EITF No. 94-3 had recognized the liability at the
commitment date to an exit plan. The Company is required to
adopt the provisions of SFAS No. 146 effective for exit or
disposal activities initiated after December 31, 2002. The
adoption of this statement will only have an impact on the
accounting for future exit or disposal activities.

In December 2002, the FASB issued SFAS
No. 148 (SFAS No. 148), Accounting
for Stock Based Compensation  Transition and
Disclosure. SFAS No. 148 is an amendment of SFAS
No. 123 (SFAS No. 123), Accounting
for Stock Based Compensation, to provide alternative
methods of transition to SFAS No. 123s fair value
method of accounting for stock-based employee compensation. This
Statement also amends the disclosure provision of SFAS
No. 123 and APB No. 28, Interim Financial Reporting,
to require disclosure in the summary of significant accounting
policies of the effects of an entitys accounting policy
with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim
financial statements. The Company has accounted for stock-based
employee compensation using the intrinsic value method under APB
No. 25 and has adopted the amendments to the disclosure
provisions of SFAS No. 148.

In November 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45
requires that a guarantor recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 also requires
additional disclosure by a guarantor in its interim and annual
financial statements about its obligations under certain
guarantees. The initial recognition and measurement provisions
of FIN 45 are applicable for guarantees issued or modified
after December 31, 2002. The disclosure requirements of
FIN 45 are effective for financial statements of interim or
annual periods ending after December 15, 2002. The Company
believes that the adoption of FIN 45 will not have a
material impact on its financial position or results of
operations.

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities, which is an interpretation of
Accounting Research Bulletin No. 51, Consolidated
Financial Statements. FIN 46 addresses consolidation
by business enterprises of variable interest entities and
requires existing unconsolidated variable interest entities to
be consolidated by their primary beneficiaries if the entities
do not effectively disperse risks among parties involved.
Variable interest entities that effectively disperse risks will
not be consolidated unless a single party holds an interest or
combination of interests that effectively recombines risks that
were previously dispersed. FIN 46 applies immediately to
variable interest entities created after January 31, 2003,
and to variable interest entities in which an enterprise obtains
an interest after that date. FIN 46 applies in the first
fiscal year or interim period beginning after June 15, 2003
to variable interest entities in which an enterprise holds a
variable

23



---



##### Table of Contents



interest that it acquired before February 1,
2003. FIN 46 applies to public enterprises as of the
beginning of the applicable interim or annual period. The
Company does not expect that the adoption of FIN 46 will
have a material effect on its financial position or results of
operations.


RISK FACTORS



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

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



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

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



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

We have devoted a substantial amount of resources
to the development and marketing of our new Applix Integra
product. We believe that our future financial performance will
be dependent in large part on the success of Applix Integra.
Because Applix Integra just became available for commercial
shipments on October 21, 2002, we cannot yet assess its
market acceptance or predict with accuracy the amount of revenue
it will generate.



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

We have incurred losses from continuing
operations for the last several years. Operating losses and
negative cash flows may continue because of costs and expenses
relating to brand development, marketing

24



---



##### Table of Contents



and other promotional activities, continued
development of our information technology infrastructure,
expansion of product offerings and development of relationships
with other businesses. Although we made progress throughout 2002
towards decreasing operating losses as compared to 2001, there
can be no assurance that we will achieve a profitable level of
operations in the future.


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



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

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

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

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



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

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



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

25



---



##### Table of Contents





| |                                  
| | ---------------------------------
| | WE RELY HEAVILY ON KEY PERSONNEL.

We rely heavily on key personnel throughout the
organization. We have engaged David Mahoney, one of our
directors, to serve as interim President and Chief Executive
Officer, and we are currently seeking a permanent President and
Chief Executive Officer. The transition of these positions to
Mr. Mahoney and any transition to a permanent President and
Chief Executive Officer may result in the distraction of
management and a delay in our ability to execute our business
strategies. The loss of any of our other members of management,
or any of our staff of sales and development professionals,
could prevent us from successfully executing our business
strategies. Any such loss of technical knowledge and industry
expertise could negatively impact our success. Moreover, the
loss of any critical employees or a group thereof, particularly
to a competing organization, could cause us to lose market
share, and the Applix brand could be diminished.



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

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



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

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

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

26



---



##### Table of Contents





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

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



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

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



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

Our collection of trademarks is important to our
business. The protective steps we take or have taken may be
inadequate to deter misappropriation of our trademark rights. We
have filed applications for registration of some of our
trademarks in the United States. Effective trademark protection
may not be available in every country in which we offer or
intend to offer our products and services. Failure to protect
our trademark rights adequately could damage our brand identity
and impair our ability to compete effectively. Furthermore,
defending or enforcing our trademark rights could result in the
expenditure of significant financial and managerial resources.



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

Despite testing by Applix and our customers,
errors may be found in our products after commencement of
commercial shipments. If errors are discovered, we may have to
make significant expenditures of capital to eliminate them and
yet may not be able to successfully correct them in a timely
manner or at all. Errors and failures in our products could
result in a loss of, or delay in, market acceptance of our
products and could damage our reputation and our ability to
convince commercial users of the benefits of our products.

In addition, failures in our products could cause
system failures for our customers who may assert warranty and
other claims for substantial damages against us. Although our
license agreements with our customers typically contain
provisions designed to limit our exposure to potential product
liability claims, it is possible that these provisions may not
be effective or enforceable under the laws of some
jurisdictions. Our insurance policies may not adequately limit
our exposure to this type of claim. These claims, even if
unsuccessful, could be costly and time-consuming to defend.

27



---



##### Table of Contents








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

As a multinational corporation, the Company is
exposed to market risk, primarily from changes in foreign
exchange rates. These exposures may change over time and could
have a material adverse impact on the Companys financial
results. Most of the Companys international sales through
its subsidiaries are denominated in foreign currencies. Relative
to foreign currency exposures existing at December 31,
2002, a 10% unfavorable movement in foreign exchange rates would
not expose the Company to significant losses in earnings or cash
flows. To date, foreign currency fluctuations have not had a
material effect on the Companys operating results.

At December 31, 2002, the Company held
$9,322,000 in cash equivalents, including $933,000 of restricted
cash, consisting primarily of money market funds. Cash
equivalents are classified as available for sale and carried at
fair value, which approximates cost. A hypothetical 10% increase
in interest rates would not have a material impact on the fair
market value of these instruments due to their short maturity
and the Companys intention that all the securities will be
sold within one year. There have been no significant changes in
cash equivalents since December 31, 2002.

28



---



##### Table of Contents






Item 8.     Financial
Statements and Supplementary Data

|                                                                       |  |                                       |        |         |  |         |        |            |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------- |  | ------------------------------------- | ------ | ------- |  | ------- | ------ | ---------- |  | - | ------ | - |  | - | ------ | -
|                                                                       |  | Q1 2002                               |        | Q2 2002 |  | Q3 2002 |        | Q4 2002(a)
|                                                                       |  |                                       |        |         |  |         |        |           
|                                                                       |  |                                      
|                                                                       |  | (Unaudited)                          
|                                                                       |  |                                      
|                                                                       |  | (In thousands, except per share data)
|Revenue from continuing operations                                     |  | $                                     | 9,507  |         |  | $       | 9,075  |            |  | $ | 8,182  |   |  | $ | 9,832  |  
|Gross margin from continuing operations                                |  | $                                     | 6,545  |         |  | $       | 6,000  |            |  | $ | 5,339  |   |  | $ | 6,683  |  
|Restructuring and other charges                                        |  |                                       |       |         |  | $       | (37    | )          |  | $ | 398    |   |  | $ | 20     |  
|Compensation expense and amortization of acquired
    intangible asset |  |                                       | 578    |         |  | $       | 598    |            |  | $ | 616    |   |  | $ | 613    |  
|Write down of notes receivable                                         |  |                                       |       |         |  |         |       |            |  |   |       |   |  | $ | 964    |  
|Net loss from continuing operations                                    |  | $                                     | 130    |         |  | $       | (706   | )          |  | $ | (2,120 | ) |  | $ | (2,874 | )
|Net income (loss) from discontinued operation                          |  | $                                     | 0      |         |  | $       | (85    | )          |  | $ | (43    | ) |  | $ | (76    | )
|                                                                       |  |                                       |        |         |  |         |        |            |  |   |        |   |  |   |        |  
|Net income (loss)                                                      |  | $                                     | 130    |         |  | $       | (791   | )          |  | $ | (2,163 | ) |  | $ | (2,950 | )
|                                                                       |  |                                       |        |         |  |         |        |            |  |   |        |   |  |   |        |  
|Net income (loss) per share basic                                      |  | $                                     | 0.01   |         |  | $       | (0.07  | )          |  | $ | (0.18  | ) |  | $ | (0.24  | )
|Net income (loss) per share diluted                                    |  | $                                     | 0.01   |         |  | $       | (0.07  | )          |  | $ | (0.18  | ) |  | $ | (0.24  | )
|Weighted average number of basic shares
    outstanding                |  |                                       | 12,115 |         |  |         | 12,166 |            |  |   | 12,282 |   |  |   | 12,365 |  
|Weighted average number of diluted shares
    outstanding              |  |                                       | 12,373 |         |  |         | 12,166 |            |  |   | 12,282 |   |  |   | 12,365 |  

|                                                                    |  |                                       |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|------------------------------------------------------------------- |  | ------------------------------------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ | - |  | - | ------ | -
|                                                                    |  | Q1 2001                               |        | Q2 2001 |  | Q3 2001 |        | Q4 2001
|                                                                    |  |                                       |        |         |  |         |        |        
|                                                                    |  |                                      
|                                                                    |  | (Unaudited)                          
|                                                                    |  |                                      
|                                                                    |  | (In thousands, except per share data)
|Revenue                                                             |  | $                                     | 11,327 |         |  | $       | 10,444 |         |  | $ | 8,858  |   |  | $ | 8,776  |  
|Gross margin                                                        |  | $                                     | 6,868  |         |  | $       | 6,718  |         |  | $ | 5,352  |   |  | $ | 5,596  |  
|Restructuring and other charges                                     |  |                                       |       |         |  | $       | 512    |         |  | $ | 438    |   |  | $ | 750    |  
|Amortization of acquired intangible                                 |  | $                                     |       |         |  | $       | 62     |         |  | $ | 62     |   |  | $ | 62     |  
|Permanent impairment of cost based investment                       |  |                                       |       |         |  |         |       |         |  |   |       |   |  | $ | 1,250  |  
|Net loss from continuing operations                                 |  | $                                     | (3,310 | )       |  | $       | (2,679 | )       |  | $ | (2,678 | ) |  | $ | (3,206 | )
|Net income from discontinued operation                              |  |                                       | 718    |         |  |         |       |         |  |   | 363    |   |  |   |       |  
|                                                                    |  |                                       |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|Net loss                                                            |  | $                                     | (2,592 | )       |  | $       | (2,679 | )       |  | $ | (2,315 | ) |  | $ | (3,206 | )
|                                                                    |  |                                       |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|Net loss per share                                                  |  | $                                     | (0.22  | )       |  | $       | (0.23  | )       |  | $ | (0.19  | ) |  | $ | (0.27  | )
|Weighted average number of basic and diluted
    shares outstanding |  |                                       | 11,689 |         |  |         | 11,740 |         |  |   | 11,934 |   |  |   | 11,975 |  



---



|    |                                                                
|--- | ---------------------------------------------------------------
|(a) | Changes in Estimates in The Allowance for
    Doubtful Accounts

The Companys statement of operations for
the quarter ended December 31, 2002 includes a charge of
$879,000 relating to a change in estimate of its allowance for
doubtful accounts.

The Companys Consolidated Financial
Statement and Supplementary Data are included under Item 15
of this Annual Report on Form 10-K are incorporated herein
by reference.




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

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

29



---



##### Table of Contents






PART III




Item 10.     Directors
and Executive Officers of the Registrant

The response to this item is contained in part
under the caption Executive Officers of the Company
in Part I of this Annual Report on Form 10-K, and in
part in the Companys Proxy Statement for the Annual
Meeting of Stockholders to be held on June 12, 2003 (the
2003 Proxy Statement) in the sections entitled
Election of Directors  Members of the Board of
Directors and Other Matters 
Section 16(a) Beneficial Ownership Reporting
Compliance, which sections are incorporated herein by
reference.




Item 11.     Executive
Compensation

The response to this item is contained in the
2003 Proxy Statement in the sections entitled Election of
Directors Compensation of Directors and Executive
Compensation, which sections are incorporated herein by
reference.






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

The response to this item is contained in the
2003 Proxy Statement in the sections entitled Beneficial
Ownership of Voting Stock and Equity Compensation
Plan Information which sections are incorporated herein by
reference.




Item 13.     Certain
Relationships and Related Transactions

The response to this item is contained in the
2003 Proxy Statement in the section entitled Certain
Relationships and Related Transactions which section is
incorporated herein by reference.




Item 14.     Controls
and Procedures

(a) Evaluation of disclosure controls and
procedures. Based on their evaluation as of a date within
90 days of the filing date of this Annual Report on
Form 10-K, the Companys principal executive officer
and principal financial officer have concluded that the
Companys disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934 (the Exchange Act)) are effective to
ensure that information required to be disclosed by the Company
in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules
and forms.

(b) Changes in internal controls.
There were no significant changes in the Companys internal
controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.




PART IV




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

(a) 1. Consolidated Financial
Statements.

The consolidated financial statements listed in
the accompanying Index to Consolidated Financial Statements and
Financial Statement Schedule is filed as a part of this Annual
Report on Form 10-K.

2. Consolidated Financial Statement
Schedule.

The consolidated financial statement schedule
listed in the accompanying Index to Consolidated Financial
Statements and Financial Statement Schedule is filed as a part
of this Annual Report on Form 10-K.

30



---



##### Table of Contents



3. Exhibits.

The exhibits filed as a part of this Annual
Report on Form 10-K are as follows:

| |    |         |  |   |  |                                                                                                                                                                                                                                                                                                                                                                   
| | -- | ------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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(2)   |  |  |  | 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.
| | 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(7)+  |  |  |  | Employment Agreement dated June 27, 2000
    between the Registrant and Jitendra Saxena, and Supplemental
    Agreement to Employment Agreement, dated March 19, 2001
    between the Registrant and Jitendra Saxena.                                                                                                                                             
| | 10 | .7      |  |  |  | Consulting Agreement between the Registrant and
    David C. Mahoney, dated September 10, 2001 and Termination
    Agreement, dated March 29, 2003, between the Registrant and
    David C. Mahoney.                                                                                                                                                              
| | 10 | .8+     |  |  |  | Severance Agreement, dated February 27,
    2003, between the Registrant and Alan Goldsworthy.                                                                                                                                                                                                                                                                    
| | 10 | .9(9)   |  |  |  | Termination Agreement, dated January 14,
    2002, by and between the Registrant, Applix GmbH and Michael
    Scheib.                                                                                                                                                                                                                                             
| | 10 | .10(6)+ |  |  |  | Executive Stock Option Acceleration Agreement
    between the Registrant and Craig Cervo, dated June 9, 2000.                                                                                                                                                                                                                                                     
| | 10 | .11(8)+ |  |  |  | Executive Change-in-Control Agreement between the
    Registrant and Walt Hilger, dated September 27, 2001.                                                                                                                                                                                                                                                       
| | 10 | .12(10) |  |  |  | Secured Promissory Note and Pledge Agreement
    entered into on July 31, 2000 between the Registrant and
    Alan Goldsworthy.                                                                                                                                                                                                                                   
| | 10 | .13(10) |  |  |  | Secured Promissory Note and Pledge Agreement
    entered into on July 31, 2000 between the Registrant and Ed
    Terino.                                                                                                                                                                                                                                          
| | 10 | .14(8)  |  |  |  | Asset Purchase Agreement by and among Real-Time
    International, Inc., VistaSource, Inc., Applix, Inc., Veriteam,
    Inc., VistaSource France, VistaSource GmbH and VistaSource UK,
    Ltd., dated as of March 14, 2001.                                                                                                                                      
| | 10 | .15(11) |  |  |  | Export-Import Bank Loan and Security Agreement,
    dated December 5, 2001 among the Registrant, Applix
    (UK) Limited, Applix Australia Pty, Ltd., Veritem Ltd. And
    Silicon Valley Bank.                                                                                                                                                                   
| | 10 | .16(11) |  |  |  | Borrower Agreement by the Registrant, Applix
    (UK) Limited, Applix Australia Pty, Ltd., Veriteam, Ltd. in
    favor of the Export-Import Bank and Silicon Valley Bank.                                                                                                                                                                                         
| | 10 | .17(11) |  |  |  | Loan and Security Agreement, dated
    December 5, 2001 between the Registrant and Silicon Valley
    Bank.                                                                                                                                                                                                                                                       
| | 10 | .18(11) |  |  |  | Non-Recourse Receivables Purchase Agreement dated
    December 31, 2001, between the Registrant and Silicon
    Valley Bank.                                                                                                                                                                                                                                      
| | 21 | .1      |  |  |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                   
| | 23 | .1      |  |  |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                                                                                                     
| | 23 | .2      |  |  |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                            

31



---



##### Table of Contents



| |    |    |  |   |  |                                                                                                                                                          
| | -- | -- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | 99 | .1 |  |  |  | Certification of Chief Executive Officer Pursuant
    to 18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002
| | 99 | .2 |  |  |  | Certification of Chief Financial Officer Pursuant
    to 18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002



---



| |    |                                                                                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, 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 Quarterly Report on Form 10-Q for the
    fiscal quarter ended September 30, 2001, as filed with the
    Commission on November 14, 2001.                          
|
| | 9. | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    fiscal quarter ended March 31, 2002, as filed with the
    Commission on May 15, 2002.                                   



|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    fiscal quarter ended September 30, 2000, as filed with the
    Commission on November 14, 2000.
|   
|11. | 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.       



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

(b) Reports on Form 8-K

The Company filed no reports on Form 8-K
during the last quarter of the year for which this report was
filed.

32



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf as of
March 31, 2003 by the undersigned, thereunto duly
authorized.



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



| |     |                     
| | --- | --------------------
| | By: | /s/ DAVID C. MAHONEY

| |                                                              
| | -------------------------------------------------------------
| | ______________________________________ 
     David C. Mahoney
| | Chief Executive Officer                                      

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

|                                         |  |                                                                                            |  |                |  | 
|---------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | -------------- |  | 
|                                         |  |                                                                                            |  |               
|Signature                                |  | Title                                                                                      |  | Date          
|                                         |  |                                                                                            |  |               
|                                        
|/s/ DAVID C. MAHONEYDavid C. Mahoney     |  | Chief Executive Officer
    (Principal Executive Officer)                                  |  | March 31, 2003
|                                        
|/s/ WALT HILGERWalt Hilger               |  | Chief Financial Officer and Treasurer (Principal
    Financial and
    Accounting Officer) |  | March 31, 2003
|                                        
|/s/ PETER GYENESPeter Gyenes             |  | Director                                                                                   |  | March 31, 2003
|                                        
|/s/ ALAIN J. HANOVERAlain J. Hanover     |  | Director                                                                                   |  | March 27, 2003
|                                        
|/s/ JOHN D. LOEWENBERGJohn D. Loewenberg |  | Director                                                                                   |  | March 31, 2003
|                                        
|/s/ CHARLES F. KANECharles F. Kane       |  | Director                                                                                   |  | March 28, 2003
|                                        
|/s/ BRAD FIREBrad Fire                   |  | Director                                                                                   |  | March 29, 2003

33



---



##### Table of Contents






CERTIFICATIONS

I, David Mahoney, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Applix, Inc.;                                                                                                                                                                                                                                                                        
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | Presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



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



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | All significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | Any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | /s/ DAVID C. MAHONEY 
     _______________________________________ 
     David C. Mahoney
| | Chief Executive Officer                                                                  

Dated: March 31, 2003

34



---



##### Table of Contents



I, Walt Hilger, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this annual report on
    Form 10-K of Applix, Inc.;                                                                                                                                                                                                                                                                        
|
| | 2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | Presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



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



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | All significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | Any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this annual report whether there were
    significant changes in internal controls or in other factors
    that could significantly affect internal controls subsequent to
    the date of our most recent evaluation, including any corrective
    actions with regard to significant deficiencies and material
    weaknesses.



| |                                                                                
| | -------------------------------------------------------------------------------
| | /s/ WALT HILGER 
     _______________________________________ 
     Walt Hilger
| | Chief Financial Officer                                                        

Dated: March 31, 2003

35



---



##### Table of Contents



Index to Consolidated Financial Statements
and Financial Statement Schedule

|                                                                                                         |  |      |    | 
|-------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                         |  | Page
|                                                                                                         |  |     
|Report of Ernst & Young LLP, Independent
    Auditors                                                    |  |      | 37 | 
|Report of Independent Accountants                                                                        |  |      | 38 | 
|Consolidated Balance Sheets at December 31,
    2002 and 2001                                            |  |      | 39 | 
|Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001, and 2000          |  |      | 41 | 
|Consolidated Statements of Stockholders
    Equity for the years ended December 31, 2002, 2001 and 2000 |  |      | 42 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000           |  |      | 43 | 
|Notes to Consolidated Financial Statements                                                               |  |      | 44 | 
|Schedule II  Valuation and
    Qualifying Account                                                       |  |      | 67 | 

Schedules other than those referred to above have
been omitted because they are not applicable or not required or
because the information is included elsewhere in the
Consolidated Financial Statements or the notes thereto.

36



---



##### Table of Contents



Report of Ernst & Young LLP,
Independent Auditors

The Board of Directors and Stockholders

Applix, Inc.


We have audited the accompanying consolidated
balance sheets of Applix, Inc. as of December 31, 2002 and
2001, and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the two
years in the period ended December 31, 2002. Our audits
also included the financial statement schedule for the years
ended December 31, 2002 and 2001 listed in the Index at
Item 15(a). These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.

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

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Applix, Inc. at
December 31, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the two years in
the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule
for the years ended December 31, 2002 and 2001, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.

As discussed in Note 2 to the consolidated
financial statements, effective January 1, 2002 the Company
changed its method of accounting for goodwill and other
intangible assets in accordance with the adoption of Statement
of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Boston, Massachusetts

March 7, 2003, except for Note 19,


as to which the date is


March 17, 2003


37



---



##### Table of Contents



Report of Independent Accountants

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

In our opinion, the consolidated financial
statements listed in the index appearing under
Item 15(a)(1) present fairly, in all material respects, the
results of operation and cash flows of Applix, Inc. and its
subsidiaries for the year ended December 31, 2000, in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally
accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts

January 24, 2001


38



---



##### Table of Contents



APPLIX, INC.

CONSOLIDATED BALANCE SHEET

December 31, 2002 and 2001


(In thousands, except per share and share
data)


ASSETS

|                                                                                                   |                      |                                                                                                  |                                                |        |        |         |        |        |        |         |  
|-------------------------------------------------------------------------------------------------- | -------------------- | ------------------------------------------------------------------------------------------------ | ---------------------------------------------- | ------ | ------ | ------- | ------ | ------ | ------ | ------- | -
|                                                                                                   |                      | 2002                                                                                             |                                                | 2001  
|                                                                                                   |                      |                                                                                                  |                                                |       
|Current assets:                                                                                    |                      |                                                                                                  |                                                |        |        |         |        |       
|                                                                                                   |                      | Cash and cash equivalents                                                                        |                                                | $      | 8,389  |         |        | $      | 8,228  |        
|                                                                                                   |                      | Accounts receivable, less allowance for doubtful
    accounts of $2,098 and $1,446, respectively |                                                |        | 5,810  |         |        |        | 7,202  |        
|                                                                                                   |                      | Other current assets                                                                             |                                                |        | 1,906  |         |        |        | 1,672  |        
|                                                                                                   |                      |                                                                                                  |                                                |        |        |         |        |       
|                                                                                                   | Total current assets |                                                                                                  |                                                | 16,105 |        |         |        | 17,102 |       
|Restricted cash                                                                                    |                      |                                                                                                  | 933                                            |        |        |         | 1,050  |       
|Property and equipment, at cost:                                                                   |                      |                                                                                                  |                                                |        |        |         |        |       
|                                                                                                   |                      | Computer equipment                                                                               |                                                |        | 12,194 |         |        |        | 11,959 |        
|                                                                                                   |                      | Office furniture, equipment and leasehold
    improvements                                       |                                                |        | 2,439  |         |        |        | 2,292  |        
|                                                                                                   |                      |                                                                                                  |                                                |        |        |         |        |       
|                                                                                                   |                      |                                                                                                  | 14,633                                         |        |        |         | 14,251 |       
|                                                                                                   |                      |                                                                                                  | Less accumulated amortization and depreciation |        |        | (12,758 | )      |        |        | (11,722 | )
|                                                                                                   |                      |                                                                                                  |                                                |        |        |         |        |       
|                                                                                                   |                      |                                                                                                  | Net property and equipment                     |        |        | 1,875   |        |        |        | 2,529   |  
|Capitalized software costs, net of accumulated
    amortization of $2,733 and $1,598, respectively |                      |                                                                                                  | 1,460                                          |        |        |         | 1,042  |       
|Goodwill, net of accumulated amortization of
    $1,084 (Note 2)                                   |                      |                                                                                                  | 1,187                                          |        |        |         | 1,117  |       
|Intangible assets, net of accumulated
    amortization of $438 and $186, respectively              |                      |                                                                                                  | 1,062                                          |        |        |         | 1,314  |       
|Other assets                                                                                       |                      |                                                                                                  | 925                                            |        |        |         | 784    |       
|                                                                                                   |                      |                                                                                                  |                                                |        |        |         |        |       
|TOTAL ASSETS                                                                                       |                      | $                                                                                                | 23,547                                         |        |        | $       | 24,938 |       
|                                                                                                   |                      |                                                                                                  |                                                |        |        |         |        |       

See accompanying Notes to Consolidated Financial
Statements.

39



---



##### Table of Contents



APPLIX, INC.

CONSOLIDATED BALANCE SHEET
(Continued)

December 31, 2002 and 2001


(In thousands, except share and per share
data)


LIABILITIES AND STOCKHOLDERS
EQUITY

|                                               |                                                                                                                         |      |        |         |   |   |        |         |  
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ---- | ------ | ------- | - | - | ------ | ------- | -
|                                               |                                                                                                                         | 2002 |        | 2001   
|                                               |                                                                                                                         |      |        |        
|Current liabilities:                           |                                                                                                                         |      |        |         |   |   |        |        
|                                               | Accounts payable                                                                                                        |      | $      | 2,296   |   |   | $      | 2,137   |  
|                                               | Accrued expenses                                                                                                        |      |        | 7,874   |   |   |        | 6,898   |  
|                                               | Deferred revenue                                                                                                        |      |        | 8,703   |   |   |        | 6,711   |  
|                                               |                                                                                                                         |      |        |         |   |   |        |        
|Total current liabilities                      |                                                                                                                         |      | 18,873 |         |   |   | 15,746 |        
|Long term liabilities                          |                                                                                                                         |      | 566    |         |   |   | 709    |        
|Commitments and contingencies (Note 18)        |                                                                                                                         |      |       |         |   |   |       |        
|Stockholders equity:                          |                                                                                                                         |      |        |         |   |   |        |        
|                                               | Preferred stock, $.01 par value; 1,000,000 shares
    authorized; none issued                                           |      |        |        |   |   |        |        |  
|                                               | Common stock, $.0025 par value; 30,000,000 shares
    authorized; 12,675,176 and 12,320,096 shares issued, respectively |      |        | 32      |   |   |        | 31      |  
|                                               | Additional paid in capital                                                                                              |      |        | 49,600  |   |   |        | 49,212  |  
|                                               | Accumulated deficit                                                                                                     |      |        | (43,834 | ) |   |        | (38,060 | )
|                                               | Accumulated other comprehensive loss                                                                                    |      |        | (329    | ) |   |        | (503    | )
|                                               | Notes receivable from stock purchase agreements                                                                         |      |        |        |   |   |        | (1,120  | )
|                                               |                                                                                                                         |      |        |         |   |   |        |        
|                                               |                                                                                                                         |      | 5,469  |         |   |   | 9,560  |        
|                                               | Less: Treasury stock, 306,198 shares                                                                                    |      |        | (1,361  | ) |   |        | (1,077  | )
|Total stockholders equity                     |                                                                                                                         |      | 4,108  |         |   |   | 8,483  |        
|                                               |                                                                                                                         |      |        |         |   |   |        |        
|TOTAL LIABILITIES AND STOCKHOLDERS
    EQUITY |                                                                                                                         | $    | 23,547 |         |   | $ | 24,938 |        
|                                               |                                                                                                                         |      |        |         |   |   |        |        

See accompanying Notes to Consolidated Financial
Statements.

40



---



##### Table of Contents



APPLIX, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

Years Ended December 31, 2002, 2001 and
2000


(In thousands, except per share
data)


|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |        |        |  
|------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ------ | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | -
|                                                                    |                                                                                   | 2002                                                                                                                                       |        | 2001   |        | 2000
|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |     
|Revenues:                                                           |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|                                                                    | Software license                                                                  |                                                                                                                                            | $      | 16,050 |        |      | $       | 18,406 |        |   | $       | 23,735 |       
|                                                                    | Professional services and maintenance                                             |                                                                                                                                            |        | 20,546 |        |      |         | 20,999 |        |   |         | 16,504 |       
|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|                                                                    |                                                                                   | Total revenues                                                                                                                             |        |        | 36,596 |      |         |        | 39,405 |   |         |        | 40,239 |  
|Cost of revenues:                                                   |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|                                                                    | Software license                                                                  |                                                                                                                                            |        | 2,040  |        |      |         | 1,214  |        |   |         | 1,985  |       
|                                                                    | Professional services and maintenance                                             |                                                                                                                                            |        | 9,989  |        |      |         | 13,657 |        |   |         | 13,757 |       
|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|                                                                    |                                                                                   | Total cost of revenues                                                                                                                     |        |        | 12,029 |      |         |        | 14,871 |   |         |        | 15,742 |  
|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|Gross margin                                                        |                                                                                   |                                                                                                                                            | 24,567 |        |        |      | 24,534  |        |        |   | 24,497  |       
|Operating expenses:                                                 |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|                                                                    | Sales and marketing                                                               |                                                                                                                                            |        | 15,311 |        |      |         | 21,671 |        |   |         | 25,580 |       
|                                                                    | Product development                                                               |                                                                                                                                            |        | 5,699  |        |      |         | 6,848  |        |   |         | 7,502  |       
|                                                                    | General and administrative                                                        |                                                                                                                                            |        | 5,249  |        |      |         | 4,484  |        |   |         | 4,292  |       
|                                                                    | Compensation expenses and amortization of
    acquired intangible asset (Note 10) |                                                                                                                                            |        | 2,405  |        |      |         | 186    |        |   |         |       |       
|                                                                    | Write down of notes receivable                                                    |                                                                                                                                            |        | 964    |        |      |         |       |        |   |         |       |       
|                                                                    | Restructuring expense                                                             |                                                                                                                                            |        | 381    |        |      |         | 1,700  |        |   |         |       |       
|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|                                                                    |                                                                                   | Total operating expenses                                                                                                                   |        |        | 30,009 |      |         |        | 34,889 |   |         |        | 37,374 |  
|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|Operating loss                                                      |                                                                                   |                                                                                                                                            | (5,442 | )      |        |      | (10,355 | )      |        |   | (12,877 | )     
|Non-operating income (expenses):                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|Permanent impairment of cost based investment                       |                                                                                   |                                                                                                                                            |       |        |        |      | (1,250  | )      |        |   |        |       
|Interest and other income (expense), net                            |                                                                                   |                                                                                                                                            | (47    | )      |        |      | 290     |        |        |   | 1,153   |       
|Net gain from sale of subsidiary (Note 11)                          |                                                                                   |                                                                                                                                            | 141    |        |        |      |        |        |        |   |        |       
|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|Loss before taxes                                                   |                                                                                   |                                                                                                                                            | (5,348 | )      |        |      | (11,315 | )      |        |   | (11,724 | )     
|Provision for income taxes                                          |                                                                                   |                                                                                                                                            | (222   | )      |        |      | (558    | )      |        |   | (3,583  | )     
|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|Loss from continuing operations                                     |                                                                                   |                                                                                                                                            | (5,570 | )      |        |      | (11,873 | )      |        |   | (15,307 | )     
|Discontinued operations:                                            |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|                                                                    |                                                                                   | Loss from discontinued operations, including
    income tax provision of $63 in 2000                                                       |        |        | (204   | )    |         |        |       |   |         |        | (367   | )
|                                                                    |                                                                                   | Gain (loss) on disposal of discontinued
    operations, including a provision of $2,367 for losses during
    the phase-out period in 2000 |        |        |       |      |         |        | 1,081  |   |         |        | (3,238 | )
|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|Net loss                                                            |                                                                                   | $                                                                                                                                          | (5,774 | )      |        | $    | (10,792 | )      |        | $ | (18,912 | )     
|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|Net loss per share, basic and diluted                               |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|                                                                    | Continuing operations                                                             |                                                                                                                                            | $      | (0.46  | )      |      | $       | (1.00  | )      |   | $       | (1.36  | )     
|                                                                    | Discontinuing operations                                                          |                                                                                                                                            |        | (0.02  | )      |      |         | 0.09   |        |   |         | (0.32  | )     
|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|                                                                    |                                                                                   | Total loss per share                                                                                                                       |        | $      | (0.47  | )    |         | $      | (0.91  | ) |         | $      | (1.68  | )
|                                                                    |                                                                                   |                                                                                                                                            |        |        |        |      |         |        |        |   |         |       
|Weighted average number of basic and diluted
    shares outstanding |                                                                                   |                                                                                                                                            | 12,223 |        |        |      | 11,861  |        |        |   | 11,246  |       

See accompanying Notes to Consolidated Financial
Statements.

41



---



##### Table of Contents



APPLIX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

Years Ended December 31, 2002, 2001 and
2000


(in thousands, except share data)


|                                                                           |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|-------------------------------------------------------------------------- |  | ------ | -- | ---------- |  | ----------- | ------ | ------------- |  | ------------ | ------- | ---------- |  | -------- | ---- | ----- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                                                           |  |        |    |            |  |             |        |               |  |              |         | Notes      |  |          |      |      
|                                                                           |  |        |    |            |  |             |        | Accumulated   |  |              |         | Receivable |  |          |      |      
|                                                                           |  |        |    | Additional |  |             |        | Other         |  |              |         | from Stock |  |          |      |      
|                                                                           |  | Common |    | Paid In    |  | Accumulated |        | Comprehensive |  | Unearned     |         | Purchase   |  | Treasury |      |      
|                                                                           |  | Stock  |    | Capital    |  | Deficit     |        | (Loss) Income |  | Compensation |         | Agreement  |  | Stock    |      | Total
|                                                                           |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |      
|Balance, December 31, 1999                                                 |  | $      | 29 |            |  | $           | 47,113 |               |  | $            | (8,356  | )          |  | $        | (556 | )     |  | $ | (1,440 | ) |  | $ |       |   |  | $ | (1,077 | ) |  | $ | 35,713  |  
|Stock issued under stock plans (188,591 shares)                            |  |        |    |            |  |             | 1,184  |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 1,184   |  
|Issuance of restricted stock (256,002 shares)                              |  |        | 1  |            |  |             | 1,119  |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   | (1,120 | ) |  |   |        |   |  |   |        |  
|Amortization of unearned compensation                                      |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |       |  |   | 273    |   |  |   |        |   |  |   |        |   |  |   | 273     |  
|Forfeiture of restricted stock                                             |  |        |    |            |  |             | (1,167 | )             |  |              |         |            |  |          |      |       |  |   | 1,167  |   |  |   |        |   |  |   |        |   |  |   |        |  
|Net loss                                                                   |  |        |    |            |  |             |        |               |  |              | (18,912 | )          |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | (18,912 | )
|Foreign currency exchange translation adjustment                           |  |        |    |            |  |             |        |               |  |              |         |            |  |          | (24  | )     |  |   |        |   |  |   |        |   |  |   |        |   |  |   | (24     | )
|                                                                           |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Comprehensive loss                                                         |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | (18,936 | )
|                                                                           |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2000                                                 |  |        | 30 |            |  |             | 48,249 |               |  |              | (27,268 | )          |  |          | (580 | )     |  |   |       |   |  |   | (1,120 | ) |  |   | (1,077 | ) |  |   | 18,234  |  
|Stock issued under stock plans (326,203 shares)                            |  |        | 1  |            |  |             | 736    |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 737     |  
|Stock issued for the acquisition of Dynamic
    Decisions (100,000 shares) |  |        |    |            |  |             | 227    |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 227     |  
|Net loss                                                                   |  |        |    |            |  |             |        |               |  |              | (10,792 | )          |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | (10,792 | )
|Foreign currency exchange translation adjustment                           |  |        |    |            |  |             |        |               |  |              |         |            |  |          | 77   |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 77      |  
|                                                                           |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Comprehensive loss                                                         |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | (10,715 | )
|                                                                           |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2001                                                 |  |        | 31 |            |  |             | 49,212 |               |  |              | (38,060 | )          |  |          | (503 | )     |  |   |       |   |  |   | (1,120 | ) |  |   | (1,077 | ) |  |   | 8,483   |  
|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                           |  |        |    |            |  |             |        |               |  |              |         |            |  |          | 174  |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 174     |  
|                                                                           |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Comprehensive loss                                                         |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | (5,600  | )
|                                                                           |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2002                                                 |  | $      | 32 |            |  | $           | 49,600 |               |  | $            | (43,834 | )          |  | $        | (329 | )     |  | $ |       |   |  | $ |       |   |  | $ | (1,361 | ) |  | $ | 4,108   |  
|                                                                           |  |        |    |            |  |             |        |               |  |              |         |            |  |          |      |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   |         |  

See accompanying Notes to Consolidated Financial
Statements.

42



---



##### Table of Contents



APPLIX, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

Years Ended December 31, 2002, 2001 and
2000


|                                                     |                                                                                               |                                                              |                                                 |        |        |        |        |         |        |        |        |         |         |        |  
|---------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------------- | ------ | ------ | ------ | ------ | ------- | ------ | ------ | ------ | ------- | ------- | ------ | -
|                                                     |                                                                                               | 2002                                                         |                                                 | 2001   |        | 2000  
|                                                     |                                                                                               |                                                              |                                                 |        |        |       
|Cash flows from operating
    activities:            |                                                                                               |                                                              |                                                 |        |        |        |        |         |        |        |        |        
|                                                     | Net loss                                                                                      |                                                              | $                                               | (5,774 | )      |        | $      | (10,792 | )      |        | $      | (18,912 | )      
|                                                     | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                              |                                                 |        |        |        |        |         |        |        |        |         |        
|                                                     |                                                                                               | Depreciation                                                 |                                                 |        | 1,097  |        |        |         | 1,410  |        |        |         | 2,032   |       
|                                                     |                                                                                               | Amortization                                                 |                                                 |        | 1,387  |        |        |         | 1,086  |        |        |         | 1,330   |       
|                                                     |                                                                                               | Provision for doubtful accounts, net                         |                                                 |        | 652    |        |        |         | 49     |        |        |         | 344     |       
|                                                     |                                                                                               | Write-off of impaired investment                             |                                                 |        |       |        |        |         | 1,250  |        |        |         |        |       
|                                                     |                                                                                               | (Gain) loss from discontinued operations                     |                                                 |        |       |        |        |         | (1,081 | )      |        |         | 3,238   |       
|                                                     |                                                                                               | Gain on sale of subsidiary                                   |                                                 |        | (141   | )      |        |         |       |        |        |         |        |       
|                                                     |                                                                                               | Non-cash restructuring charges                               |                                                 |        |       |        |        |         | 92     |        |        |         |        |       
|                                                     |                                                                                               | Write down of notes receivable                               |                                                 |        | 964    |        |        |         |       |        |        |         |        |       
|                                                     |                                                                                               | Non-cash stock compensation expense                          |                                                 |        |       |        |        |         | 30     |        |        |         | 573     |       
|                                                     |                                                                                               | Deferred income taxes                                        |                                                 |        | (131   | )      |        |         |       |        |        |         | 3,001   |       
|                                                     | Changes in operating assets and liabilities:                                                  |                                                              |                                                 |        |        |        |        |         |        |        |        |         |        
|                                                     |                                                                                               | (Increase) decrease in accounts receivable                   |                                                 |        | (2,010 | )      |        |         | 4,635  |        |        |         | (1,214  | )     
|                                                     |                                                                                               | Sale of accounts receivables                                 |                                                 |        | 2,323  |        |        |         | 361    |        |        |         |        |       
|                                                     |                                                                                               | (Increase) decrease in other assets                          |                                                 |        | (558   | )      |        |         | 566    |        |        |         | 864     |       
|                                                     |                                                                                               | (Increase) decrease in restricted cash                       |                                                 |        | 117    |        |        |         | (1,050 | )      |        |         |        |       
|                                                     |                                                                                               | Increase (decrease) in accounts payable                      |                                                 |        | 182    |        |        |         | (540   | )      |        |         | 433     |       
|                                                     |                                                                                               | Increase (decrease) in accrued liabilities                   |                                                 |        | 1,303  |        |        |         | (2,021 | )      |        |         | 381     |       
|                                                     |                                                                                               | Increase in other liabilities                                |                                                 |        |       |        |        |         | 195    |        |        |         |        |       
|                                                     |                                                                                               | Increase (decrease) in deferred revenue                      |                                                 |        | 2,247  |        |        |         | 2,389  |        |        |         | (1,042  | )     
|                                                     |                                                                                               | Increase in accrued discontinued operations                  |                                                 |        |       |        |        |         | 196    |        |        |         |        |       
|                                                     |                                                                                               |                                                              |                                                 |        |        |        |        |         |        |        |        |        
|                                                     |                                                                                               |                                                              | Cash provided by (used in) operating activities |        |        | 1,658  |        |         |        | (3,225 | )      |         |         | (8,972 | )
|Cash flows from investing
    activities:            |                                                                                               |                                                              |                                                 |        |        |        |        |         |        |        |        |        
|                                                     |                                                                                               | Property and equipment expenditures                          |                                                 |        | (680   | )      |        |         | (856   | )      |        |         | (2,655  | )     
|                                                     |                                                                                               | Capitalized software costs                                   |                                                 |        | (1,553 | )      |        |         | (844   | )      |        |         | (1,803  | )     
|                                                     |                                                                                               | Payment for disposition of subsidiary                        |                                                 |        |       |        |        |         | (100   | )      |        |         |        |       
|                                                     |                                                                                               | Net proceeds from sale of discontinued operation             |                                                 |        |       |        |        |         | 1,300  |        |        |         |        |       
|                                                     |                                                                                               | Proceeds from sale of subsidiary                             |                                                 |        | 362    |        |        |         |       |        |        |         |        |       
|                                                     |                                                                                               | Payment for acquisition, net of cash acquired                |                                                 |        |       |        |        |         | (1,733 | )      |        |         |        |       
|                                                     |                                                                                               | Purchase of short-term investment                            |                                                 |        |       |        |        |         |       |        |        |         | (31,715 | )     
|                                                     |                                                                                               | Maturities of short-term investments                         |                                                 |        |       |        |        |         |       |        |        |         | 46,870  |       
|                                                     |                                                                                               |                                                              |                                                 |        |        |        |        |         |        |        |        |        
|                                                     |                                                                                               |                                                              | Cash (used in) provided by investing activities |        |        | (1,871 | )      |         |        | (2,233 | )      |         |         | 10,697 |  
|Cash flows from financing
    activities:            |                                                                                               |                                                              |                                                 |        |        |        |        |         |        |        |        |        
|                                                     |                                                                                               | Proceeds from issuance of common stock under
    stock plans |                                                 |        | 389    |        |        |         | 737    |        |        |         | 1,184   |       
|                                                     |                                                                                               | Payment of notes payable                                     |                                                 |        |       |        |        |         |       |        |        |         | (660    | )     
|                                                     |                                                                                               | Payment on short-term borrowing                              |                                                 |        | (368   | )      |        |         |       |        |        |         |        |       
|                                                     |                                                                                               | Proceeds from short-term borrowing                           |                                                 |        | 237    |        |        |         | 368    |        |        |         |        |       
|                                                     |                                                                                               |                                                              |                                                 |        |        |        |        |         |        |        |        |        
|                                                     |                                                                                               |                                                              | Cash provided by financing activities           |        |        | 258    |        |         |        | 1,105  |        |         |         | 524    |  
|Effect of exchange rate changes on cash              |                                                                                               |                                                              | 116                                             |        |        |        | 35     |         |        |        | (24    | )      
|                                                     |                                                                                               |                                                              |                                                 |        |        |        |        |         |        |        |        |        
|Increase (decrease) in cash and cash
    equivalents |                                                                                               |                                                              | 161                                             |        |        |        | (4,318 | )       |        |        | 2,225  |        
|Cash and cash equivalents at beginning of
    period |                                                                                               |                                                              | 8,228                                           |        |        |        | 12,546 |         |        |        | 10,321 |        
|                                                     |                                                                                               |                                                              |                                                 |        |        |        |        |         |        |        |        |        
|Cash and cash equivalents at end of
    period       |                                                                                               | $                                                            | 8,389                                           |        |        | $      | 8,228  |         |        | $      | 12,546 |        
|                                                     |                                                                                               |                                                              |                                                 |        |        |        |        |         |        |        |        |        
|Supplemental disclosure of cash flow
    information |                                                                                               |                                                              |                                                 |        |        |        |        |         |        |        |        |        
|                                                     |                                                                                               | Stock issued for acquisition of Dynamic Decisions            |                                                 | $      |       |        |        | $       | 227    |        |        | $       |        |       
|                                                     |                                                                                               | Stock issued in exchange of stockholder notes
    receivable |                                                 | $      |       |        |        | $       |       |        |        | $       | 1,120   |       
|                                                     |                                                                                               | Cash paid for income tax                                     |                                                 | $      | 319    |        |        | $       | 311    |        |        | $       | 110     |       

See accompanying Notes to Consolidated Financial
Statements.

43



---



##### Table of Contents



APPLIX, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     NATURE OF
BUSINESS

The Company is a global provider of business
performance management (BPM) and business intelligence
(BI) solutions, focused on interactive planning, budgeting
and analytics. Historically, the Company had also been a
provider of customer relationship management
(CRM) solutions. The company sold its CRM business in
January 2003 (See Note 19). The Companys operating
results reflect the CRM business for all periods presented.
These combined products represented one principal business
segment, which Applix reports as its continuing operations.

On March 30, 2001, the Company sold its
VistaSource business unit, previously reported as the Linux
Division. This unit has been reported as a discontinued
operation for all periods presented.

The Company has incurred losses from continuing
operations for the last several years. As of December 31,
2002, the Company had an accumulated deficit of
$43.8 million. Operating losses and negative cash flows may
continue because of costs and expenses relating to brand
development, marketing and other promotional activities,
continued development of the Companys information
technology infrastructure, expansion of product offerings and
development of relationships with other businesses.
Managements plans include increasing revenue and
generating positive cash flows from operations. The Company made
progress in 2002 towards decreasing operating losses for the
year compared to the prior year. Additionally, the Company
improved its 2002 cash flow and improved its cash position at
December 31, 2002. The Company currently expects that the
principal sources of funding for its operating expenses, capital
expenditures and other liquidity needs will be a combination of
its available cash balances, which includes funds received from
the sale of the Companys CRM business (See Note 19)
and, funds expected to be generated from operations and its
accounts receivable purchase facility. The Company believes that
its currently available sources of funds will be sufficient to
fund its operations for at least the next 12 months.
However, there are a number of factors that may negatively
impact the Companys available sources of funds. The amount
of cash generated from operations will be dependent upon such
factors as the successful execution of the Companys
business plan, the market acceptance of Applix Integra and
worldwide economic conditions including information technology
spending. Should the Company not meet its plans to generate
sufficient revenue or positive cash flows, it may need to raise
additional capital or reduce spending.

2.     SIGNIFICANT
ACCOUNTING POLICIES



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

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



| |                  
| | -----------------
| | Reclassifications

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



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

The Company generates revenues mainly from
licensing the rights to use its software products and providing
services. The Company sells products primarily through a direct
sales force, indirect channel

44



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

partners and Original Equipment Manufacturers
(OEMs). The Company accounts for software revenue
transactions in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition, as
amended. Revenues from software arrangements are recognized when:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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                                                                                                                                                                                                                                                                                                                                                                         

The Company also uses the residual method under
SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition with Respect to Certain Transactions.
Under the residual method, the fair value of the undelivered
elements is deferred and the remaining portion of the
arrangement fee is allocated to the delivered elements and is
recognized as revenue, assuming all other conditions for revenue
recognition have been satisfied. Substantially all of the
Companys product revenue is recognized in this manner. If
the Company cannot determine the fair value of any undelivered
element included in an arrangement, the Company will defer
revenue until all elements are delivered, until services are
performed or until fair value of the undelivered elements can be
objectively determined. In circumstances where the Company
offers significant and incremental fair value discounts for
future purchases of other software products or services to its
customers as part of an arrangement, utilizing the residual
method the Company defers the value of the discount and
recognizes such discount to revenue as the related product or
service is delivered.

As part of an arrangement, end-user customers
typically purchase maintenance contracts as well as professional
services from the Company. Maintenance services include
telephone and Web based support as well as rights to unspecified
upgrades and enhancements, when and if the Company makes them
generally available. Substantially all of the Companys
software license revenue is earned from perpetual licenses of
off-the-shelf software requiring no modification or
customization. Therefore, professional services are deemed to be
non-essential to the functionality of the software and typically
are for implementation planning, loading of software, training,
building simple interfaces and running test data.

Revenues from maintenance services are recognized
ratably over the term of the maintenance contract period, which
is typically one year, based on vendor specific objective
evidence of fair value. Vendor specific objective evidence of
fair value is based upon the amount charged when maintenance is
purchased separately, which is typically the contracts
renewal rate.

Revenues from professional services are generally
recognized based on vendor specific objective evidence of fair
value when: (1) a non-cancelable agreement for the services
has been signed or a customers purchase order has been
received; and (2) the professional services have been
delivered. Vendor specific objective evidence of fair value is
based upon the price charged when these services are sold
separately and is typically an hourly rate for professional
services and a per class rate for training. Revenues for
consulting services are generally recognized on a time and
material basis as services are delivered. Based upon the
Companys experience in completing product implementations,
it has determined that these services are typically delivered
within 3 months or less subsequent to the contract signing.

45



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Companys license arrangements with its
end-user customers and indirect channel partners do not include
any rights of return or price protection, nor do arrangements
with indirect channel partners include any sell-through
contingencies. In those instances where the Company has granted
a customer rights to when-and-if available additional products,
the Company recognizes the arrangement fee ratably over the term
of the agreement.

Generally, the Companys arrangements with
end-user customers and indirect channel partners do not include
any acceptance provisions. In those cases in which significant
uncertainties exist with respect to customer acceptance or in
which specific customer acceptance criteria are included in the
arrangement, the Company defers the entire arrangement fee and
recognizes revenue, assuming all other conditions for revenue
recognition have been satisfied, when the uncertainty regarding
acceptance is resolved as generally evidenced by written
acceptance by the customer. The Companys arrangements with
indirect channel partners and end-user customers do include a
standard warranty provision whereby the Company will use
reasonable efforts to cure material nonconformity or defects of
the software from the Companys published specifications.
The standard warranty provision does not provide the indirect
channel partners or end-user customer with the right of refund.
In very limited instances, the Company has granted the right to
refund for an extended period if the arrangement is terminated
because the product does not meet the Companys published
technical specifications, and the Company is unable reasonably
to cure the nonconformity or defect. Generally, the Company
determines that this warranty provision is not an acceptance
provision and therefore should be accounted for as a warranty in
accordance with SFAS No. 5.

At the time the Company enters into an
arrangement, the Company assesses the probability of collection
of the fee and the payment terms granted to the customer. For
end-user customers and indirect channel partners, the
Companys typical payment terms are due within 30 days
of invoice date. However, in those cases where payment terms are
greater than 30 days, the Company does not recognize
revenue from the arrangement fee unless the payment is due
within 90 days. If the payment terms for the arrangement are
considered extended (greater than 90 days), the Company
defers revenue under these arrangements and such revenue is
recognized, assuming all other conditions for revenue
recognition have been satisfied, when the payment of the
arrangement fee becomes due.

In those instances in which indirect channel
partners provide first level maintenance services to the
end-user customer and the Company provides second level
maintenance support to the indirect channel partner, the Company
accounts for amounts received in these arrangements in
accordance with EITF 99-19, Reporting Revenue Gross
as a Principal versus Net as an Agent. In initial and
renewal years for which the Company receives a net fee from the
indirect channel partner to provide second level support to the
indirect channel partner, such amount is recorded as revenue
over the term of the maintenance period at the net amount
received since the Company does not collect the fees from the
end-user customer, it does not have latitude in establishing the
price paid by the end-user customer for maintenance services,
and it does not have the latitude to select the supplier
providing first level support. However, in those circumstances
where the Company renews maintenance contracts directly with the
end-user customers, receives payment for the gross amount of the
maintenance fee, has the ability to select the supplier for
first level support, and the Company believes that it is the
primary obligor for first level support to the end customer, the
Company records revenue for the gross amounts received. In such
circumstances, the Company remits a portion of the payment
received to the indirect channel partner to provide first level
support to the end-user customer, and such amounts are
capitalized and amortized over the maintenance period. Revenue
recorded for amounts collected by the Company and remitted to
the indirect channel partner for such renewals aggregated
$570,000, $287,000 and $7,000 for the years ended
December 31, 2002, 2001, and 2000, respectively.

46



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

The Company considers highly liquid investments
with maturities of less than 90 days at time of acquisition
to be cash equivalents. The Companys investment portfolio
consists of cash equivalents placed with institutions, which
management believes to be of high credit quality. Cash
equivalents consist of money market instruments, which are
designated as available for sale securities and are carried at
fair value with unrealized gains and losses, if any, reported as
a separate component of stockholders equity. Cash
equivalents totaled $8,389,000 and $8,228,000 at
December 31, 2002 and 2001, respectively. Realized and
unrealized gains and losses from available-for-sale securities
were not material for the years ended December 31, 2002,
2001 and 2000. Restricted cash of $933,000 at December 31,
2002 and $1,050,000 at December 31, 2001 represents
required collateral on a certain operating lease. The restricted
cash will be released to the Company ratably over the term of
the lease agreement.



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

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

The Company extends credit to its customers in
the normal course of business, resulting in trade receivables.
The Companys normal credit terms are 30 days.

The Company performs continuing credit
evaluations of its customers financial condition and
although the Company generally does not require collateral,
letters of credit may be required from its customers in certain
circumstances. An allowance for doubtful accounts is provided
for accounts which management believes may not be collected due
to a customers financial circumstance (e.g. bankruptcy),
and for all accounts which are 180 days past due, absent
evidence which supports their collectibility.



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

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

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



| |                           
| | --------------------------
| | Software Development Costs

In accordance with Statement of Financial
Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed software development costs
are expensed as incurred until technological feasibility has
been established, at which time such costs are capitalized until
the product is available for general release to customers. The
Company considers

47



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

technological feasibility to be achieved when a
product design and working model of the software product have
been completed and the software product is ready for initial
customer testing. Capitalized software development costs are
then amortized on a product-by-product basis over the estimated
product life of between one to two years and are included in the
cost of software license revenue.

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

Amortization expense related to software
development cost was $1,135,000, $712,000, and $983,000 for the
years ended December 31, 2002, 2001 and 2000, respectively,
and is included in the cost of software license revenue.



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

The Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 141 Business
Combinations (SFAS 141) and SFAS
No. 142 Goodwill and Other Intangible Assets
(SFAS 142) in July 2001. SFAS 141 requires
that all business combinations be accounted for using the
purchase method. SFAS 141 also specifies criteria for
recognizing and reporting intangible assets apart from goodwill.
SFAS 142 requires that goodwill not be amortized but
instead tested for impairment at least annually and more
frequently upon the occurrence of certain events in accordance
with the provisions of SFAS 142. SFAS 142 also
requires that intangible assets with an indefinite life should
not be amortized until their life is determined to be finite and
all other intangible assets must be amortized over their
estimated useful life.

The Company adopted the provisions of
SFAS 141 and SFAS 142 effective January 1, 2002.
SFAS 141 and SFAS 142 required the Company to perform
the following as of January 1, 2002: (i) review
goodwill and intangible assets for possible reclasses;
(ii) reassess the lives of intangible assets; and
(iii) perform a transitional goodwill impairment test. The
Company has reviewed its goodwill and intangible assets for
possible reclassification, of which there were none, and has
reviewed the useful lives of its identifiable intangible assets
and determined that the original estimated lives remain
appropriate. The Company performed the first of the required
impairment tests of goodwill using the Income Approach, a
present value technique, which indicated that impairment did not
appear to exist as a result of adoption of SFAS 142. The Company
performed the required annual impairment test in the fourth
quarter of 2002, which indicated that impairment does not exist.
A reconciliation of previously reported net loss and loss per
share to the amounts adjusted for the exclusion of goodwill
amortization, net of related income tax effect, is as follows
(in thousands except for share amounts):

|                                   |  |                         |        |      |  |      |         |   |  |   |         |  
|---------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                   |  |                        
|                                   |  | Year Ended December 31,
|                                   |  |                        
|                                   |  | 2002                    |        | 2001 |  | 2000
|                                   |  |                         |        |      |  |     
|Net loss:                          |  | $                       | (5,774 | )    |  | $    | (10,792 | ) |  | $ | (18,912 | )
|Goodwill amortization, net of tax  |  |                         |       |      |  |      | 188     |   |  |   | 127     |  
|Adjusted net loss                  |  | $                       | (5,774 | )    |  | $    | (10,604 | ) |  | $ | (18,785 | )
|Loss per share, basic and diluted: |  |                         |        |      |  |      |         |   |  |   |         |  
|As reported                        |  | $                       | (0.47  | )    |  | $    | (0.91   | ) |  | $ | (1.68   | )
|Adjusted                           |  | $                       | (0.47  | )    |  | $    | (0.89   | ) |  | $ | (1.67   | )
|Outstanding shares                 |  |                         | 12,223 |      |  |      | 11,861  |   |  |   | 11,246  |  

Amortization expense related to an intangible
asset, the customer relationships acquired in the Dynamic
Decisions acquisition, totaled $252,000 and $186,000 during in
2002 and 2001, respectively. The

48



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

estimated future annual amortization expense for
this intangible asset remaining as of December 31, 2002 is
as follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2003 |  | $ | 250,000 | 
|2004 |  |   | 250,000 | 
|2005 |  |   | 250,000 | 
|2006 |  |   | 250,000 | 
|2007 |  |   | 62,500  | 



| |                                    
| | -----------------------------------
| | Impairment of Long-Lived
    Assets

The Company tests goodwill for impairment in
accordance with SFAS 142, which requires goodwill to be
tested for impairment at the reporting unit level at least
annually and more frequently upon occurrence of certain events,
as defined by SFAS 142. Goodwill is tested for impairment
annually in a two-step process. First, the Company determines if
the fair value of its reporting unit exceeds the
carrying amount of the reporting unit. If the fair value does
not exceed the carrying amount, goodwill of the reporting unit
is potentially impaired, and the Company must then measure the
impairment loss by comparing the implied fair value
of the goodwill, as defined by SFAS 142, to its carrying
amount. The fair value of the reporting unit is estimated using
the Income Approach, a present value technique.

On January 1, 2002, the Company adopted
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.(SFAS 144).
SFAS 144 addresses the financial accounting and reporting
for the impairment of long-lived assets. The adoption of
SFAS 144 did not have a material impact to the
Companys results of operations or financial position. In
accordance with SFAS 144, the Company evaluates the
recoverability of long-lived assets, including intangible assets
for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be
recoverable based on expected undiscounted cash flows
attributable to that asset. The amount of any impairment loss is
measured as the difference between the carrying value and the
fair value of the impaired asset and charged to expense in the
period identified. Fair value is determined by either a quoted
market price or a value determined by a discounted cash flow
technique, whichever is more appropriate under the
circumstances. The rates that would be utilized to discount net
cash flows to net present value would take into account the time
value of money and investment risk factor. Management believes
that no such events have occurred.

Income
Taxes

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

Net Income
(Loss) Per Share

Net income (loss) is computed in accordance
with SFAS No. 128, Earnings Per Share.
Basic net income (loss) per share is computed by dividing
net income (loss) available to common stockholders by the
weighted average number of common shares outstanding during the
period. Dilutive net income (loss) is computed using the
weighted average number of common shares outstanding during the
period, plus the dilutive effect, if any, of potential common
shares, which consists of stock options.

49



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

For the years ended December 31, 2002, 2001
and 2000, the Company excluded potential dilutive common stock
equivalents of 167,007, 142,029 and 1,034,000, respectively,
from its calculation of diluted net income (loss) per
share. The Company had an additional 3,069,042, 3,519,571 and
2,069,182 of anti-dilutive common stock equivalents outstanding
for the years ended December 31, 2002, 2001 and 2000,
respectively, which would not have been included in the
calculation of diluted net income (loss) per share even if
the Company had reported net income, as the stock option
exercise price exceeded the average market price for the
respective periods.

Translation
of Foreign Currencies

The Company considers the functional currency of
its foreign subsidiaries to be the local currency, and
accordingly, the financial statements of the foreign
subsidiaries are translated into U.S. dollars using
exchange rates in effect at the period end for assets and
liabilities and average exchange rates during each reporting
period for the results of operations. Adjustments resulting from
translation of foreign subsidiary financial statements are
reported on the balance sheet in accumulated other comprehensive
income (loss). Transaction gains and losses that arise from
exchange rate changes included in other income
(expense) are immaterial for all periods presented. The
Companys net results have not been materially impacted by
foreign currency fluctuations.

The Company enters into foreign currency forward
contracts that economically hedge gains and losses generated by
the remeasurement of certain assets and liabilities denominated
in a non-functional currency. Such exposures result from the
portion of the Companys operations, assets and liabilities
are in currencies other than the US dollar, primarily the
European euro, English pounds, Swiss francs and Australian
dollars as of December 31, 2002. These foreign exchange
contracts are entered into in the ordinary course of business,
and accordingly, are not speculative in nature. The Company
typically hedges intercompany and receivable balances for 90-day
periods. The changes in the fair value of these undesignated
hedges are recognized in the statement of operations immediately
as an offset to the changes in fair value of the asset or
liability being hedged. The Company entered into one hedging
contract in 2002 and did not have any open hedging contracts as
of December 31, 2002. For the years ended December 31,
2002, 2001 and 2000, realized and unrealized gains and losses
were not material.

Comprehensive
Income (Loss)

Components of comprehensive income
(loss) include net income (loss) and certain
transactions that have been reported as a separate component of
stockholders equity. Other comprehensive income is
comprised of foreign currency translation adjustments.

Advertising
Expense

Advertising costs are expensed as incurred.
Advertising expense was $85,000, $485,000 and $442,000 in 2002,
2001 and 2000, respectively.

Stock-Based
Compensation

The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to
the fair value of the shares at the date of grant. The Company
accounts for stock option grants in accordance with
APB Opinion No. 25, Accounting for Stock Issued
to Employees (APB No. 25), and
related interpretations, and follows the disclosure-only
requirements under SFAS 123, Accounting for Stock
Based Compensation (SFAS No. 123).
APB No. 25 provides that compensation expense relative to
the Companys employee stock options is measured based on
the intrinsic value of the stock options at the measurement
date. Accordingly no stock-based employee compensation cost is
reflected in net income (loss), as all options granted under the
plans had an exercise price equal to the market value of the

50



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

underlying common stock on the date of grant. If
compensation expense had been recorded consistent with
SFAS No. 123 based on the fair value of stock awards
at the date of grant, the Companys net loss would have
been adjusted to the pro forma amounts presented below
(thousands, except for per share data):

|                                                                                                                                                    |  |                         |        |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                                                    |  |                        
|                                                                                                                                                    |  | Year Ended December 31,
|                                                                                                                                                    |  |                        
|                                                                                                                                                    |  | 2002                    |        | 2001 |  | 2000
|                                                                                                                                                    |  |                         |        |      |  |     
|Net loss as reported                                                                                                                                |  | $                       | (5,774 | )    |  | $    | (10,792 | ) |  | $ | (18,912 | )
|Add: Stock-based employee compensation expense
    included in reported net loss, net of related tax effects                                        |  |                         |       |      |  |      |        |   |  |   |        |  
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |  |                         | (3,502 | )    |  |      | (3,426  | ) |  |   | (3,602  | )
|                                                                                                                                                    |  |                         |        |      |  |      |         |   |  |   |         |  
|Pro forma net loss                                                                                                                                  |  | $                       | (9,276 | )    |  | $    | (14,218 | ) |  | $ | (22,514 | )
|                                                                                                                                                    |  |                         |        |      |  |      |         |   |  |   |         |  
|Earnings per share:                                                                                                                                 |  |                         |        |      |  |      |         |   |  |   |         |  
|Basic and diluted  as reported                                                                                                                     |  | $                       | (0.47  | )    |  | $    | (0.91   | ) |  | $ | (1.68   | )
|Basic and diluted  pro forma                                                                                                                       |  | $                       | (0.76  | )    |  | $    | (1.20   | ) |  | $ | (2.00   | )

Use of
Estimates

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

Effect of
Recent Accounting Pronouncements

In July 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, and nullified Emerging
Issues Task Force (EITF) Issue No. 94-3.
SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when
the liability is incurred, whereas under EITF No 94-3, a
liability was recognized at the commitment date to an exit plan
provided that all other required criteria were met. The Company
is required to adopt the provisions of SFAS No. 146
effective for exit or disposal activities initiated after
December 31, 2002. The adoption of this statement will only
have an impact on the accounting for future exit or disposal
activities.

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure.
SFAS No. 148 is an amendment of
SFAS No. 123, to provide alternative methods of
transition to SFAS No 123s fair value method of
accounting for stock-based employee compensation. This Statement
also amends the disclosure provision of SFAS No. 123
and APB No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting
policies of the effects of an entitys accounting policy
with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim
financial statements. The Company accounts for stock-based
employee compensation using the intrinsic value method under
APB No. 25 and has adopted the amendments to the
disclosure provisions of SFAS No. 148.

51



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In November 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45
requires that a guarantor recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 also requires
additional disclosure by a guarantor in its interim and annual
financial statements about its obligations under certain
guarantees. The initial recognition and measurement provisions
of FIN 45 are applicable for guarantees issued or modified
after December 31, 2002. The disclosure requirements of
FIN 45 are effective for financial statements of interim or
annual periods ending after December 15, 2002. The Company
believes that the adoption of FIN 45 will not have a
material impact on its financial position or results of
operations.

In January 2003, the FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities, which is an interpretation of
Accounting Research Bulletin No. 51, Consolidated
Financial Statements. FIN 46 addresses consolidation
by business enterprises of variable interest entities and
requires existing unconsolidated variable interest entities to
be consolidated by their primary beneficiaries if the entities
do not effectively disperse risks among parties involved.
Variable interest entities that effectively disperse risks will
not be consolidated unless a single party holds an interest or
combination of interests that effectively recombines risks that
were previously dispersed. FIN 46 applies immediately to
variable interest entities created after January 31, 2003,
and to variable interest entities in which an enterprise obtains
an interest after that date. FIN 46 applies in the first
fiscal year or interim period beginning after June 15, 2003
to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003,
FIN 46 applies to public enterprises as of the beginning of
the applicable interim or annual period. The Company does not
expect that the adoption of FIN 46 will have a material
effect on its financial position or results of operations.

3.     DISCONTINUED
OPERATION

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

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

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

On March 30, 2001, the Company completed the
sale of the VistaSource business and received the purchase price
of $1,300,000. For the year ended December 31, 2001, the
Company recognized a gain of $1,081,000 for discontinued
operations due to a favorable liquidation of the net assets and
liabilities of the

52



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

VistaSource business compared to previous
estimates. The reserve balance for the estimated costs
associated with the disposition as of December 31, 2001 was
$182,000, consisting primarily of severance costs, which were
paid in 2002. The Companys results of operations for the
year ended December 31, 2002 included $204,000 in expenses
primarily relating to certain defense costs incurred from a
claim filed against VistaSource (See Note 18) and the
write-down of a receivable owed to the Company by VistaSource.

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

|                                           |  |      |      |      |  |      |       |   |  |   |        |  
|------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ----- | - |  | - | ------ | -
|                                           |  | 2002 |      | 2001 |  | 2000
|                                           |  |      |      |      |  |     
|Operating Results:                         |  |      |      |      |  |      |       |   |  |   |        |  
|Revenue                                    |  | $    |     |      |  | $    | 1,666 |   |  | $ | 10,250 |  
|Loss before income taxes                   |  |      | (204 | )    |  |      | (870  | ) |  |   | (304   | )
|Net loss                                   |  |      | (204 | )    |  |      | (870  | ) |  |   | (367   | )
|Balance sheet information:                 |  |      |      |      |  |      |       |   |  |   |        |  
|Accrued liabilities                        |  |      |     |      |  |      | (182  | ) |  |   |        |  
|                                           |  |      |      |      |  |      |       |   |  |   |        |  
|Net liabilities of discontinued operations |  | $    |     |      |  | $    | (182  | ) |  |   |        |  
|                                           |  |      |      |      |  |      |       |   |  |   |        |  

4.     ACCRUED
LIABILITIES

Accrued liabilities at December 31, 2002 and
2001 consisted of the following (in thousands):

|                                  |  |      |       |      |  |   |       | 
|--------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                  |  | 2002 |       | 2001
|                                  |  |      |       |     
|Income taxes                      |  | $    | 437   |      |  | $ | 938   | 
|Sales and value added taxes       |  |      | 2,568 |      |  |   | 1,278 | 
|Accrued compensation and benefits |  |      | 2,452 |      |  |   | 2,524 | 
|Restructuring                     |  |      | 71    |      |  |   | 766   | 
|Other                             |  |      | 2,346 |      |  |   | 1,392 | 
|                                  |  |      |       |      |  |   |       | 
|Total                             |  | $    | 7,874 |      |  | $ | 6,898 | 
|                                  |  |      |       |      |  |   |       | 

53



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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

|                                                                                                                       |                               |       |                            |      |        |      |         |     |         |     |         |        |         |       | 
|---------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ----- | -------------------------- | ---- | ------ | ---- | ------- | --- | ------- | --- | ------- | ------ | ------- | ----- | 
|                                                                                                                       |                               | 2002  |                            | 2001 |        | 2000
|                                                                                                                       |                               |       |                            |      |        |     
|Domestic                                                                                                               |                               | $     | (6,813                     | )    |        | $    | (12,515 | )   |         | $   | (12,831 | )     
|Foreign                                                                                                                |                               |       | 835                        |      |        |      | 1,200   |     |         |     | 1,107   |       
|                                                                                                                       |                               |       |                            |      |        |      |         |     |         |     |         |       
|                                                                                                                       |                               | Total |                            | $    | (5,348 | )    |         | $   | (11,315 | )   |         | $      | (11,724 | )    
|                                                                                                                       |                               |       |                            |      |        |      |         |     |         |     |         |       
|The components of the income tax provision
    (benefit) from continuing operations are as follows (in
    thousands): |                               |       |                            |      |        |      |         |     |         |     |         |       
|Current:                                                                                                               |                               |       |                            |      |        |      |         |     |         |     |         |       
|                                                                                                                       | Federal and state             |       |                            | 68   |        |      | $       | 77  |         |     | $       | 16     |        
|                                                                                                                       | Foreign                       |       |                            | 285  |        |      |         | 481 |         |     |         | 566    |        
|                                                                                                                       |                               |       |                            |      |        |      |         |     |         |     |         |       
|                                                                                                                       |                               |       | Total Current              |      |        | 353  |         |     |         | 558 |         |        |         | 582   | 
|                                                                                                                       |                               |       |                            |      |        |      |         |     |         |     |         |       
|Deferred:                                                                                                              |                               |       |                            |      |        |      |         |     |         |     |         |       
|                                                                                                                       | Federal and state             |       |                            |     |        |      |         |    |         |     |         | (4,831 | )      
|                                                                                                                       | Foreign                       |       |                            | (131 | )      |      |         |    |         |     |         |       |        
|                                                                                                                       | Change in valuation allowance |       |                            |     |        |      |         |    |         |     |         | 7,832  |        
|                                                                                                                       |                               |       |                            |      |        |      |         |     |         |     |         |       
|                                                                                                                       |                               |       | Total Deferred             |      |        | (131 | )       |     |         |    |         |        |         | 3,001 | 
|                                                                                                                       |                               |       |                            |      |        |      |         |     |         |     |         |       
|                                                                                                                       |                               |       | Total income tax provision |      | $      | 222  |         |     | $       | 558 |         |        | $       | 3,583 | 
|                                                                                                                       |                               |       |                            |      |        |      |         |     |         |     |         |       

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

|                                 |  |      |         |      |  |   |         |  
|-------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                 |  | 2002 |         | 2001
|                                 |  |      |         |     
|Net operating loss carryforwards |  | $    | 12,041  |      |  | $ | 11,211  |  
|Deferred revenue                 |  |      | 60      |      |  |   | 264     |  
|Accounts receivable              |  |      | 550     |      |  |   | 505     |  
|Accrued expenses                 |  |      | 448     |      |  |   | 392     |  
|Vacation and benefits            |  |      | 166     |      |  |   | 254     |  
|Software/ fixed assets           |  |      | 501     |      |  |   | 434     |  
|Tax credit carryforwards         |  |      | 2,118   |      |  |   | 1,752   |  
|Deferred tax liability           |  |      | (319    | )    |  |   | (450    | )
|Valuation allowance              |  |      | (15,565 | )    |  |   | (14,362 | )
|                                 |  |      |         |      |  |   |         |  
|NET DEFERRED TAX ASSET           |  | $    |        |      |  | $ |        |  
|                                 |  |      |         |      |  |   |         |  

54



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|--------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                        |  | 2002 |        | 2001 |  | 2000
|                                        |  |      |        |      |  |     
|U.S. federal statutory rate             |  | $    | (1,818 | )    |  | $    | (3,847 | ) |  | $ | (3,986 | )
|State and foreign tax provision, net    |  |      | (368   | )    |  |      | (619   | ) |  |   | (589   | )
|Research and experimentation tax credit |  |      | (366   | )    |  |      |       |   |  |   | (211   | )
|Permanent items                         |  |      | 16     |      |  |      | 185    |   |  |   | 512    |  
|Other                                   |  |      |       |      |  |      | 43     |   |  |   | 25     |  
|Unbenefitted losses                     |  |      | 2,758  |      |  |      | 4,796  |   |  |   | 7,832  |  
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|TAX PROVISION                           |  | $    | 222    |      |  | $    | 558    |   |  | $ | 3,583  |  
|                                        |  |      |        |      |  |      |        |   |  |   |        |  

The Company had net operating loss carryforwards
of approximately $29,273,000 and $27,798,000 at
December 31, 2002 and 2001, respectively. The Company also
had federal research tax credits of approximately $1,500,000 and
$1,100,000 at December 31, 2002 and 2001, respectively.
These net operating loss carryforwards and credits expire in
various amounts through 2022.

A valuation allowance is established if it is
more likely than not that all or a portion of the deferred tax
asset will not be realized. As a result of the Companys
review of its available evidence supporting the deferred tax
asset, the Company established a valuation allowance for the
full amount of the deferred tax asset due to the uncertainty of
realization. The valuation allowance increased by $1,203,000
during 2002, primarily due to the increase in net operating loss
carryforwards. Any subsequently recognized tax benefits relating
to the valuation allowance for deferred tax assets as of
December 31, 2002 would be allocated as follows (in
thousands):

|                                        |  |   |        | 
|--------------------------------------- |  | - | ------ | 
|Reported in the statement of operations |  | $ | 13,205 | 
|Reported in capital in excess of par    |  |   | 2,360  | 
|                                        |  |   |        | 
|                                        |  | $ | 15,565 | 
|                                        |  |   |        | 

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

The Company has provided for potential amounts
due in various foreign tax jurisdictions. Judgment is required
in determining the Companys worldwide income tax expense
provision. In the ordinary course of global business, there are
many transactions and calculations where the ultimate tax
outcome is uncertain. Some of these uncertainties arise as a
consequence of cost reimbursement arrangements among related
entities. Although management believes its estimates are
reasonable, no assurance can be given that the final tax outcome
of these matters will not be different from that which is
reflected in the Companys historical income tax provisions
and accruals. Such differences could have a material impact on
the Companys income tax provision and operating results in
the period in which such determination is made.



|   |            
|-- | -----------
|6. | COMMITMENTS

The Company leases facilities and computer
equipment under operating lease agreements that expire on
various dates through April 2010. Total rent expense was
$2,639,000, $2,360,000 and $2,095,000 for

55



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2002, 2001 and 2000, respectively. The following
is a schedule of future minimum lease payments at
December 31, 2002 (in thousands):

|                             |  |   |        | 
|---------------------------- |  | - | ------ | 
|2003                         |  | $ | 2,170  | 
|2004                         |  |   | 2,116  | 
|2005                         |  |   | 2,046  | 
|2006                         |  |   | 1,834  | 
|2007 and thereafter          |  |   | 11,798 | 
|                             |  |   |        | 
|Total minimum lease payments |  | $ | 19,964 | 
|                             |  |   |        | 

The Company currently expects to attempt to
sublease space at its headquarters. In the event that space is
sublet and not used by the Company, dependent on market rates at
the time, the Company could incur a loss. If all space the
Company expects to sublease were vacated and were subleased, the
Company could incur a loss of $1,750,000, which is based upon
the aggregate difference over the remaining eleven-year term
between the Companys committed lease rate and the
estimated market rates at December 31, 2002 of a
prospective sublease arrangement.



|   |                     
|-- | --------------------
|7. | STOCKHOLDERS EQUITY



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

The Company has 1,000,000 authorized shares of
Preferred Stock, $0.01 per value per share. The Board of
Directors is authorized to fix designations, relative rights,
preferences and limitations on the preferred stock at the time
of issuance. As of December 31, 2002, none of the preferred
stock was issued and outstanding.



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

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

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

In the event that any person becomes an Acquiring
Person, unless the event causing the 15% threshold to be crossed
is a Permitted Offer (as defined in the Rights Agreement), each
holder of a right, with certain exceptions, shall have the right
to receive, upon exercise, in lieu of the Preferred Stock, that
number of shares of common stock (or in certain circumstances,
cash, property or other securities of the Company) that equals
the exercise price of the right divided by 50% of the current
market price (as defined in the Rights Agreement) per share of
common stock at the date of the occurrence of such event.

56



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

However, the rights are not exercisable following
such event until the time that the rights are no longer
redeemable by the Company as described below. Notwithstanding
the foregoing, following such event, all rights that are, or
(under certain circumstances specified in the Rights Agreement),
were, beneficially owned by any Acquiring Person will be null
and void. Following such event, subject to certain conditions,
the Board of Directors of the Company may exchange the Rights
(other than rights owned by such Acquiring Person which have
become void), in whole or in part, at an exchange ratio of one
share of common stock, or one one-thousandth of a share of
Preferred Stock, per right, subject to adjustment.

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

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



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

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

57



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

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

In 1999, the Board of Directors adopted, and the
stockholders approved, the 2000 Director Stock Option Plan (the
2000 Director Plan). The 2000 Director Plan provides
for the grant of non-statutory options not intended to meet the
requirements of the Section 422 of the Internal Revenue
Code of 1986, as amended. Only directors of the Company who are
not full-time employees of the Company or any subsidiary of the
Company are eligible to be granted options under the Plan. A
total of 200,000 shares of the Companys common stock
may be issued upon the exercise of options granted under the
2000 Director Plan. Any shares subject to options granted
pursuant to the 2000 Director Plan which terminate or expire
unexercised will be available for future grants under the 2000
Director Plan. The 2000 Director Plan is administered by the
Board of Directors of the Company. The directors are elected by
the stockholders of the Company in accordance with the
provisions of the Restated Articles of Organization, as amended,
and the By-Laws of the Company. Under the 2000 Director Plan,
the stock options must be granted with an exercise price of no
less than the fair market value of the stock on the date of
grant. Pursuant to the 2000 Director Plan, (1) each outside
director received an option for 4,000 shares of common stock on
January 1, 2002, (2) each outside director is eligible
to receive an option for 10,000 shares of common stock on
January 1 of each year beginning January 1, 2003, so
long as he or she continues to serve as a director and provided
he or she attended at least 75% of the meetings of the Board of
Directors and any committees on which he or she served in the
preceding year and (3) each new outside director is
eligible to receive an option to purchase 10,000 shares of
common stock upon such directors initial election to the
Board of Directors (an Election Grant). Each option
will become exercisable (or vest), with respect

58



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to Election Grants, in two equal annual
installments on the first and second anniversary of the date of
grant, and with respect to all other options, on the first
anniversary of the date of grant, provided in each case that the
optionee continues to serve as a director on such date. The
Board of Directors may suspend, discontinue or amend the 2000
Director Plan.

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

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

59



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Related information for options outstanding and
exercisable as of December 31, 2002 under the stock option plans
is as follows:

|                |  |                     |           |                     |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 
|--------------- |  | ------------------- | --------- | ------------------- |  | ---------------- | ---- | ----------- |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |  |                     |           |                    
|                |  | Options Outstanding |           | Options Exercisable
|                |  |                     |           |                    
|                |  |                     |           | Weighted Average    |  |                  |      |            
|Range of        |  | Number              |           | Remaining           |  | Weighted Average |      | Number      |  | Weighted Average
|Exercise Prices |  | Outstanding         |           | Contractual Life    |  | Exercise Prices  |      | Exercisable |  | Exercise Prices 
|                |  |                     |           |                     |  |                  |      |             |  |                 
|$.61-$.99       |  |                     | 162,375   |                     |  |                  | 5.75 |             |  | $                | 0.74  |  |  |  | 40,125    |  |  | $ | 0.74  | 
|$1.00-$1.65     |  |                     | 680,064   |                     |  |                  | 5.89 |             |  | $                | 1.38  |  |  |  | 114,666   |  |  | $ | 1.39  | 
|$1.66-$2.91     |  |                     | 987,072   |                     |  |                  | 5.54 |             |  | $                | 2.08  |  |  |  | 361,354   |  |  | $ | 2.14  | 
|$2.92-$4.88     |  |                     | 529,784   |                     |  |                  | 2.20 |             |  | $                | 3.62  |  |  |  | 496,358   |  |  | $ | 3.58  | 
|$4.89-$9.88     |  |                     | 444,420   |                     |  |                  | 3.89 |             |  | $                | 5.98  |  |  |  | 313,942   |  |  | $ | 5.92  | 
|$9.89-$17.75    |  |                     | 354,087   |                     |  |                  | 3.91 |             |  | $                | 13.72 |  |  |  | 233,917   |  |  | $ | 13.67 | 
|$17.76-$22.63   |  |                     | 8,680     |                     |  |                  | 3.93 |             |  | $                | 18.16 |  |  |  | 8,305     |  |  | $ | 18.16 | 
|$22.64-$34.75   |  |                     | 7,500     |                     |  |                  | 0.35 |             |  | $                | 34.75 |  |  |  | 7,500     |  |  | $ | 34.75 | 
|                |  |                     |           |                     |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 
|                |  |                     | 3,173,982 |                     |  |                  | 4.64 |             |  | $                | 4.08  |  |  |  | 1,576,167 |  |  | $ | 5.21  | 
|                |  |                     |           |                     |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 

At December 31, 2002, 4,786,783 shares of
common stock were reserved for future issuance under the stock
plans.

At December 31, 2001 and 2000 there were
1,512,808 and 1,343,702 options exercisable, respectively.



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

As permitted under SFAS No. 123, the Company
has elected to follow APB 25 and the related
Interpretations and has adopted the disclosure only provisions
of SFAS No. 123.

Pro forma information regarding net income and
earnings per share is required by SFAS No. 123 for awards
granted after October 28, 1995 as if the Company had
accounted for its stock-based awards to employees under the fair
value method of SFAS No. 123 and is presented in Note 2.
The fair value of the Companys stock-based awards to
employees was estimated using the Black-Scholes options pricing
model. The Black-Scholes options valuation model was developed
for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility.
Because the Companys stock-based awards to employees have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in
managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value
of its stock-based awards to employees. The fair value of the
Companys stock-based awards to employees was estimated
assuming no expected dividends and the following weighted
average assumptions:

|                                |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                |  | 2002 |      | 2001 |  | 2000
|                                |  |      |      |      |  |     
|Expected life (years)           |  |      | 4    |      |  |      | 5    |   |  |  | 5    |  
|Expected stock price volatility |  |      | 97.1 | %    |  |      | 96.0 | % |  |  | 95.2 | %
|Risk free interest rate         |  |      | 3.82 | %    |  |      | 4.72 | % |  |  | 6.42 | %

Using the above assumption the weighted average
grant date fair values for options granted were $1.09, $1.42,
and $7.70 in 2002, 2001, and 2000, respectively.

60



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

The Company established its Employee Stock
Purchase Plan during 1995 (1995 Plan), allowing eligible
employees to purchase common stock, in a series of offerings,
through payroll deductions of up to 10% of their total
compensation. The purchase price in each offering is 85% of the
fair market value of the stock on (i) the offering
commencement date or (ii) the offering termination date
(six months after commencement date), whichever is lower. On
February 26, 2001, the Board of Directors adopted, and on
May 4, 2001, the stockholders approved the Companys
Employee Stock Purchase Plan (2001 Plan), which authorized the
issuance of up to 800,000 shares of common stock and has
generally the same terms as the 1995 Plan. During 2002, 313,366
shares were issued under the 2001 Plan. During 2001, 124,958
shares were issued under the 2001 Plan and 100,004 shares were
issued under the 1995 Plan. At December 31, 2002, 361,676
shares were available for issuance under the 2001 Plan.



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

In September 2000, the Company sold 256,002
shares of common stock to certain company executives. The
purchase of such shares were funded by loans from the Company to
the executives evidenced by full-recourse promissory notes due
and payable on July 31, 2005. Interest of the promissory
notes is calculated on the unpaid principal balance at a rate of
6% per year, compounded annually until paid in full. In the
event that the executive sells any shares prior to July 31,
2005, the net proceeds from such sale shall become immediately
due and payable without notice or demand. In the event the
executive leaves the Company, voluntarily or for cause, the loan
shall become immediately due and payable. Repayment terms were
extended to the original maturity date for several employees who
subsequently left the Company. The aggregate principal amount of
the notes totaled $1,120,000 at December 31, 2002 and 2001.
These loans, which are shown as a deduction to
Stockholders equity, are secured by the common stock
purchased. Certain of these loans are and have been past due for
some time, and subsequent to December 31, 2002, in
connection with a severance arrangement the Company forgave one
of the loans. As a result of the foregoing, consistent with EITF
00-23, Issues Related to the Accounting for Stock
Compensation under APB Opinion No. 25 and FASB
Interpretation 44, for accounting purposes only the Company
has characterized all of the notes as non-recourse. In this
regard, the accounting for these notes has been treated as a
repurchase of stock and the issuance of options. As of
December 31, 2002, the Company recorded a charge of
$964,000 for the difference between the amounts due on the
loans, including accrued interest of $128,000, and the fair
value of the underlying stock at December 31, 2002. The
Company may incur compensation charges if the fair value of the
underlying stock appreciates over the original purchase price,
plus interest. These loans continue to be full recourse, and the
Company intends to enforce collection of those amounts that are
outstanding.

8.     EMPLOYEE
BENEFIT PLAN

Applix has a defined contribution plan (401(k))
in which all full time employees are eligible to participate
once they have reached the age of 21. Employee and employer
contributions vest immediately. The Company may make
discretionary contributions to the plan as determined by the
Board of Directors. The Companys matching contribution to
the plan was $178,000, $205,000, and $267,000 for the years
ended December 31, 2002, 2001 and 2000, respectively.

9.     MAJOR CUSTOMER
AND GEOGRAPHIC SEGMENT INFORMATIONS

The Company and its subsidiaries are principally
engaged in the design, development, marketing and support of the
Companys business performance management and business
intelligence software products (See Note 1 and 19). The
Company generates substantially all of its revenues from the
licensing of the Companys software products and related
professional services and maintenance services. Financial

61



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

information provided to the Companys chief
operating decision maker is accompanied by disaggregated
information about revenues and expenses by geographic region for
purposes of making operating decisions and assessing each
geographic regions financial performance. As a result of
the VistaSource disposition, the Company had only one operating
segment at December 31, 2002 and 2001. Accordingly, the Company
has presented the 2000 historical segment data to exclude the
VistaSource business unit, for which the segment data is
included in Note 3.

A summary of the Companys operations by
geographic locations for the years ended December 31, 2002,
2001 and 2000 is as follows (in thousands):

|                                     |                                            |      |   |        |  |      |   |        |  |  |   |        | 
|------------------------------------ | ------------------------------------------ | ---- | - | ------ |  | ---- | - | ------ |  |  | - | ------ | 
|Geographic Segment Information       |                                            | 2002 |   | 2001   |  | 2000
|                                     |                                            |      |   |        |  |     
|Revenue from continuing operations   |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | United States                              |      | $ | 15,078 |  |      | $ | 14,156 |  |  | $ | 14,065 | 
|                                     | Europe                                     |      |   | 17,055 |  |      |   | 20,865 |  |  |   | 23,019 | 
|                                     | Pacific Rim                                |      |   | 4,463  |  |      |   | 4,384  |  |  |   | 3,155  | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | Total revenue from continuing operations   |      | $ | 36,596 |  |      | $ | 39,405 |  |  | $ | 40,239 | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|Revenue from discontinued operations |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | United States                              |      | $ |       |  |      | $ |       |  |  | $ | 5,738  | 
|                                     | Europe                                     |      |   |       |  |      |   |       |  |  |   | 4,512  | 
|                                     | Pacific Rim                                |      |   |       |  |      |   |       |  |  |   |       | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | Total revenue from discontinued operations |      | $ |       |  |      | $ |       |  |  | $ | 10,250 | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|Long-lived Assets                    |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | United States                              |      | $ | 1,632  |  |      | $ | 1,956  |  |  | $ | 4,544  | 
|                                     | Europe                                     |      |   | 455    |  |      |   | 778    |  |  |   | 1,082  | 
|                                     | Pacific Rim                                |      |   | 975    |  |      |   | 912    |  |  |   |       | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | Total long-lived assets                    |      | $ | 3,062  |  |      | $ | 3,646  |  |  | $ | 5,626  | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       

10.     ACQUISITIONS

On March 31, 2001, the Company acquired all
of the outstanding capital stock of Dynamic Decisions Pty
Limited, its primary Australian reseller, to improve its market
presence and increase the Companys sales in the Pac Rim
region, for total cost of approximately $5,867,000 consisting of
$5,640,000 in maximum cash consideration to be paid and 100,000
shares of the Companys common stock which had a fair
market value at the date of acquisition of $227,000. The
acquisition was accounted for under the purchase method of
accounting, and the purchase price was allocated based on the
estimated fair value of the assets acquired and liabilities
assumed. An intangible asset, acquired customer relationships of
$1,500,000, was recorded based on the fair value of the asset at
the time of acquisition and is being amortized on a
straight-line basis over its estimated useful life of six years.
The excess of the purchase price over the fair value of the net
assets acquired of $934,000 was recorded as goodwill. Goodwill
is no longer amortized under the provision of SFAS 142.

Per the terms of the purchase and sale agreement,
total maximum cash consideration relating to the purchase of
Dynamic Decisions was $5,150,000 payable in installments over a
maximum of 30 months beginning on July 1, 2001. During
2001, the Company had paid $1,267,000 of the maximum cash
consideration, which was accounted for as purchase price. The
purchase price exceeded the fair market value of the net assets
purchased due in part to the revenues, profitability and
expected future cash flow from established customer base. In
addition, the Company made four additional cash payments in 2002

62



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

totaling $2,153,000, which have been accounted
for as compensation expense within operating expenses as the
payments were contingent upon the continued employment of two
key executives of Dynamic Decisions. The remaining cash payments
will continue to be accounted for as compensation expense within
operating expense as they are contingent upon the future
employment of the two key executives. The results of operations
of Dynamic Decisions are included in the Companys
financial statements from the date of acquisition.

The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed at the
date of the acquisition.

|                                                  |  |           |           | 
|------------------------------------------------- |  | --------- | --------- | 
|                                                  |  | At       
|                                                  |  | March 31,
|                                                  |  | 2001     
|                                                  |  |          
|Cash, cash equivalents and short-term investments |  | $         | 24,518    | 
|Accounts receivable                               |  |           | 610,899   | 
|Prepaid and other current assets                  |  |           | 154,116   | 
|Fixed assets                                      |  |           | 15,570    | 
|Intangible customer relationships                 |  |           | 1,500,000 | 
|Goodwill                                          |  |           | 934,766   | 
|Accounts payable                                  |  |           | 432,546   | 
|Accrued expenses                                  |  |           | 60,156    | 
|Deferred maintenance                              |  |           | 299,586   | 
|Deferred tax liabilities                          |  |           | 450,000   | 

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

|                                                     |  |                     |         |      |  |   |         |  
|---------------------------------------------------- |  | ------------------- | ------- | ---- |  | - | ------- | -
|                                                     |  |                    
|                                                     |  | Twelve Months Ended
|                                                     |  | December 31        
|                                                     |  | (Unaudited)        
|                                                     |  |                    
|                                                     |  | 2001                |         | 2000
|(In thousands, except for per share amounts)         |  |                     |         |     
|Revenue                                              |  | $                   | 39,980  |      |  | $ | 43,311  |  
|Net income (loss)                                    |  | $                   | (10,441 | )    |  | $ | (17,059 | )
|                                                     |  |                     |         |      |  |   |         |  
|Total basic and diluted earning (loss) per
    share |  | $                   | (0.88   | )    |  | $ | (1.52   | )
|                                                     |  |                     |         |      |  |   |         |  

11.     NET GAIN FROM
SALE OF SUBSIDIARY

In December 2002, the Company sold the stock of
its Dutch subsidiary, a remote sale office, for $362,000 and
recorded a net gain of $141,000. The transaction included
substantially all of the subsidiarys assets and
liabilities and an amendment to the existing distribution
agreement between the Company and the purchaser to provide the
purchaser exclusive rights to resell the Companys CRM
products in the Netherlands.

12.     RESTRUCTURING
EXPENSES

In 2001 and 2002, the Company adopted several
plans of restructuring aimed at reducing operating costs
company-wide, strengthening the Companys financial
position, and reallocating resources to pursue the
Companys future operating strategies.

63



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In the second quarter of 2001, the Company
adopted a plan of restructuring aimed at reducing operating
costs company-wide. In connection with this plan, 28
non-management employees, primarily sales, marketing, and
administrative personnel, and 2 executive level employees, were
terminated. The Companys restructuring plan also included
the closure of the Companys sales office in France. As a
result of the restructuring plan, the Company recorded a
restructuring charge of $512,000. The restructuring charge
consisted of $449,000 for severance costs and $63,000 for the
loss on disposal of the Companys French subsidiary, which
was sold on June 30, 2001. In connection with the sale, the
Company paid $100,000 to the purchaser, which is included in the
restructuring charge. The restructuring charge was fully paid as
of December 31, 2002.

In the third quarter of 2001, the Company adopted
a plan of restructuring to further reduce operating costs
company-wide. In connection with this plan, the Company recorded
an additional restructuring charge of $438,000 for severance
related to the termination of 26 non-management employees,
primarily sales, marketing, and administrative personnel.
Subsequent to the initial recording of the charge, adjustments
totaling $90,000 were recorded, reducing the charge to $348,000.
The restructuring charge was fully paid as of December 31, 2002.

In the fourth quarter of 2001, the Company
adopted a plan of restructuring to further reduce operating
costs. The plan included the further reduction of headcount of
one senior level executive and 16 non-management employees,
primarily professional services, sales, and administrative
personnel. The plan also included the closure of several
domestic offices and the consolidation of space within one
European office and the abandonment of leasehold improvements
and support assets associated with these locations, which were
removed from service shortly after the implementation of the
plan. As a result of the restructuring plan, the Company
recorded a charge of $840,000, which included $92,000 in
non-cash charges relating to impaired assets. In the second
quarter of 2002, the Company negotiated an early lease
cancellation for a certain office lease for an amount less than
the remaining lease obligation, which reduced the charge by
$140,000. The restructuring charge was fully paid as of
December 31, 2002.

In the second quarter of 2002, the Company
adopted a plan of restructuring to further reduce operating
costs. The plan included the further reduction of headcount of
five non-management employees, four sales people and one
administrative employee. The plan also included the closure of
two foreign offices. As a result of the restructuring plan, the
Company recorded a charge of $103,000 comprising of $74,000 for
workforce reduction and $29,000 for office closures. The
restructuring charge was fully paid as of December 31, 2002.

In the third quarter of 2002, the Company adopted
a plan of restructuring to further reduce operating costs. The
plan included a reduction of headcount of twenty-one
non-management and three management employees, primarily
professional services, sales, marketing, and customer support
personnel. The plan also included the closure of one foreign
office. As a result of the restructuring plan, the Company
recorded a charge of $398,000, which is comprised of $372,000
for workforce reduction, $20,000 related termination costs, and
$6,000 for office closure. During the fourth quarter of 2002,
the Company recorded an adjustment to increase this charge by
$20,000. In addition, the Company adjusted the amounts within
workforce, office closures and other contractual obligations as
changes in estimates but did not change the total amount of the
charge except as disclosed. These changes are not significant.
The remaining unpaid balance of $71,000 as of December 31,
2002 is expected to be paid in full during the first quarter of
2003.

64



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of the restructuring cash charges,
as well as the Companys 2002 payments made against
accruals are detailed as follows:

|                              |  |              |         |                 |  |          |          |              |  |   |            |   |  |   |        | 
|----------------------------- |  | ------------ | ------- | --------------- |  | -------- | -------- | ------------ |  | - | ---------- | - |  | - | ------ | 
|                              |  | Balance at   |         |                 |  |          |          | Balance at  
|                              |  | December 31, |         | Adjustment/     |  | Payments |          | December 31,
|Cash charges                  |  | 2001         |         | Charge incurred |  | made     |          | 2002        
|                              |  |              |         |                 |  |          |          |             
|Restructuring                 |  |              |         |                 |  |          |          |              |  |   |            |   |  |   |        | 
|Work force reduction          |  | $            | 311,000 |                 |  | $        | 548,000  |              |  | $ | (807,000   | ) |  | $ | 52,000 | 
|Office closures               |  |              | 274,000 |                 |  |          | (113,000 | )            |  |   | (144,000   | ) |  |   | 17,000 | 
|Other contractual obligations |  |              | 111,000 |                 |  |          | (54,000  | )            |  |   | (55,000    | ) |  |   | 2,000  | 
|                              |  |              |         |                 |  |          |          |              |  |   |            |   |  |   |        | 
|Total restructuring           |  | $            | 696,000 |                 |  | $        | 381,000  |              |  | $ | (1,006,000 | ) |  | $ | 71,000 | 
|                              |  |              |         |                 |  |          |          |              |  |   |            |   |  |   |        | 

13.     RESTRICTED
CASH

On August 1, 2001, the Company established a
$1,050,000 irrevocable standby letter of credit in connection
with executing an agreement to lease its headquarters
office space. The irrevocable standby letter of credit is
collateralized by a restricted cash deposit of $1,050,000. The
funds are drawn down over the term of the lease, provided the
Company has not defaulted on the office lease. The irrevocable
standby letter of credit and underlying security deposit
(restricted cash) requirement of $1,050,000 has been reduced to
$933,333 as of December 31, 2002 and will be further
reduced by the following amounts starting the first day of the
third lease year as follows:

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

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

14.     RELATED PARTY
TRANSACTIONS

For the years ended December 31, 2002 and
2001, software license revenues and cost of software license
revenues included sales and royalty expenses incurred in
connection with a reseller agreement between the Company and
Beachware Pty Ltd (Beachware). The principal owners
of Beachware are employees of the Company. During 2002, the
Company recorded $686,000 and $298,000, respectively, in
revenues and incurred royalty expenses of $405,000 and $173,000,
respectively, related to Beachware product sales. As of December
31, 2002 and 2001, royalties owed to Beachware were $214,000 and
$77,000, respectively.

15.     NON-RECOURSE
SALE OF RECEIVABLES

The Company has a non-recourse accounts
receivable purchase arrangement with a certain bank, pursuant to
which the Company and the bank may agree from time to time for
the Company to sell qualifying accounts receivable to the bank,
in an aggregate amount of up to $2 million outstanding, at
a purchase price equal to the balance of the accounts less a
discount rate and a fee. On or about December 31, 2002, the
Company factored certain accounts receivable to the bank
pursuant to the purchase arrangement in the amount of $905,000
resulting as a sale of accounts receivable of $668,000 for the
three months ended December 31, 2002. On or about
December 31, 2001, the Company factored certain accounts
receivable to the bank pursuant to the purchase arrangement in
the amount of $729,000.

65



---



##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In accordance with SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, the Company recognized
a sale for those account receivable balances for which there was
no future obligation to the customer in the amount of $2,323,000
and $361,000 for years ended December 31, 2002 and 2001.
The Company has concluded that these accounts have been legally
isolated, and accordingly, these amounts have been excluded from
the Companys accounts receivable balance at
December 31, 2002 and 2001. The loss from the sale of the
financial assets and retained interest for cash collection were
not material to the Companys results of operations or
financial position. At December 31, 2002 and 2001, the
Company had recorded a net amount of $237,000 and $368,000,
respectively, as financing transactions and recognized as a
liability because the sale of these receivables do not qualify
to be recorded as a sale under SFAS No. 140.

16.     IMPAIRMENT OF
INVESTMENT

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

17.     BANK CREDIT
FACILITIES

The Company had two revolving credit facilities
with a bank, providing for loans and other financial
accommodations, totaling approximately $5 million. The
facilities expired on December 5, 2002.

18.     COMMITMENTS
AND CONTINGENCIES

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

19.     SUBSEQUENT
EVENT

On January 21, 2003, the Company completed
the sale of certain of its assets relating to its customer
relationship management software solutions (the CRM
Business) to iET Acquisition, LLC (iET), a
wholly-owned subsidiary of Platinum Equity, LLC, for a purchase
price of $5,750,000 in cash (the Purchase Price) and
the assumption of approximately $3.0 million in net assumed
liabilities. Excluded from the sale were approximately
$2.8 million in net accounts receivable generated from the
sale of CRM products prior to this transaction. iET paid
$4,250,000 of the Purchase Price in cash at the initial closing
and paid an additional $1,500,000 in cash on March 17, 2003
upon the completion of the closing of certain of the assets of
the Companys German subsidiary, Applix GmbH. The purchase
price is subject to possible post closing adjustments. The
disposition was effected pursuant to an Asset Purchase
Agreement, dated as of January 21, 2003 (the Purchase
Agreement), by and between iET and the Company, on behalf
of itself and its subsidiaries.

As a result of the transactions contemplated by
the Purchase Agreement, Applix sold substantially all of the
assets used or held for use in connection with the CRM Business
and assigned to iET certain specified liabilities relating to
the CRM Business. In addition to tangible assets, the Company
also sold certain intangible assets, principally the
Companys intellectual property used or held for use
exclusively or primarily in the CRM Business.

66



---



##### Table of Contents



Schedule II

Valuation and Qualifying Accounts

|                                |  |                |           |                 |  |             |           |            |  |  |         |  |  |  |           | 
|------------------------------- |  | -------------- | --------- | --------------- |  | ----------- | --------- | ---------- |  |  | ------- |  |  |  | --------- | 
|                                |  | Balance at     |           |                 |  | Deductions  |           | Balance at
|                                |  | beginning      |           | Charges to cost |  | Write-off   |           | End       
|                                |  | of period      |           | and expenses    |  | of Accounts |           | of Period 
|                                |  |                |           |                 |  |             |           |           
|                                |  |               
|                                |  | (In thousands)
|December 31, 2002               |  |                |           |                 |  |             |           |            |  |  |         |  |  |  |           | 
|Allowance for doubtful accounts |  |                | 1,446,000 |                 |  |             | 1,198,000 |            |  |  | 546,000 |  |  |  | 2,098,000 | 
|December 31, 2001               |  |                |           |                 |  |             |           |            |  |  |         |  |  |  |           | 
|Allowance for doubtful accounts |  |                | 1,397,000 |                 |  |             | 316,000   |            |  |  | 267,000 |  |  |  | 1,446,000 | 

67



---



##### 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(2)   |  |  |  | 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.
| | 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(7)+  |  |  |  | Employment Agreement dated June 27, 2000
    between the Registrant and Jitendra Saxena, and Supplemental
    Agreement to Employment Agreement, dated March 19, 2001
    between the Registrant and Jitendra Saxena.                                                                                                                                             
| | 10 | .7      |  |  |  | Consulting Agreement between the Registrant and
    David C. Mahoney, dated September 10, 2001 and Termination
    Agreement, dated March 29, 2003, between the Registrant and
    David C. Mahoney.                                                                                                                                                              
| | 10 | .8+     |  |  |  | Severance Agreement, dated February 27,
    2003, between the Registrant and Alan Goldsworthy.                                                                                                                                                                                                                                                                    
| | 10 | .9(9)   |  |  |  | Termination Agreement, dated January 14,
    2002, by and between the Registrant, Applix GmbH and Michael
    Scheib.                                                                                                                                                                                                                                             
| | 10 | .10(6)+ |  |  |  | Executive Stock Option Acceleration Agreement
    between the Registrant and Craig Cervo, dated June 9, 2000.                                                                                                                                                                                                                                                     
| | 10 | .11(8)+ |  |  |  | Executive Change-in-Control Agreement between the
    Registrant and Walt Hilger, dated September 27, 2001.                                                                                                                                                                                                                                                       
| | 10 | .12(10) |  |  |  | Secured Promissory Note and Pledge Agreement
    entered into on July 31, 2000 between the Registrant and Alan
    Goldsworthy.                                                                                                                                                                                                                                   
| | 10 | .13(10) |  |  |  | Secured Promissory Note and Pledge Agreement
    entered into on July 31, 2000 between the Registrant and Ed
    Terino.                                                                                                                                                                                                                                          
| | 10 | .14(8)  |  |  |  | Asset Purchase Agreement by and among Real-Time
    International, Inc., VistaSource, Inc., Applix, Inc., Veriteam,
    Inc., VistaSource France, VistaSource GmbH and VistaSource UK,
    Ltd., dated as of March 14, 2001.                                                                                                                                      
| | 10 | .15(11) |  |  |  | Export-Import Bank Loan and Security Agreement,
    dated December 5, 2001 among the Registrant, Applix
    (UK) Limited, Applix Australia Pty, Ltd., Veritem Ltd. And
    Silicon Valley Bank.                                                                                                                                                                   
| | 10 | .16(11) |  |  |  | Borrower Agreement by the Registrant, Applix
    (UK) Limited, Applix Australia Pty, Ltd., Veriteam, Ltd. in
    favor of the Export-Import Bank and Silicon Valley Bank.                                                                                                                                                                                         
| | 10 | .17(11) |  |  |  | Loan and Security Agreement, dated
    December 5, 2001 between the Registrant and Silicon Valley
    Bank.                                                                                                                                                                                                                                                       
| | 10 | .18(11) |  |  |  | Non-Recourse Receivables Purchase Agreement dated
    December 31, 2001, between the Registrant and Silicon
    Valley Bank.                                                                                                                                                                                                                                      
| | 21 | .1      |  |  |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                   
| | 23 | .1      |  |  |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                                                                                                     
| | 23 | .2      |  |  |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                                                                                                                                                                            

68



---



##### Table of Contents



| |    |    |  |   |  |                                                                                                                                                          
| | -- | -- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | 99 | .1 |  |  |  | Certification of Chief Executive Officer Pursuant
    to 18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002
| | 99 | .2 |  |  |  | Certification of Chief Financial Officer Pursuant
    to 18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002



---



| |    |                                                                                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, 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 Quarterly Report on Form 10-Q for the
    fiscal quarter ended September 30, 2001, as filed with the
    Commission on November 14, 2001.                          
|
| | 9. | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the fiscal
    quarter ended March 31, 2002, as filed with the Commission
    on May 15, 2002.                                   



|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the fiscal
    quarter ended September 30, 2000, as filed with the
    Commission on November 14, 2000.
|   
|11. | 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.       



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

69