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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Amendment No. 1 to


FORM 10-K/A


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

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

Commission File No. 0-25040

APPLIX, INC.

(Exact name of registrant as specified in its charter)


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

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

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

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

Common Stock, $.0025 par value per share

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

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

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

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

Documents Incorporated By
Reference

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





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Explanatory Note

This amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K as
originally filed with the Securities and Exchange Commission on April 1, 2002
is being filed for the purpose of restating the Registrants Consolidated
Financial Statements as of December 31, 2001 and for the year then ended, the
related Notes to Consolidated Financial Statements and the related Managements
Discussion and Analysis of Financial Condition and Results of Operations. On
February 28, 2003, the Company announced that it had identified an error in its
revenue reported for two valid customers agreements, revenue under one of which
was originally recognized in December 2001. As a result, the Company is
restating its financial statements to defer $898,000 in license revenue from
the quarter ended December 31, 2001 and to recognize that revenue ratably over
the one-year term of the agreement beginning in January 2002. See Note 2 of
the Consolidated Financial Statements for a summary of the significant effects
of the restatement. This amendment also reflects an expanded Revenue
Recognition Policy under the Companys Significant Accounting Policies in the
Notes to Consolidated Financial Statements.
The Company has also corrected the classification of certain amounts in
the Consolidated Statements of Operations and corrected certain amounts in the Notes to
Consolidated Financial Statements for the year ended December 31, 2001.

This amendment does not reflect events occurring after the filing of the
original Annual Report on Form 10-K on April 1, 2002, or modify or update the
disclosures presented in the original Annual Report on Form 10-K, except to
reflect the revisions as described above.

2



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TABLE OF CONTENTS



|                                                 |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                 | Item 6. Selected Financial Data                                                              
|                                                 | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 8. Financial Statements and Supplementary Data                                          
|PART IV                                         
|                                                 | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                                      
|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



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##### Table of Contents



APPLIX, INC.

FORM 10-K/A

TABLE OF CONTENTS

|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | Page
|         |  |                                                                                       |  |     
|         |  | PART II                                                                               |  |     
|Item 6.  |  | Selected Financial Data                                                               |  | 4   
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations |  | 4   
|Item 8.  |  | Financial Statements and Supplementary Data                                           |  | 18  
|         |  | PART IV                                                                               |  |     
|Item 14. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 19  

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

Certain information contained in this Annual Report on Form 10-K/A is
forward-looking in nature. All statements included in this Annual Report on
Form 10-K/A 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.

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Item 6. Selected Financial Data

|                             |                                                            |  |                                       |         |      |  |      |         |      |  |      |        |   |  |   |         |   |  |   |        |  
|---------------------------- | ---------------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------- | - |  | - | ------ | -
|                             |                                                            |  | For the Years ended December 31,     
|                             |                                                            |  |                                      
|                             |                                                            |  | 2001                                  |         |      |  |      |         |      |  |      |        |   |  |   |         |   |  |  
|                             |                                                            |  | (Restated)                            |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                             |                                                            |  |                                       |         |      |  |      |         |      |  |     
|                             |                                                            |  | (In thousands, except per share data)
|Statement of Operations Data |                                                            |  |                                       |         |      |  |      |         |      |  |      |        |   |  |   |         |   |  |   |       
|                             | Total revenues                                             |  | $                                     | 39,405  |      |  | $    | 40,239  |      |  | $    | 36,871 |   |  | $ | 29,062  |   |  | $ | 22,036 |  
|                             | Restructuring and other charges                            |  |                                       | 1,700   |      |  |      |        |      |  |      |       |   |  |   |        |   |  |   |       |  
|                             | Amortization of acquired
intangible                        |  |                                       | 186     |      |  |      |        |      |  |      |       |   |  |   |        |   |  |   |       |  
|                             | Operating loss                                             |  |                                       | (10,355 | )    |  |      | (12,877 | )    |  |      | (7,624 | ) |  |   | (10,901 | ) |  |   | (7,158 | )
|                             | Permanent impairment of cost based investment              |  |                                       | 1,250   |      |  |      |        |      |  |      |       |   |  |   |        |   |  |   |       |  
|                             | Net loss from continuing operations                        |  |                                       | (11,873 | )    |  |      | (15,307 | )    |  |      | (4,251 | ) |  |   | (6,259  | ) |  |   | (5,423 | )
|                             | Net income (loss)                                          |  |                                       | (10,792 | )    |  |      | (18,912 | )    |  |      | 2,380  |   |  |   | 1,187   |   |  |   | (404   | )
|Per Share Data               |                                                            |  |                                       |         |      |  |      |         |      |  |      |        |   |  |   |         |   |  |   |       
|                             | Basic and diluted loss per share from continuing
operation |  | $                                     | (1.00   | )    |  | $    | (1.36   | )    |  | $    | (0.40  | ) |  | $ | (0.61   | ) |  | $ | (0.54  | )
|                             | Basic and diluted income (loss) per share                  |  | $                                     | (0.91   | )    |  | $    | (1.68   | )    |  | $    | 0.22   |   |  | $ | 0.12    |   |  | $ | (0.04  | )

|                   |                                                   |  |                                       |        |         |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------ | ------------------------------------------------- |  | ------------------------------------- | ------ | ------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                   |                                                   |  | As of December 31,                   
|                   |                                                   |  |                                      
|                   |                                                   |  | 2001                                  |        |         |  |      |        |      |  |      |        |  |  |   |        |  |  |  
|                   |                                                   |  | (Restated)                            |        | 2000(a) |  | 1999 |        | 1998 |  | 1997
|                   |                                                   |  |                                       |        |         |  |      |        |      |  |     
|                   |                                                   |  | (In thousands, except per share data)
|Balance Sheet Data |                                                   |  |                                       |        |         |  |      |        |      |  |      |        |  |  |   |        |  |  |   |       
|                   | Cash, cash equivalents and short-term investments |  | $                                     | 8,228  |         |  | $    | 12,546 |      |  | $    | 25,476 |  |  | $ | 21,445 |  |  | $ | 21,368 | 
|                   | Restricted cash                                   |  |                                       | 1,050  |         |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|                   | Working capital                                   |  |                                       | 1,356  |         |  |      | 12,113 |      |  |      | 28,455 |  |  |   | 24,866 |  |  |   | 22,632 | 
|                   | Total assets                                      |  |                                       | 24,938 |         |  |      | 33,074 |      |  |      | 54,681 |  |  |   | 45,613 |  |  |   | 44,365 | 
|                   | Long-term debt                                    |  |                                       |       |         |  |      |       |      |  |      | 1,080  |  |  |   |       |  |  |   |       | 
|                   | Total stockholders equity                        |  |                                       | 8,483  |         |  |      | 18,234 |      |  |      | 35,713 |  |  |   | 29,575 |  |  |   | 27,987 | 



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




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

OVERVIEW

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

The Company acquired Veriteam, Inc., doing business as CoSource.com, in
December 1999 to expand into the Linux market with

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an Internet accessible, collaborative open source software development web
site. In April 2000, the Company announced the establishment of VistaSource,
Inc. to focus on the emerging Linux and open source markets. VistaSource, Inc.
was established with the assets of the Companys Applixwareproduct suite and
CoSource.com.

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

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

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

Revenue Recognition

The Company recognizes revenue in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition (SOP 97-2), and SOP 98-9,
Software Revenue Recognition with Respect to Certain Transactions. SOP 97-2


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

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Account Receivable and Bad Debt

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

Capitalized Software Development Costs

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

Accounting For Cost Based Investments

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

Goodwill and Other Intangible Assets and Related Impairment

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

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

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

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Restructuring

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

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Deferred Taxes

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

RESULTS OF OPERATIONS

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

|                                                      |                                                                      |               |       |                                  |       |      |       |       |       |   |       |       |       |  
|----------------------------------------------------- | -------------------------------------------------------------------- | ------------- | ----- | -------------------------------- | ----- | ---- | ----- | ----- | ----- | - | ----- | ----- | ----- | -
|                                                      |                                                                      |               |       | For the Years Ended December 31,
|                                                      |                                                                      |               |       |                                 
|                                                      |                                                                      |               |       | 2001                             |       |      |       |       |       |   |       |      
|                                                      |                                                                      |               |       | (Restated)                       |       | 2000 |       | 1999 
|                                                      |                                                                      |               |       |                                  |       |      |       |      
|Software license revenue                              |                                                                      |               | 46.7  | %                                |       |      | 59.0  | %     |       |   | 58.6  | %    
|Professional service and maintenance revenue          |                                                                      |               | 53.3  | %                                |       |      | 41.0  | %     |       |   | 41.4  | %    
|                                                      |                                                                      |               |       |                                  |       |      |       |       |       |   |       |      
|                                                      |                                                                      | Total revenue |       |                                  | 100.0 | %    |       |       | 100.0 | % |       |       | 100.0 | %
|Cost of software license revenue                      |                                                                      |               | 3.1   | %                                |       |      | 4.9   | %     |       |   | 3.9   | %    
|Cost of professional services and maintenance revenue |                                                                      |               | 34.7  | %                                |       |      | 34.2  | %     |       |   | 31.3  | %    
|                                                      |                                                                      |               |       |                                  |       |      |       |       |       |   |       |      
|                                                      | Gross margin                                                         |               |       | 62.3                             | %     |      |       | 60.9  | %     |   |       | 64.8  | %    
|Operating expenses                                    |                                                                      |               |       |                                  |       |      |       |       |       |   |       |      
|                                                      | Selling and marketing                                                |               |       | 55.0                             | %     |      |       | 63.6  | %     |   |       | 54.1  | %    
|                                                      | Research and development                                             |               |       | 17.4                             | %     |      |       | 18.6  | %     |   |       | 19.2  | %    
|                                                      | General and administrative                                           |               |       | 11.4                             | %     |      |       | 10.7  | %     |   |       | 12.2  | %    
|                                                      | Restructuring and other charges                                      |               |       | 4.3                              | %     |      |       |      |       |   |       |      |      
|                                                      | Compensation expense related to amortization of
acquired intangibles |               |       | 0.5                              | %     |      |       |      |       |   |       |      |      
|                                                      |                                                                      |               |       |                                  |       |      |       |       |       |   |       |      
|                                                      | Total operating expenses                                             |               |       | 88.5                             | %     |      |       | 92.9  | %     |   |       | 85.5  | %    
|                                                      |                                                                      |               |       |                                  |       |      |       |       |       |   |       |      
|                                                      | Operating loss                                                       |               |       | (26.3                            | %)    |      |       | (32.0 | %)    |   |       | (20.7 | %)   
|Loss on impaired investment                           |                                                                      |               | (3.2  | %)                               |       |      |      |       |       |   |      |      
|Interest income, net                                  |                                                                      |               | (0.7  | %)                               |       |      | 2.9   | %     |       |   | 2.8   | %    
|(Provision for) benefit from income taxes             |                                                                      |               | (1.4  | %)                               |       |      | (8.9  | %)    |       |   | 6.4   | %    
|                                                      |                                                                      |               |       |                                  |       |      |       |       |       |   |       |      
|Net loss from continuing operations                   |                                                                      |               | (30.1 | %)                               |       |      | (38.0 | %)    |       |   | (11.5 | %)   
|                                                      |                                                                      |               |       |                                  |       |      |       |       |       |   |       |      

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
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 9%
to $11,630,000 in 2001 from $12,724,000 in 2000. The decreases were primarily
due to the decline in the global economy and the continued slowdown in
information technology spending. The Company expects software license revenue
to increase as a percent of total revenue in the future primarily due to an
expected increase in software license revenues through new channel partners.
The Companys three largest customers (including resellers) comprised a total
of 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 17% to $7,380,000 in 2001 from $6,304,000 in
2000. International professional services and maintenance revenue
increased 34%
to $13,619,000 as compared to $10,200,000 in 2000. The increase was primarily
due to increased maintenance revenue as a result of the improved renewal rates
for maintenance from existing customers. The Company expects the maintenance
revenue as a component of total professional service and maintenance revenue to
continue to increase due to continuing improvement in maintenance renewals from
existing customers. The Company expects professional service revenue to
decrease as percentage of total professional services and maintenance revenue
due to the Companys increasing reliance on external consultants. The Company
expects the maintenance revenue to increase as a percentage of professional
services and maintenance revenue due to further increases in maintenance
revenues and the decrease in

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consulting revenue. Maintenance revenues increased $4,340,000 to
$12,387,000 in 2001 from $8,047,000 in 2000. Maintenance revenue continues to
grow as a higher percentage of existing customers are choosing to extend
maintenance support contracts. The Company expects overall professional
services and maintenance revenue from continuing operations to decrease as a
percent of total revenue as a result of the expected decrease in professional
service revenues.

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, which include
domestic sales and marketing expenses and the cost of the Companys
international operations, decreased 15% to $21,671,000 in 2001 from $25,580,000
in 2000. Selling and marketing expenses from continuing operations decreased as
a percentage of total revenue to 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,
which consist primarily of employee salaries, benefits and related expenses,
decreased 9% to $6,848,000 in 2001 from $7,502,000 in 2000. The Companys
investment in product research and development represented 17% and 19% of total
revenue from continuing operations for 2001 and 2000, respectively. The
Companys product research and development costs decreased slightly due to
productivity gains recognized during 2001. The development costs reflect
continued investments in features and functionality for the core
Applix iTM1
and Applix iCRM products and the development of the product platform supporting
Applix Integra.

General and administrative expenses from continuing operations, which
include the costs of the Companys finance, human resources, and administrative
functions increased 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 consistent as a
percentage of total revenue at 11% in 2001 and 2000. The Company
expects that the general and administrative costs as a percent of revenue will
decrease in the future as the full benefit from the Companys restructuring
initiatives are fully realized.

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

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

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

In the fourth quarter of 2001, the Company adopted a plan of restructuring
to further reduce current operating costs company-wide. The plan included the
further reduction of headcount of one senior level executive and 16
non-management employees, primarily professional services, sales, and
administrative personnel. The plan also included the closure of several
domestic offices and the consolidation of space within one European office, and
the abandonment of leasehold improvements and support assets associated with
these locations, which were removed from service shortly after the
implementation of the plan. As a result of the restructuring

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plan, the Company recorded a charge of $840,000, consisting of $363,000
for severance, $385,000 for office closures and contractual obligations and
$92,000 for the write-off of impaired assets. At December 31, 2001, $696,000
remained accrued for severance and other costs. As a result of this plan, the
Company expects to save $1,100,000 on an annual basis.

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

The operating loss, before restructuring costs of $1,700,000 in 2001 and
$0 in 2000 and amortization of $186,000 in 2001 and $0 in 2000,
improved 34% to
a loss of $8,469,000 in 2001 as compared to an operating loss of
$12,877,000
in 2000. Benefits from the restructuring actions resulted in lower operating
expenses and led to a quarterly decline in operating losses.

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

Net loss from continuing operations was $11,873,000 in 2001 compared to
$15,307,000 in 2000. The decrease in net loss was attributed to declining
operating expenses, lower provisions for income taxes and improved gross margin
profitability. The decreases in selling and marketing operating costs
($3,909,000) were offset by restructuring charges and a loss from impaired
investment ($2,905,000).

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

Total revenue from continuing operations increased to $40,239,000 in 2000
from $36,871,000 in 1999. Software license revenue in 2000 of $23,735,000 was
approximately 10% higher than 1999 at $21,610,000 and represented 59% of
revenue from continuing operation for both years. Domestic software license
revenue from continuing operations decreased 6% to $8,064,000 from $8,621,000
in 1999. International software license revenue from continuing operations
decreased 19% to $10,502,000 in 2000 from $12,989,000 in 1999. The Companys
three largest customers (including resellers) comprised a total of 9% of total
software license revenue from continuing operations during 2000 and 7% of total
software license revenue from continuing operations in 1999.

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

As of December 31, 2001, the Company had cash and cash equivalents of
$9,278,000, which included restricted cash of $1,050,000 that represents the
security deposit for the headquarter office lease, as compared to $12,546,000
as of December 31, 2000. Cash used in the Companys
operations was $3,225,000
for the year ended December 31, 2001 compared to $8,972,000 for the year ended
December 31, 2000. The net loss of $10,792,000 for 2001 was partially offset by
the decrease in operating assets and liabilities of $4,731,000, which was
primarily due to an increase of accounts receivable collections of $4,635,000,
and an increase in deferred revenue bookings of $2,389,000.

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

Cash
provided from financing activities totaled $1,105,000 for the year
ended December 31, 2001, which consisted of proceeds received from the exercise
of incentive stock options and the Companys employee stock purchase plan of
$737,000, and net proceeds from factoring of receivables to a certain bank of
$368,000. This compares to total cash provided by financing activities of
$524,000 for 2000.

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

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

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

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

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

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

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

In accordance with generally accepted accounting principles (GAAP), the
Company recognized a sale for those accounts receivable balances for which
there was not a future obligation to the customer in the amount of $361,000.
The Company has concluded that these accounts have been legally isolated, and
accordingly, these amounts have been removed from the Companys accounts
receivable balance at December 31, 2001. The loss from the sale of the
financial assets and retained interest for cash collection were not material to
the Companys results of operations or financial position. The remainder of
$368,000 did not reduce the accounts receivable balance, and has been recorded
as a financing transaction and recognized as a liability at December 31, 2001.
This amount is expected to be repaid by the Company to the bank during 2002.
The sale of the receivables had an immaterial impact on the Companys days
sales outstanding (DSO), by reducing approximately 3 days from
approximately 77 to 74 days.

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

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

The Company has incurred losses from continuing operations for the last
several years. As of December 31, 2001, the Company had an accumulated deficit
of $38.1 million. Operating losses and negative cash flows may continue because
of costs and expenses relating to brand development, marketing and other
promotional activities, continued development of the Companys information
technology infrastructure, expansion of product offerings and development of
relationships with other businesses. Managements plans include increasing
revenue and generating positive cash flows from operations. The Company made
progress during the year towards decreasing operating losses on a quarterly
sequential basis. Additionally, the Company improved its fourth quarter 2001
cash flow and improved its cash position at December 31, 2001. The Company
currently expects that the principal sources of funding for its operating
expenses, capital expenditures and other liquidity needs will be a combination
of its available cash balances, funds generated from operations and its
available credit facilities. The Company believes that its currently available
sources of funds will be sufficient to fund its operations for at least the
next 12 months. However, there are a number of factors that may negatively
impact the Companys available sources of funds. The amount of cash generated
from operations will be dependent upon such factors as the successful execution
of the Companys business plan, the successful introduction of Applix Integra
and worldwide economic conditions. In addition, borrowings under the Companys
credit facilities are dependent upon adequate borrowings base and the
maintenance of certain financial covenants, which may limit the availability of
borrowing. The Company does not currently anticipate the need to draw down on
the two revolving credit lines for its working capital needs. Should the
Company not meet its plans to generate sufficient revenue or positive cash
flows, it may need to raise additional capital or reduce spending. Failure to
do so could have an adverse effect on the Companys ability to continue as a
going concern.

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

Euro Conversion

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

New Accounting Pronouncements

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

In June 2001, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143 (FAS 143), Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. It also applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development, and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. The Company is
required to adopt FAS 143 in the first quarter of fiscal 2003, and

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the Company does not believe that the adoption of FAS 143 will have a
material effect on its financial position or results of operations.

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

RISK FACTORS

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

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



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

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

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

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

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

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

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



| | FUTURE CAPITAL NEEDS.
| | ---------------------

We believe, based upon our current business plan, that our current cash
and cash equivalents, funds generated from operations and available credit
lines should be sufficient to fund our operations as planned for at least the

next twelve months. However, we may need additional funds sooner than
anticipated if our performance deviates significantly from our current business
plan or if there are significant changes in competitive or other market
factors. Such funds, whether from equity or debt financing or other sources,
may not be available, or available on terms acceptable to us.



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

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



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



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

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



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

15



---



##### Table of Contents



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

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

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



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

16



---



##### Table of Contents



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.

17



---



##### Table of Contents






Item 8. Financial Statements and Supplementary Data

Quarterly Operating Results for 2001 and 2000

|                                                                |  |                                       |        |         |  |         |        |            |  |   |        |   |  |         |        |  
|--------------------------------------------------------------- |  | ------------------------------------- | ------ | ------- |  | ------- | ------ | ---------- |  | - | ------ | - |  | ------- | ------ | -
|                                                                |  |                                       |        |         |  |         |        |            |  |   |        |   |  | Q4 2001
|                                                                |  | Q1 2001                               |        | Q2 2001 |  | Q3 2001 |        | (Restated)
|                                                                |  |                                       |        |         |  |         |        |           
|                                                                |  | (Unaudited)                          
|                                                                |  | (In thousands, except per share data)
|Revenue from continuing operations                              |  | $                                     | 11,327 |         |  | $       | 10,444 |            |  | $ | 8,858  |   |  | $       | 8,776  |  
|Gross margin from continuing operations                         |  |                                       | 6,868  |         |  |         | 6,718  |            |  |   | 5,352  |   |  |         | 5,596  |  
|Restructuring and other charges                                 |  |                                       |       |         |  |         | 512    |            |  |   | 438    |   |  |         | 750    |  
|Amortization of acquired intangible asset                       |  |                                       |       |         |  |         | 62     |            |  |   | 62     |   |  |         | 62     |  
|Permanent impairment of cost based investment                   |  |                                       |       |         |  |         |       |            |  |   |       |   |  |         | 1,250  |  
|Net loss from continuing operations                             |  | $                                     | (3,310 | )       |  | $       | (2,679 | )          |  | $ | (2,678 | ) |  | $       | (3,206 | )
|Gain 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 |  

The operating results for the quarter ended December 31, 2001 have been
restated to reflect the deferral of $898,000 in license revenue previously
recognized.

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

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

18



---



##### Table of Contents






PART IV




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



|(a) |  | 1. Consolidated Financial Statements.
|--- |  | -------------------------------------

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

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/A.

3. Exhibits.

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

|       |  |   |  |                                                                                                                                                                                    
|------ |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14* |  |  |  | Export-Import Bank Loan and Security Agreement, dated December 5, 2001 among the Registrant, Applix (UK) Limited, Applix Australia Pty, Ltd., Veritem Ltd. And Silicon Valley Bank.
|       |  |   |  |                                                                                                                                                                                    
|10.15* |  |  |  | Borrower Agreement by the Registrant, Applix (UK) Limited, Applix Australia Pty, Ltd., Veriteam, Ltd. in favor of the Export-Import Bank and Silicon Valley Bank.                  
|       |  |   |  |                                                                                                                                                                                    
|10.16* |  |  |  | Loan and Security Agreement, dated December 5, 2001 between the Registrant and Silicon Valley Bank.                                                                                
|       |  |   |  |                                                                                                                                                                                    
|10.17* |  |  |  | Non-Recourse Receivables Purchase Agreement dated December 31, 2001, between the Registrant and Silicon Valley Bank                                                                
|       |  |   |  |                                                                                                                                                                                    
|21.1*  |  |  |  | Subsidiaries of the Registrant.                                                                                                                                                    
|       |  |   |  |                                                                                                                                                                                    
|23.1   |  |  |  | Consent of Ernst & Young LLP.                                                                                                                                                      
|       |  |   |  |                                                                                                                                                                                    
|23.2   |  |  |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                             
|       |  |   |  |                                                                                                                                                                                    
|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 Companys Registration Statement on Form S-1 (File no. 33-85688).                                                                                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Incorporated by reference to the Companys Registration Statement on Form 8-A dated September 20, 2000.                                                                                              
|  
|3. |  | Incorporated by reference to the Registrants Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Commission on March
30, 2000.                                       
|  
|4. |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2000, as filed with the
Commission on November 14, 2000.                      
|  
|5. |  | Incorporated by reference to the Registrants Report on Form 10-K for the fiscal year ended December 31, 2000, as originally filed with the
Commission on April 2, 2001 and amended on June 15, 2001.
|  
|6. |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001, as filed with the Commission
on August 13, 2001.                             
|  
|7. |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2001, as filed with the
Commission on November 14, 2001.                      

|* |  | Previously filed                         
|- |  | -----------------------------------------
| 
|+ |  | Management contract or compensatory plan.

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

None.




SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment on Form
10-K/A to the Registrants Report on Form 10-K 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
President and Chief Executive Officer

19



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##### Table of Contents



CERTIFICATIONS

I, David Mahoney, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K, as amended hereby,
of Applix, Inc.;                                                                                                                                                                                                                                                                         
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, the annual report, as amended hereby, 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 the annual report, as amended hereby;
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in the annual report, as amended hereby, 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.                                      

|                      |                                                               
|--------------------- | --------------------------------------------------------------
|Dated: March 31, 2003 | /s/  David C.
Mahoney
David C. Mahoney
Chief Executive Officer

CERTIFICATIONS

I, Walt Hilger, certify that:



|1. |  | I have reviewed this annual report on Form 10-K, as amended hereby, of
Applix, Inc.;                                                                                                                                                                                                                                                                         
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, the annual report, as amended hereby, 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 the annual report, as amended hereby;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in the annual report, as amended hereby, 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.                                      

|                      |                                                     
|--------------------- | ----------------------------------------------------
|Dated: March 31, 2003 | /s/  Walt
Hilger
Walt Hilger
Chief Financial Officer

20



---



##### Table of Contents



Index to Consolidated Financial Statements and Financial Statement Schedule

|                                                                                                     |    |      |    | 
|---------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                                                                     |    | Page
|                                                                                                     |    |     
|Report of Ernst & Young LLP, Independent Auditors                                                    |    |      | 21 | 
|Report of Independent Accountants                                                                    |    |      | 22 | 
|Consolidated Balance Sheets at December 31, 2001 and 2000                                            |    |      | 23 | 
|Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999           |    |      | 25 | 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2001, 2000 and 1999 |    |      | 26 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999           |    |      | 27 | 
|Notes to Consolidated Financial Statements                                                           |    |      | 28 | 
|Financial Statement Schedule for
the year ended December 31, 2001.                                   |    |     
|Schedule
II  Valuation and Qualifying Accounts                                                      | 45 |     



---



##### Table of Contents



Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Applix, Inc.

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

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

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

As more fully described in Note 2, the
Company has restated its 2001 financial
statements.

/s/ ERNST & YOUNG LLP

Boston, Massachusetts
January 25, 2002, except for Note 17,
as to which the date is February 8, 2002
and Note 2 , as to which the date is March
7, 2003

21



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##### Table of Contents



Report of Independent Accountants

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

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

/s/ PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts
January 24, 2001

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APPLIX, INC.

CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(In thousands, except share and per share amounts)

ASSETS

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

See accompanying Notes to Consolidated Financial Statements.

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APPLIX, INC.

CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 2001 and 2000
(In thousands, except share and per share amounts)

LIABILITIES AND STOCKHOLDERS EQUITY

|                                           |                           |                                                                                                                                                                                                                                             |        |            |         |      |        |        |         |  
|------------------------------------------ | ------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ---------- | ------- | ---- | ------ | ------ | ------- | -
|                                           |                           |                                                                                                                                                                                                                                             |        | 2001       |         |      |        |       
|                                           |                           |                                                                                                                                                                                                                                             |        | (Restated) |         | 2000
|                                           |                           |                                                                                                                                                                                                                                             |        |            |         |     
|Current liabilities:                       |                           |                                                                                                                                                                                                                                             |        |            |         |      |        |       
|                                           |                           | Accounts payable                                                                                                                                                                                                                            |        | $          | 2,137   |      |        | $      | 2,406   |  
|                                           |                           | Accrued liabilities                                                                                                                                                                                                                         |        |            | 6,716   |      |        |        | 7,145   |  
|                                           |                           | Deferred revenue                                                                                                                                                                                                                            |        |            | 6,711   |      |        |        | 4,222   |  
|                                           |                           | Net liabilities of discontinued operation                                                                                                                                                                                                   |        |            | 182     |      |        |        | 1,067   |  
|                                           |                           |                                                                                                                                                                                                                                             |        |            |         |      |        |        |         |  
|                                           | Total current liabilities |                                                                                                                                                                                                                                             |        | 15,746     |         |      |        | 14,840 |        
|Long term liabilities                      |                           |                                                                                                                                                                                                                                             | 709    |            |         |      |       |       
|Commitments and contingencies (Note 7)     |                           |                                                                                                                                                                                                                                             |       |            |         |      |       |       
|Stockholders equity:                      |                           |                                                                                                                                                                                                                                             |        |            |         |      |        |       
|                                           |                           | Preferred stock, $.01 par value; 1,000,000 shares authorized, none issued and outstanding Common stock,
$.0025 par value; 30,000,000 shares authorized; 12,320,096 and 11,893,893 shares issued at December
31, 2001 and 2000, respectively |        |            | 31      |      |        |        | 30      |  
|                                           |                           | Capital in excess of par value                                                                                                                                                                                                              |        |            | 49,212  |      |        |        | 48,249  |  
|                                           |                           | Accumulated deficit                                                                                                                                                                                                                         |        |            | (38,060 | )    |        |        | (27,268 | )
|                                           |                           | Accumulated other comprehensive loss                                                                                                                                                                                                        |        |            | (503    | )    |        |        | (580    | )
|                                           |                           | Notes receivable from stock purchase agreements                                                                                                                                                                                             |        |            | (1,120  | )    |        |        | (1,120  | )
|                                           |                           |                                                                                                                                                                                                                                             |        |            |         |      |        |        |         |  
|                                           |                           |                                                                                                                                                                                                                                             | 9,560  |            |         |      | 19,311 |       
|                                           |                           | Less 306,198 shares of treasury stock                                                                                                                                                                                                       |        |            | (1,077  | )    |        |        | (1,077  | )
|                                           |                           |                                                                                                                                                                                                                                             |        |            |         |      |        |        |         |  
|Total stockholders equity                 |                           |                                                                                                                                                                                                                                             | 8,483  |            |         |      | 18,234 |       
|                                           |                           |                                                                                                                                                                                                                                             |        |            |         |      |        |        |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                           | $                                                                                                                                                                                                                                           | 24,938 |            |         | $    | 33,074 |       
|                                           |                           |                                                                                                                                                                                                                                             |        |            |         |      |        |        |         |  

See accompanying Notes to Consolidated Financial Statements.

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APPLIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001, 2000 and 1999
(In thousands, except share and per share data)

|                                                                |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |        |      | 
|--------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------- | ---------- | ----- | ---- | ------- | ------- | ----- | - | ------ | ------ | ---- | 
|                                                                |                                                                                                                                   |                               |         | 2001       |       |      |         |         |       |   |        |       
|                                                                |                                                                                                                                   |                               |         | (Restated) |       | 2000 |         | 1999   
|                                                                |                                                                                                                                   |                               |         |            |       |      |         |        
|Software license revenue                                        |                                                                                                                                   | $                             | 18,406  |            |       | $    | 23,735  |         |       | $ | 21,610 |       
|Professional services and maintenance revenue                   |                                                                                                                                   |                               | 20,999  |            |       |      | 16,504  |         |       |   | 15,261 |       
|                                                                |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|                                                                | Total revenue                                                                                                                     |                               |         | 39,405     |       |      |         | 40,239  |       |   |        | 36,871 |     
|Cost of software license revenue                                |                                                                                                                                   |                               | 1,214   |            |       |      | 1,985   |         |       |   | 1,454  |       
|Cost of professional services and maintenance revenue           |                                                                                                                                   |                               | 13,657  |            |       |      | 13,757  |         |       |   | 11,498 |       
|                                                                |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|                                                                | Gross margin                                                                                                                      |                               |         | 24,534     |       |      |         | 24,497  |       |   |        | 23,919 |     
|Operating expenses                                              |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|                                                                | Selling and marketing                                                                                                             |                               |         | 21,671     |       |      |         | 25,580  |       |   |        | 19,957 |     
|                                                                | Research and development                                                                                                          |                               |         | 6,848      |       |      |         | 7,502   |       |   |        | 7,101  |     
|                                                                | General and administrative                                                                                                        |                               |         | 4,484      |       |      |         | 4,292   |       |   |        | 4,485  |     
|                                                                | Amortization
of acquired intangible asset                                                                                         |                               |         | 186        |       |      |         |        |       |   |        |       |     
|                                                                | Restructuring and other charges                                                                                                   |                               |         | 1,700      |       |      |         |        |       |   |        |       |     
|                                                                |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|                                                                | Total operating expenses                                                                                                          |                               |         | 34,889     |       |      |         | 37,374  |       |   |        | 31,543 |     
|Operating loss                                                  |                                                                                                                                   |                               | (10,355 | )          |       |      | (12,877 | )       |       |   | (7,624 | )     
|Non-operating income (expense)                                  |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|                                                                | Permanent impairment of cost based investment                                                                                     |                               |         | (1,250     | )     |      |         |        |       |   |        |       |     
|                                                                | Interest income, net                                                                                                              |                               |         | 290        |       |      |         | 1,153   |       |   |        | 1,031  |     
|                                                                |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|Loss from continuing operations before income taxes             |                                                                                                                                   |                               | (11,315 | )          |       |      | (11,724 | )       |       |   | (6,593 | )     
|Benefit (provision) for income taxes                            |                                                                                                                                   |                               | (558    | )          |       |      | (3,583  | )       |       |   | 2,342  |       
|                                                                |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|                                                                | Net loss from continuing operations                                                                                               |                               |         | (11,873    | )     |      |         | (15,307 | )     |   |        | (4,251 | )   
|Discontinued operation                                          |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|                                                                | Income (loss) from discontinued operation, including income tax provision of $63 and $3,739
in 2000 and 1999, respectively        |                               |         |           |       |      |         | (367    | )     |   |        | 6,631  |     
|                                                                | Gain (loss) on disposal of discontinued operation, including a provision of $2,367 for losses
during the phase-out period in 2000 |                               |         | 1,081      |       |      |         | (3,238  | )     |   |        |       |     
|                                                                |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|Net income (loss)                                               |                                                                                                                                   | $                             | (10,792 | )          |       | $    | (18,912 | )       |       | $ | 2,380  |       
|                                                                |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|Basic and diluted income (loss) per share                       |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|                                                                | Continuing operations                                                                                                             |                               | $       | (1.00      | )     |      | $       | (1.36   | )     |   | $      | (0.40  | )   
|                                                                | Discontinued operation                                                                                                            |                               | $       | 0.09       |       |      | $       | (0.32   | )     |   | $      | 0.62   |     
|                                                                |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|                                                                |                                                                                                                                   | Total income (loss) per share |         | $          | (0.91 | )    |         | $       | (1.68 | ) |        | $      | 0.22 | 
|                                                                |                                                                                                                                   |                               |         |            |       |      |         |         |       |   |        |       
|Weighted average number of basic and diluted shares outstanding |                                                                                                                                   |                               | 11,861  |            |       |      | 11,246  |         |       |   | 10,625 |       

See accompanying Notes to Consolidated Financial Statements.

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APPLIX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years ended December 31, 2001, 2000 and 1999
(In thousands, except share amounts)

|                                                                       |  |        |    |           |  |             |        |               |  |              |         |            |  |             |      |       |  |            |        |            |  |       |        |   |  |   |        |   |  |   |         |  
|---------------------------------------------------------------------- |  | ------ | -- | --------- |  | ----------- | ------ | ------------- |  | ------------ | ------- | ---------- |  | ----------- | ---- | ----- |  | ---------- | ------ | ---------- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                                                       |  |        |    |           |  |             |        |               |  |              |         |            |  |             |      |       |  |            |        |            |  | Notes |        |   |  |   |        |   |  |  
|                                                                       |  |        |    |           |  |             |        |               |  |              |         |            |  | Accumulated |      |       |  |            |        | Receivable |  |       |        |   |  |   |        |  
|                                                                       |  |        |    |           |  | Capital in  |        |               |  |              |         | Other      |  |             |      |       |  | from Stock |        |            |  |       |        |   |  |  
|                                                                       |  | Common |    | Excess of |  | Accumulated |        | Comprehensive |  | Unearned     |         | Purchase   |  | Treasury    |      |       |  |           
|                                                                       |  | Stock  |    | Par Value |  | Deficit     |        | (Loss) Income |  | Compensation |         | Agreements |  | Stock       |      | Total
|                                                                       |  |        |    |           |  |             |        |               |  |              |         |            |  |             |      |      
|Balance, December 31, 1998                                             |  | $      | 26 |           |  | $           | 41,689 |               |  | $            | (10,736 | )          |  | $           | (471 | )     |  | $          |       |            |  | $     |       |   |  | $ | (933   | ) |  | $ | 29,575  |  
|Stock option income tax
benefit                                        |  |        |    |           |  |             | 921    |               |  |              |         |            |  |             |      |       |  |            |        |            |  |       |        |   |  |   |        |   |  |   | 921     |  
|Stock issued for purchase of
Cosource.com (148,571
shares)             |  |        |    |           |  |             | 640    |               |  |              |         |            |  |             |      |       |  |            |        |            |  |       |        |   |  |   |        |   |  |   | 640     |  
|Stock issued under stock plans
(749,391 shares)                        |  |        | 3  |           |  |             | 2,423  |               |  |              |         |            |  |             |      |       |  |            |        |            |  |       |        |   |  |   |        |   |  |   | 2,426   |  
|Issuance of restricted stock                                           |  |        |    |           |  |             | 1,440  |               |  |              |         |            |  |             |      |       |  |            | (1,440 | )          |  |       |        |   |  |   |        |   |  |   |        |  
|Repurchase of common stock
(27,500 shares)                             |  |        |    |           |  |             |        |               |  |              |         |            |  |             |      |       |  |            |        |            |  |       |        |   |  |   | (144   | ) |  |   | (144    | )
|Net income                                                             |  |        |    |           |  |             |        |               |  |              | 2,380   |            |  |             |      |       |  |            |        |            |  |       |        |   |  |   |        |   |  |   | 2,380   |  
|Foreign currency exchange
translation adjustment                       |  |        |    |           |  |             |        |               |  |              |         |            |  |             | (85  | )     |  |            |        |            |  |       |        |   |  |   |        |   |  |   | (85     | )
|Comprehensive income                                                   |  |        |    |           |  |             |        |               |  |              |         |            |  |             |      |       |  |            |        |            |  |       |        |   |  |   |        |   |  |   | 2,295   |  
|                                                                       |  |        |    |           |  |             |        |               |  |              |         |            |  |             |      |       |  |            |        |            |  |       |        |   |  |   |        |   |  |   |         |  
|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
(Restated)                                  |  |        | 31 |           |  |             | 49,212 |               |  |              | (38,060 | )          |  |             | (503 | )     |  |            |       |            |  |       | (1,120 | ) |  |   | (1,077 | ) |  |   | 8,483   |  
|                                                                       |  |        |    |           |  |             |        |               |  |              |         |            |  |             |      |       |  |            |        |            |  |       |        |   |  |   |        |   |  |   |         |  

See accompanying Notes to Consolidated Financial Statements.

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APPLIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001, 2000 and 1999
(In thousands)

|                                                     |                                                                                                     |                                                      |                                                 |         |        |        |        |         |         |        |        |       |         |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------------- | ------- | ------ | ------ | ------ | ------- | ------- | ------ | ------ | ----- | ------- | ------- | -
|                                                     |                                                                                                     |                                                      |                                                 |         | 2001   |        |        |         |         |        |        |       |        
|Years ended December 31,                             |                                                                                                     | (Restated)                                           |                                                 | 2000    |        | 1999  
|                                                     |                                                                                                     |                                                      |                                                 |         |        |       
|Operating activities                                 |                                                                                                     |                                                      |                                                 |         |        |        |        |         |         |        |        |      
|                                                     | Net income (loss)                                                                                   |                                                      | $                                               | (10,792 | )      |        | $      | (18,912 | )       |        | $      | 2,380 |        
|                                                     | Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities: |                                                      |                                                 |         |        |        |        |         |         |        |        |       |        
|                                                     |                                                                                                     | Depreciation                                         |                                                 |         | 1,410  |        |        |         | 2,032   |        |        |       | 1,633   |        
|                                                     |                                                                                                     | Amortization                                         |                                                 |         | 1,086  |        |        |         | 1,330   |        |        |       | 862     |        
|                                                     |                                                                                                     | (Gain) loss on sale of discontinued operation        |                                                 |         | (1,081 | )      |        |         | 3,238   |        |        |       |        |        
|                                                     |                                                                                                     | Write-off of impaired investment                     |                                                 |         | 1,250  |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                     | Non-cash restructuring charges                       |                                                 |         | 92     |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                     | Non-cash stock compensation expense                  |                                                 |         | 30     |        |        |         | 573     |        |        |       |        |        
|                                                     |                                                                                                     | Provision for doubtful accounts                      |                                                 |         | 49     |        |        |         | 344     |        |        |       |        |        
|                                                     |                                                                                                     | Deferred tax asset                                   |                                                 |         |       |        |        |         | 3,001   |        |        |       | (406    | )      
|                                                     | Changes in operating assets and liabilities:                                                        |                                                      |                                                 |         |        |        |        |         |         |        |        |       |        
|                                                     |                                                                                                     | (Increase)
decrease in accounts receivable           |                                                 |         | 4,635  |        |        |         | (1,214  | )      |        |       | 61      |        
|                                                     |                                                                                                     | Sale of accounts receivable                          |                                                 |         | 361    |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                     | (Increase) decrease in other assets                  |                                                 |         | 566    |        |        |         | 864     |        |        |       | (1,165  | )      
|                                                     |                                                                                                     | Increase in restricted cash                          |                                                 |         | (1,050 | )      |        |         |        |        |        |       |        |        
|                                                     |                                                                                                     | Increase (decrease) in accounts payable              |                                                 |         | (540   | )      |        |         | 433     |        |        |       | 592     |        
|                                                     |                                                                                                     | Increase (decrease) in accrued liabilities           |                                                 |         | (2,021 | )      |        |         | 381     |        |        |       | 61      |        
|                                                     |                                                                                                     | Increase in other liabilities                        |                                                 |         | 195    |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                     | Increase (decrease) in deferred revenue              |                                                 |         | 2,389  |        |        |         | (1,042  | )      |        |       | 705     |        
|                                                     |                                                                                                     | Increase in accrued discontinued operations          |                                                 |         | 196    |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                     |                                                      |                                                 |         |        |        |        |         |         |        |        |       |        
|                                                     |                                                                                                     |                                                      | Cash (used in) provided by operating activities |         |        | (3,225 | )      |         |         | (8,972 | )      |       |         | 4,723   |  
|Investing activities                                 |                                                                                                     |                                                      |                                                 |         |        |        |        |         |         |        |        |      
|                                                     |                                                                                                     | Property and equipment expenditures                  |                                                 |         | (856   | )      |        |         | (2,655  | )      |        |       | (1,709  | )      
|                                                     |                                                                                                     | Capitalized software costs                           |                                                 |         | (844   | )      |        |         | (1,803  | )      |        |       | (784    | )      
|                                                     |                                                                                                     | Payment for disposition of subsidiary                |                                                 |         | (100   | )      |        |         |        |        |        |       |        |        
|                                                     |                                                                                                     | Net proceeds from sale of discontinued operation     |                                                 |         | 1,300  |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                     | Payments for acquisition, net of cash acquired       |                                                 |         | (1,733 | )      |        |         |        |        |        |       | (1,197  | )      
|                                                     |                                                                                                     | Purchase of short-term investments                   |                                                 |         |       |        |        |         | (31,715 | )      |        |       | (41,000 | )      
|                                                     |                                                                                                     | Maturities of short-term investments                 |                                                 |         |       |        |        |         | 46,870  |        |        |       | 29,885  |        
|                                                     |                                                                                                     |                                                      |                                                 |         |        |        |        |         |         |        |        |       |        
|                                                     |                                                                                                     |                                                      | Cash provided by (used in) investing            |         |        | (2,233 | )      |         |         | 10,697 |        |       |         | (14,805 | )
|Financing activities                                 |                                                                                                     |                                                      |                                                 |         |        |        |        |         |         |        |        |      
|                                                     |                                                                                                     | Proceeds from issuance of stock under stock plans    |                                                 |         | 737    |        |        |         | 1,184   |        |        |       | 3,346   |        
|                                                     |                                                                                                     | Purchase of common stock                             |                                                 |         |       |        |        |         |        |        |        |       | (144    | )      
|                                                     |                                                                                                     | Payment on notes payable                             |                                                 |         |       |        |        |         | (660    | )      |        |       |        |        
|                                                     |                                                                                                     | Proceeds
from short-term borrowings                  |                                                 |         | 368    |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                     | Principal payments under capital lease obligations   |                                                 |         |       |        |        |         |        |        |        |       | (118    | )      
|                                                     |                                                                                                     |                                                      |                                                 |         |        |        |        |         |         |        |        |       |        
|                                                     |                                                                                                     |                                                      | Cash provided by financing activities           |         |        | 1,105  |        |         |         | 524    |        |       |         | 3,084   |  
|Effect of exchange rate changes on cash              |                                                                                                     |                                                      | 35                                              |         |        |        | (24    | )       |         |        | (85    | )    
|                                                     |                                                                                                     |                                                      |                                                 |         |        |        |        |         |         |        |        |       |        
|Net increase (decrease) in cash and cash equivalents |                                                                                                     |                                                      | (4,318                                          | )       |        |        | 2,225  |         |         |        | (7,083 | )    
|Cash and cash equivalents at beginning of period     |                                                                                                     |                                                      | 12,546                                          |         |        |        | 10,321 |         |         |        | 17,404 |      
|                                                     |                                                                                                     |                                                      |                                                 |         |        |        |        |         |         |        |        |       |        
|Cash and cash equivalents at end of period           |                                                                                                     | $                                                    | 8,228                                           |         |        | $      | 12,546 |         |         | $      | 10,321 |      
|Supplemental disclosure of cash flow information     |                                                                                                     |                                                      |                                                 |         |        |        |        |         |         |        |        |      
|                                                     |                                                                                                     | Cash paid during the period for income taxes         |                                                 | $       | 311    |        |        | $       | 110     |        |        | $     | 312     |        
|                                                     |                                                                                                     | Stock issued in exchange for stockholder notes       |                                                 | $       |       |        |        | $       | 1,120   |        |        | $     |        |        
|                                                     |                                                                                                     | Stock issued for acquisition of Dynamic Decision Pty |                                                 | $       | 227    |        |        | $       |        |        |        | $     |        |        

See accompanying Notes to Consolidated Financial Statements.

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APPLIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

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

The Company has incurred losses from continuing operations for the last
several years. As of December 31, 2001, the Company had an accumulated deficit
of $38.1million. Operating losses and negative cash flows may continue because
of costs and expenses relating to brand development, marketing and other
promotional activities, continued development of the Companys information
technology infrastructure, expansion of product offerings and development of
relationships with other businesses. Managements plans include increasing
revenue and generating positive cash flows from operations. The Company made
progress during the year towards decreasing operating losses on a quarterly
sequential basis. Additionally, the Company improved its fourth quarter 2001
cash flow and improved its cash position at December 31, 2001. The Company
currently expects that the principal sources of funding for its operating
expenses, capital expenditures and other liquidity needs will be a combination
of its available cash balances, funds generated from operations and its
available credit facilities. The Company believes that its currently available
sources of funds will be sufficient to fund its operations for at least the
next 12 months. However, there are a number of factors that may negatively
impact the Companys available sources of funds. The amount of cash generated
from operations will be dependent upon such factors as the successful execution
of the Companys business plan, the successful introduction of Applix Integra
and worldwide economic conditions. In addition, borrowings under the Companys
credit facilities are dependent upon adequate borrowings base and the
maintenance of certain financial covenants, which may limit the availability of
borrowing. The Company does not currently anticipate the need to draw down on
the two revolving credit lines for its working capital needs. Should the
Company not meet its plans to generate sufficient revenue or positive cash
flows, it may need to raise additional capital or reduce spending. Failure to
do so could have an adverse effect on the Companys ability to continue as a
going concern.

2. REVISION OF FINANCIAL STATEMENTS TO ACCOUNT FOR REVENUE RECOGNITION

As discussed in Note 3, the Company recognizes revenues from software
licensing and service fees in accordance with Statement of Position (SOP)
97-2 and SOP 98-9 (as defined in Note 3). On February 28, 2003, the Company
announced that it had identified an error in its revenue reported for two valid
customers agreements, revenue under one of which was originally recognized in
December 2001. As a result, the Company is restating its financial statements
to defer $898,000 in license revenue from the quarter ended December 31, 2001
and to recognize that revenue ratably over the one year term of the agreement
beginning in January 2002.

A summary of the significant effects of the revision is as follows:

|                                                                       |  |              |         |  
|---------------------------------------------------------------------- |  | ------------ | ------- | -
|                                                                       |  | Year ended  
|                                                                       |  | December 31,
|                                                                       |  | 2001        
|                                                                       |  |             
|Software license revenues as previously reported                       |  | $            | 19,304  |  
|Software license revenues as restated                                  |  |              | 18,406  |  
|Net loss as previously reported                                        |  | $            | (9,894  | )
|Net loss as restated                                                   |  |              | (10,792 | )
|Net income (loss) per share, basic and diluted, as
previously reported |  | $            | (0.83   | )
|Net income (loss) per share, basic and diluted, as restated            |  |              | (0.91   | )

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|                                           |  |              |         |  
|------------------------------------------ |  | ------------ | ------- | -
|                                           |  | December 31,
|                                           |  | 2001        
|                                           |  |             
|Deferred revenue as previously reported    |  | $            | 5,813   |  
|Deferred revenue as restated               |  |              | 6,711   |  
|Accumulated deficit as previously reported |  | $            | (37,162 | )
|Accumulated deficit as restated            |  |              | (38,060 | )

3. SIGNIFICANT ACCOUNTING POLICIES



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

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



| | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The Company 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 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.

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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.

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 $287,000, $7,000 and $0, for the
years ended December 31, 2001, 2000 and 1999, respectively.

Cash and Cash Equivalents

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

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agreement.

Concentrations of Credit Risk

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

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

Property and Equipment

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

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

Capitalized Software Costs

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

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

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

Impairment of Long-Lived Assets

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

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

Income Taxes

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

Computation of Net Income (Loss) Per Common Share

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

Translation of Foreign Currencies

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

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

Comprehensive Income

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

Advertising Expense

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

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Stock-Based Compensation

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

Use of Estimates

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

Reclassifications

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

Effect of Recent Accounting Pronouncements

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

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

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

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

In August 2001, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 144 (FAS 144), Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses the financial
accounting and reporting for the impairment of long-lived assets. This
statement supersedes Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of and the accounting and reporting provisions for

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the disposal of a segment of a business of APB Opinion No. 30, Reporting
the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequent Occurring Events and
Transactions. The Company is required to adopt FAS 144 in the first quarter of
fiscal 2002 and the Company has not yet determined what effect, if any, the
adoption of FAS 144 will have on its financial position and results of
operations.

4. DISCONTINUED OPERATION

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

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

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

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

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

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

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5. ACCRUED LIABILITIES

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

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

6. INCOME TAXES

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

|                                                                                                               |                               |       |                            |     |         |     |         |        |         |       |        |        |        |        |  
|-------------------------------------------------------------------------------------------------------------- | ----------------------------- | ----- | -------------------------- | --- | ------- | --- | ------- | ------ | ------- | ----- | ------ | ------ | ------ | ------ | -
|                                                                                                               |                               |       |                            |     | 2001    |     | 2000    |        | 1999   
|                                                                                                               |                               |       |                            |     |         |     |         |        |        
|Domestic                                                                                                       |                               | $     | (12,515                    | )   |         | $   | (12,831 | )      |         | $     | (7,330 | )     
|Foreign                                                                                                        |                               |       | 1,200                      |     |         |     | 1,107   |        |         |       | 737    |       
|                                                                                                               |                               |       |                            |     |         |     |         |        |         |       |        |       
|                                                                                                               |                               | Total |                            | $   | (11,315 | )   |         | $      | (11,724 | )     |        | $      | (6,593 | )     
|                                                                                                               |                               |       |                            |     |         |     |         |        |         |       |        |       
|The components of the income tax
provision (benefit) from
continuing operations are as
follows (in thousands): |                               |       |                            |     |         |     |         |        |         |       |        |       
|Current:                                                                                                       |                               |       |                            |     |         |     |         |        |         |       |        |       
|                                                                                                               |                               |       |                            |     |         |     |         |        |         |       |        |       
|                                                                                                               | Federal and state             |       | $                          | 77  |         |     | $       | 16     |         |       | $      | (2,859 | )     
|                                                                                                               | Foreign                       |       |                            | 481 |         |     |         | 566    |         |       |        | 207    |       
|                                                                                                               |                               |       |                            |     |         |     |         |        |         |       |        |       
|                                                                                                               |                               |       | Total Current              |     |         | 558 |         |        |         | 582   |        |        |        | (2,652 | )
|                                                                                                               |                               |       |                            |     |         |     |         |        |         |       |        |       
|Deferred:                                                                                                      |                               |       |                            |     |         |     |         |        |         |       |        |       
|                                                                                                               | Federal and state             |       |                            |    |         |     |         | (4,831 | )       |       |        | 215    |       
|                                                                                                               | Foreign                       |       |                            |    |         |     |         |       |         |       |        | 95     |       
|                                                                                                               | Change in valuation allowance |       |                            |    |         |     |         | 7,832  |         |       |        |       |       
|                                                                                                               |                               |       |                            |     |         |     |         |        |         |       |        |       
|                                                                                                               |                               |       | Total Deferred             |     |         |    |         |        |         | 3,001 |        |        |        | 310    |  
|                                                                                                               |                               |       |                            |     |         |     |         |        |         |       |        |       
|                                                                                                               |                               |       | Total income tax provision |     | $       | 558 |         |        | $       | 3,583 |        |        | $      | (2,342 | )
|                                                                                                               |                               |       |                            |     |         |     |         |        |         |       |        |       

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

|                                 |  |      |         |      |  |      |        |   |  |   |       | 
|-------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ----- | 
|                                 |  | 2001 |         | 2000 |  | 1999
|                                 |  |      |         |      |  |     
|Net operating loss carryforwards |  | $    | 11,211  |      |  | $    | 5,066  |   |  | $ | 616   | 
|Deferred revenue                 |  |      | 264     |      |  |      | 719    |   |  |   | 243   | 
|Accounts receivable              |  |      | 505     |      |  |      | 607    |   |  |   | 193   | 
|Accrued expenses                 |  |      | 392     |      |  |      | 135    |   |  |   | 53    | 
|Vacation and benefits            |  |      | 254     |      |  |      | 549    |   |  |   | 776   | 
|Software/fixed assets            |  |      | 434     |      |  |      | 49     |   |  |   | 325   | 
|Tax credit carryforwards         |  |      | 1,752   |      |  |      | 1,297  |   |  |   | 795   | 
|Deferred Tax Liability           |  |      | (450    | )    |  |      |       |   |  |   |      | 
|Valuation allowance              |  |      | (14,362 | )    |  |      | (8,422 | ) |  |   |      | 
|                                 |  |      |         |      |  |      |        |   |  |   |       | 
|NET DEFERRED TAX ASSET           |  | $    |        |      |  | $    |       |   |  | $ | 3,001 | 
|                                 |  |      |         |      |  |      |        |   |  |   |       | 

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

|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|--------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                        |  | 2001 |        | 2000 |  | 1999
|                                        |  |      |        |      |  |     
|U.S. federal statutory rate             |  | $    | (3,847 | )    |  | $    | (3,986 | ) |  | $ | (2,241 | )
|State and foreign tax provision, net    |  |      | (619   | )    |  |      | (589   | ) |  |   | (194   | )
|Research and experimentation tax credit |  |      |       |      |  |      | (211   | ) |  |   | (237   | )
|Permanent items                         |  |      | 185    |      |  |      | 512    |   |  |   | 195    |  
|Other                                   |  |      | 43     |      |  |      | 25     |   |  |   | 135    |  
|Unbenefitted losses                     |  |      | 4,796  |      |  |      | 7,832  |   |  |   |       |  
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|TAX PROVISION                           |  | $    | 558    |      |  | $    | 3,583  |   |  | $ | (2,342 | )
|                                        |  |      |        |      |  |      |        |   |  |   |        |  

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The Company had net operating loss carryforwards of approximately
$27,798,000 and $11,800,000 at December 31, 2001 and 2000, respectively. The
Company also has federal research tax credits of approximately $1,100,000 and
$1,300,000 at December 31, 2001 and 2000, respectively. These net operating
loss carryforwards and credits expire in various amounts through 2021.

A valuation allowance is established if it is more likely than not that
all or a portion of the deferred tax asset will not be realized. As a result of
the Companys review of its available evidence supporting the deferred tax
asset, the Company established a valuation allowance for the full amount of the
deferred tax asset due to the uncertainty of realization. The valuation
allowance increased by $5,940,000 during 2001, primarily due to the increase in
net operating loss carryforwards.

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

|                                        |  |   |        | 
|--------------------------------------- |  | - | ------ | 
|Reported in the statement of operations |  | $ | 12,002 | 
|Reported in capital in excess of par    |  |   | 2,360  | 
|                                        |  |   |        | 
|                                        |  | $ | 14,362 | 
|                                        |  |   |        | 

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.

7. COMMITMENTS

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

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

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

8. STOCKHOLDERS EQUITY

Preferred Stock

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

Common Stock Purchase Rights

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

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

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beneficially owning 15% or more of the outstanding shares of common stock
(the earlier of (i) and (ii) being the Distribution Date).

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

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

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

Stock Option Plans

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

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

In 1996, the Board of Directors adopted, and the stockholders approved,
the 1996 Director Stock Option Plan (the Director Plan). The Director Plan
provides for the grant of nonstatutory options not intended to meet the
requirements of the Section 422 of

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

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

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

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

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

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

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

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

Stock-Based Compensation

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

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

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

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

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

|                                  |  |      |         |      |  |      |         |   |  |   |      | 
|--------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ---- | 
|                                  |  | 2001 |         | 2000 |  | 1999
|                                  |  |      |         |      |  |     
|Pro
forma net income (loss)       |  | $    | (14,218 | )    |  | $    | (22,514 | ) |  | $ | 773  | 
|Pro
forma income (loss) per share |  | $    | (1.20   | )    |  | $    | (2.00   | ) |  | $ | 0.07 | 

Employee Stock Purchase Plan

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

Notes Receivable from Stock Purchase Agreements

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

9. EMPLOYEE BENEFIT PLAN

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

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10. MAJOR CUSTOMER AND GEOGRAPHIC SEGMENT INFORMATIONS

As a result of the Vistasource disposition, the Company had only one
operating segment at December 31, 2001. Accordingly, the Company has restated
the historical segment data to exclude the Vistasource business unit, for which
the segment data is included in Note 4.

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

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

|                                     |                                            |      |   |        |  |      |   |        |  |  |   |        | 
|------------------------------------ | ------------------------------------------ | ---- | - | ------ |  | ---- | - | ------ |  |  | - | ------ | 
|Geographic Segment Information       |                                            | 2001 |   | 2000   |  | 1999
|                                     |                                            |      |   |        |  |     
|Revenue from continuing operations   |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | United States                              |      | $ | 14,156 |  |      | $ | 14,065 |  |  | $ | 12,714 | 
|                                     | Europe                                     |      |   | 20,865 |  |      |   | 23,019 |  |  |   | 22,508 | 
|                                     | Pacific Rim                                |      |   | 4,384  |  |      |   | 3,155  |  |  |   | 1,649  | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | Total revenue from continuing operations   |      | $ | 39,405 |  |      | $ | 40,239 |  |  | $ | 36,871 | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|Revenue from discontinued operations |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | United States                              |      | $ |       |  |      |   | 5,738  |  |  |   | 10,075 | 
|                                     | Europe                                     |      |   |       |  |      |   | 4,512  |  |  |   | 8,895  | 
|                                     | Pacific Rim                                |      |   |       |  |      |   |       |  |  |   |       | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | Total revenue from discontinued operations |      | $ |       |  |      | $ | 10,250 |  |  | $ | 18,970 | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|Long-lived Assets                    |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | United States                              |      | $ | 1,956  |  |      | $ | 4,544  |  |  | $ | 7,613  | 
|                                     | Europe                                     |      |   | 778    |  |      |   | 1,082  |  |  |   | 725    | 
|                                     | Pacific Rim                                |      |   | 912    |  |      |   |       |  |  |   |       | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | Total long-lived assets                    |      | $ | 3,646  |  |      | $ | 5,626  |  |  | $ | 8,338  | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       

11. ACQUISITIONS

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

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

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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                |         |      |  |  
|(In thousands, except for per share amounts)     |  | (Restated)          |         | 2000
|                                                 |  |                     |         |     
|Revenue                                          |  | $                   | 39,980  |      |  | $ | 43,311  |  
|Net income (loss)                                |  | $                   | (10,441 | )    |  | $ | (17,059 | )
|                                                 |  |                     |         |      |  |   |         |  
|Total basic and diluted earning (loss) per share |  | $                   | (0.88   | )    |  | $ | (1.52   | )
|                                                 |  |                     |         |      |  |   |         |  

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

12. RESTRUCTURING EXPENSES

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

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

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

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

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

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

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

14. NON-RECOURSE RECEIVABLE SALE

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

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

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15. 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.

16. BANK CREDIT FACILITIES

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

17. SUBSEQUENT EVENT

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

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

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

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EXHIBIT INDEX

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

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

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|       |  |   |  |                                                                                                                                                                                    
|------ |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14* |  |  |  | Export-Import Bank Loan and Security Agreement, dated December 5, 2001 among the Registrant, Applix (UK) Limited, Applix Australia Pty, Ltd., Veritem Ltd. And Silicon Valley Bank.
|       |  |   |  |                                                                                                                                                                                    
|10.15* |  |  |  | Borrower Agreement by the Registrant, Applix (UK) Limited, Applix Australia Pty, Ltd., Veriteam, Ltd. in favor of the Export-Import Bank and Silicon Valley Bank.                  
|       |  |   |  |                                                                                                                                                                                    
|10.16* |  |  |  | Loan and Security Agreement, dated December 5, 2001 between the Registrant and Silicon Valley Bank.                                                                                
|       |  |   |  |                                                                                                                                                                                    
|10.17* |  |  |  | Non-Recourse Receivables Purchase Agreement dated December 31, 2001, between the Registrant and Silicon Valley Bank                                                                
|       |  |   |  |                                                                                                                                                                                    
|21.1*  |  |  |  | Subsidiaries of the Registrant.                                                                                                                                                    
|       |  |   |  |                                                                                                                                                                                    
|23.1   |  |  |  | Consent of Ernst & Young LLP.                                                                                                                                                      
|       |  |   |  |                                                                                                                                                                                    
|23.2   |  |  |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                             
|       |  |   |  |                                                                                                                                                                                    
|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 Companys Registration Statement on Form S-1 (File no. 33-85688).                                                                                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Incorporated by reference to the Companys Registration Statement on Form 8-A dated September 20, 2000.                                                                                              
|  
|3. |  | Incorporated by reference to the Registrants Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Commission on March
30, 2000.                                       
|  
|4. |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2000, as filed with the
Commission on November 14, 2000.                      
|  
|5. |  | Incorporated by reference to the Registrants Report on Form 10-K for the fiscal year ended December 31, 2000, as originally filed with the
Commission on April 2, 2001 and amended on June 15, 2001.
|  
|6. |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001, as filed with the Commission
on August 13, 2001.                             
|  
|7. |  | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2001, as filed with the
Commission on November 14, 2001.                      

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|* |  | Previously filed                         
|- |  | -----------------------------------------
| 
|+ |  | Management contract or compensatory plan.

48