##### Table of Contents



UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

Form 10-K

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



|  |  |                                                                                                 
|- |  | ------------------------------------------------------------------------------------------------
|x |  | Annual Report Pursuant to Section 13 or
    15(d)
    of the Securities Exchange Act of 1934    
| 
|  |  | For the fiscal year ended December 31, 2003                                                     
| 
|o |  | Transition Report Pursuant to Section 13 or
    15(d)
    of the Securities Exchange Act of 1934

Commission File No. 0-25040

Applix, Inc.

(Exact name of registrant as specified in its
charter)


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

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

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

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

Common Stock, $0.0025 par value

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

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

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

The aggregate market value of Common Stock held
by non-affiliates of the registrant was $17,551,130 based on the
closing price of the Common Stock on the NASDAQ SmallCap Market
on June 30, 2003.

On March 12, 2004, the Registrant had
14,139,646 outstanding shares of common stock.

Documents Incorporated By Reference

|                                                                                                                                                                                                         |  |          
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------
|Document Part                                                                                                                                                                                            |  | Form 10-K
|                                                                                                                                                                                                         |  |          
|Portions of the Registrants Definitive
    Proxy Statement for the Annual Stockholders Meeting to be held
    on May 27, 2004 to be filed with the United States
    Securities and Exchange Commission |  | Part III 



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APPLIX, INC.

FORM 10-K

TABLE OF CONTENTS

|                                           |  |                                                                                                        |  |      |    | 
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                           |  |                                                                                                        |  | Page
|                                           |  |                                                                                                        |  |     
|PART I                                    
|Item 1.                                    |  | Business                                                                                               |  |      | 3  | 
|Item 2.                                    |  | Properties                                                                                             |  |      | 8  | 
|Item 3.                                    |  | Legal Proceedings                                                                                      |  |      | 8  | 
|Item 4.                                    |  | Submission of Matters to a
    Vote of Security Holders                                                |  |      | 8  | 
|PART II                                   
|Item 5.                                    |  | Market for the
    Registrants Common Equity and Related Stockholder
    Matters                      |  |      | 10 | 
|Item 6.                                    |  | Selected Consolidated
    Financial Data                                                               |  |      | 11 | 
|Item 7.                                    |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations              |  |      | 11 | 
|Item 7A.                                   |  | Quantitative and Qualitative
    Disclosures about Market Risk                                         |  |      | 29 | 
|Item 8.                                    |  | Consolidated Financial
    Statements and Supplementary Data                                           |  |      | 29 | 
|Item 9.                                    |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosures              |  |      | 30 | 
|Item 9A.                                   |  | Controls and Procedures                                                                                |  |      | 30 | 
|PART III                                  
|Item 10.                                   |  | Directors and Executive
    Officers of the Registrant                                                 |  |      | 31 | 
|Item 11.                                   |  | Executive Compensation                                                                                 |  |      | 31 | 
|Item 12.                                   |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |  |      | 31 | 
|Item 13.                                   |  | Certain Relationships and
    Related Transactions                                                     |  |      | 31 | 
|Item 14.                                   |  | Principal Accounting Fees
    and Services                                                             |  |      | 31 | 
|PART IV                                   
|Item 15.                                   |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                   |  |      | 31 | 
|                                           |  | Signatures                                                                                             |  |      | 34 | 
|                                           |  | Exhibit Index                                                                                          |  |      | 68 | 
|EX-10.6 LETTER OF INTENT                  
|EX-10.7 FIRST AMENDMENT OF LEASE          
|EX-10.8 SECOND AMENDMENT TO LEASE         
|EX-10.19 PURCHASE AGREEMENT               
|EX-10.20 PURCHASE AGREEMENT               
|EX-10.21 LOAN AND SECURITY AGREEMENT      
|EX-21.1 SUBSIDIARIES                      
|EX-23.1 CONSENT OF DELOITTE AND TOUCHE LLP
|EX-23.2 CONSENT OF ERNST AND YOUNG LLP    
|EX-31.1 CERTIFICATION OF CEO              
|EX-31.2 CERTIFICATION OF CFO              
|EX-32.1 CERTIFICATION OF CEO              
|EX-32.2 CERTIFICATION OF CFO              



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

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

2



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##### Table of Contents






PART I






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

General

Applix, Inc. (Applix or the
Company) is a global provider of business
intelligence (BI) and business performance management
(BPM) solutions, focused on interactive planning,
budgeting, forecasting and analytics as well as financial
reporting. These solutions enable customers to continuously
manage and monitor performance across financial and operational
functions within the enterprise, with the views of past
performance, the current state of business, and future
opportunities. More than 1,700 customers worldwide, including
many Fortune 100 companies, use Applixs adaptable,
scalable and real-time solutions to manage their business
performance and respond to business challenges in real-time.
Incorporated in 1983 and headquartered in Westborough,
Massachusetts (MA), Applix maintains offices in
North America, the United Kingdom, Germany and Australia.

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

In 2003, Applix was honored with several
prestigious awards for its leading-edge technologies, including:



| |   |                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | For the third consecutive year, the DM Review 100
    Award as a leading provider of BI and analytics applications.                                                                                                                                          
|
| |  | Applixs flagship product, TM1, was named
    the best-performing analytics engine in The OLAP Survey 3
    by independent analyst and OLAP (online analytical processing)
    authority Nigel Pendse.                                                       
|
| |  | Applix customer, Delta Apparel Inc. (AMEX:DLA)
    received Start Magazines 2003 Technology & Business
    Award for its use of a BPM solution to make timelier, strategic
    business decisions. Delta Apparels application is based on
    Applixs TM1.

Applix maintains a website with the address
www.applix.com. Applix is not including the information
contained on its website as part of, or incorporating it by
reference into, this Annual Report on Form 10-K. Applix
makes available free of charge through its website its Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K, and amendments to the
reports, as soon as reasonable practicable after it
electronically files such material with, or furnishes such
material to, the Securities and Exchange Commission.

Industry Background

The economy of recent years has forced companies
to adopt rigorous methods for assessing the impact that any
future investments would have on their business. With reduced
resources, many enterprises are pressed to make difficult
decisions as to where to increase and decrease spending in their
businesses. Many companies are focused on incremental
investments in IT projects and reductions in plans for
cutting-edge technologies and large infrastructure initiatives.
However, analysts predict that the BI and BPM markets will be
growth markets in 2004.

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

The business performance management market is an
emerging market that extends the capabilities of BI solutions.
BPM solutions tend to focus on proactive, rather than reactive,
historical analyses and they rely on recently updated or
real-time data feeds. BPM solutions also tend to involve data
from across an organization

3



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##### Table of Contents



and involve more diverse groups of users than do
BI solutions. According to the Gartner Group, as of October
2003, there were still no clear leaders in this market segment.


Factors driving the growth in the need for BI and
BPM solutions include increasingly fierce business competition,
the need for financial transparency across the enterprise, the
rapid explosion of data, and more decentralized decision-making.
AMR Research expects the BI/ Analytics market to increase at a
7% compound annual growth rate (CAGR), with a total
market of more than $11 billion by 2007. The Gartner Group
expects a 5 year CAGR of 8.5% for the BI market. The BPM
market is also expected to undergo continued growth. According
to META Group, the BPM marketplace will grow by 15-20% in 2004.
The BPM market grew to approximately $1.1 billion in 2003.
IDC also projects strong growth in the BPM market with research
showing a 24% CAGR, from $6.9 billion in 2000 to
$19.9 billion in 2005.

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

Applix TM1 has over 20 years of success in
the BI market. Applix is also well positioned to deliver BPM
solutions, as evidenced by the growing number of customers who
have selected Applix software solutions to maximize business
performance. In 2003, more than 200 new customers selected
Applix BI and BPM products, and revenues for those products
increased by 22% over 2002.

Applix Products

The Applix product family helps customers
automate, analyze and optimize their operational and analytical
business processes throughout their extended enterprises. The
Applix product family consists of Applix TM1 platform and Applix
Integra. The Applix family of products enable solutions
including:



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

In September 2003, Applix introduced TM1 Web, a
module that enables users to quickly and easily create real-time
Web-based worksheets or Websheets directly from
Excel, allowing the sharing of data to facilitate forecasting,
planning and what-if analyses. With solutions based
on the TM1 platform, Applixs customers have increased
their business performance in numerous ways such as achieving
their business goals within 6 months of implementation on
the average, freeing up personnel to concentrate on strategic
planning rather than on data gathering, reducing customer
defections, improving customer satisfaction, shortening the
business cycles from days to minutes, and rapidly managing
mergers and acquisitions. Applixs global network of
partners delivers packaged and custom applications based on the
TM1 platform for specific vertical markets such as
pharmaceuticals and banking, or for specific function such as
supply chain analytics or financial consolidation and reporting.

Applix
TM1

Applixs leading product, Applix TM1, a
platform used for planning, helps customers improve business
performance by enabling effective, real-time decision making at
all organization levels. Applix TM1 provides consistent
reporting and analysis of data captured from across the extended
enterprise.

Applix TM1 allows business users to access their
critical data via Microsoft Excel, third party products such as
SPF Plus, OLAP Objects and, dynaSight or the World Wide Web.
With its powerful client-server database engine and an elegant,
easy-to-use interface, users are able to spend more time
analyzing information and less time maintaining data.

4



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The TM1 platform is easily configurable and
deploys rapidly with minimal IT investment. TM1s low total
cost of ownership enables business users to quickly achieve
their goals, whether they build applications themselves or work
with one of Applixs many solution partners.

Applix TM1s real-time approach to
consolidating, viewing and even editing large volumes of
multidimensional data is an undisputable differentiator in the
BI and BPM markets. Applix TM1 has been one of the leading
multi-dimensional analytics tools for highly complex business
and financial analytical applications for over twenty years.

The Applix TM1 platform and modules, including
TM1 Web, expand the scope of business planning processes to
support continuously changing customer demands and operational
requirements. The TM1 platform and modules also enable the quick
and effortless integration of information from enterprise
resource planning (ERP), financial systems, CRM, human
resources, and other legacy databases.

Applix TM1 is available on Windows and Unix
platforms. However, the majority of customers utilize TM1 on
Windows platforms. As a result, Applix is constantly working
with Microsoft to enhance and expand its support on the
Microsoft platform.

Applix TM1 provides the following benefits:



| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Familiar spreadsheet interface:Users access Applix TM1 features and
    capabilities directly from the familiar environment of Microsoft
    Excel.                                                                                                                             
|
| |  | Instant response times:Because of Applix TM1s ability
    to quickly load vast data sets into memory, it is superior to
    other products that force the customer to pre-calculate and
    re-calculate consolidations and derived values before anyone can
    view the data.
|
| |  | Real-time multi-user read/write and what-if
    analyses:Because of Applix TM1s
    memory-based approach, users can instantly view the results of
    any updates and what-if analyses they perform.                                                                          
|
| |  | Rapid deployment:Applix TM1 typically builds complete
    applications for customers in a fraction of the time required by
    competing products.                                                                                                                              
|
| |  | Scalability:Applix
    TM1s 64-bit capability, combined with its ability to
    support multiple servers, multiple cubes, multi-threaded
    processing and multi-user data updating, make it a logical
    choice for large-scale operations.                                 
|
| |  | Efficient use of system resources:Because Applix TM1 never resorts to
    pre-calculating data, it requires much less hardware and
    processing power than other products, which suffer from a common
    data explosion predicament.                                       



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

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

Applix Integras benefits include:



| |   |                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Dynamic business workflow.This enables a business to map its
    processes with Applix Integras escalation, notification,
    detection, and workflow capabilities. Easy-to-use
    wizards conform to complex business rules so that
    users can stay ahead of opportunities and issues.
|
| |  | Complex business modeling.Applix Integras unique
    architecture of multi-cubes, rules, a real-time engine, and
    workflow allow a business to manage its complex business models.                                                                                                        
|
| |  | Actionable alerts.Timely alerts generated from a
    companys analyses and business processes enable it to be
    proactive with respect to its business environment.                                                                                                                        

5



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| |   |                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Integrated application and deployment
    platform.Applix Integra combines the
    Companys application development platform and the Applix
    TM1 platform, which means a business can easily develop and
    deploy Applix Integra solutions.

Sales and Marketing

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

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

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

Customer Training, Maintenance Support, and
Professional Services

The Company believes that quality consulting
services and customer support are a critical part of the
Companys sales and marketing efforts. Many of the
Companys customers use the Companys products to
develop and support mission critical applications,
and the Company therefore recognizes that quality training,
support and consulting services are especially important to its
customers. In addition to in-house consultants, the Company
works closely with partner organizations to provide additional
resources and domain expertise.

The Companys in-house consultants and
partners assist in the sales process by working directly with
potential customers, educating them as to the benefits of the
Companys products, and often performing product
demonstrations using the customers own data or engaging in
a more extensive proof of concept project. In addition, the
Companys in-house consultants and partners work directly
with customer personnel in both information technology
departments and in the functional areas relevant to the
application, to assist them in the planning and deploying of
Applix solutions.

Customers may elect to purchase a maintenance
support plan for an annual fee that is generally 18% of the list
license fee for covered products. Included in the maintenance
support plans are unspecified product upgrades and interim fixes
to reported problems. Maintenance support plan revenues
accounted for approximately 79% of the Companys
professional services and maintenance revenue in 2003 compared
to approximately 71% of professional services and maintenance
revenue in 2002.

6



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Software Product Development

The Company believes strongly that the path to
success is predicated upon constantly being at the forefront of
technology and product innovation. With a strong commitment to
the future, Applix has continued its long history of investing
in product research and development. In 2003, Applix invested
approximately $5.5 million, or 20% of total revenues, in
product research and development.

Competition

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

The markets for the Companys products are
highly competitive and subject to rapid change. The companies
with which Applix competes most often are Hyperion and Cognos.
The Company also competes with other smaller competitors, some
of whom build their product offerings on Microsoft technologies.
In general, both categories of competitors are marketing and
selling pre-built BI and BPM applications along with services to
implement and customize the applications. Applix approaches the
market differently by offering configurable BI and BPM tools and
its partners and customers typically perform the implementation.

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

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

Intellectual Property and Proprietary
Rights

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

The Company resells one technology that is added
onto the Companys products and licensed from a third
party. The Company generally pays royalties on this technology
on a percentage of revenue basis (the amount of which is not
material to the Company). Applix believes that if the license
for this third-party technology were terminated, it would be
able to develop such technology internally or license equivalent
technology from another vendor without significant expense. If
the Companys right to distribute such third-party product
were terminated, the Company does not believe that sales of its
products would be adversely affected.

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

7



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

Employees

As of March 15, 2004, the Company had 120
employees. Domestically, the Company had 79 employees, which
includes 28 employees in product research and development, 24
employees in sales and marketing, 5 employees in professional
services, 4 employees in information systems, and 18 employees
in finance, operations, administration and facilities.
Internationally, the Company had 41 employees, which includes 22
employees in sales and marketing, 10 employees in professional
services and 9 in finance. None of the Companys employees
are represented by a labor union, and the Company believes that
its employee relations are good.




Item 2.     Properties

The Company is headquartered at 289 Turnpike Road
in Westborough, Massachusetts. The Companys amended
headquarters lease for 24,376 square feet has a seven-year
term, which will expire on January 31, 2011. The Company
also leases smaller offices in several metropolitan areas within
the United States. Internationally, the Company has three office
leases: 1) London, United Kingdom, 2) Munich, Germany and 3)
Sydney, Australia. The Company believes that its existing
facilities are adequate for its current needs and that suitable
additional or substitute space will be available as needed.




Item 3.     Legal
Proceedings

The Company and its subsidiaries are, from time
to time, party to legal proceedings arising in the normal course
of business. In managements opinion, there are no pending
claims or litigation, the outcome of which, individually or in
the aggregate, would have a material effect on the
Companys consolidated results of operations, financial
position or cash flows. On June 16, 2003, the Company
announced that it is the subject of an SEC investigation. The
Company is cooperating fully with the SEC in this matter.




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

No matter was submitted to a vote of our
stockholders during the fourth quarter of 2003.

Directors and Executive Officers of the
Registrant

The following is a list of our directors and
executive officers, their ages as of March 10, 2004 and their
principal position. Executive officers are appointed and may be
removed by the Board of Directors.

|                   |  |     |    |          |  |                                                    
|------------------ |  | --- | -- | -------- |  | ---------------------------------------------------
|Name               |  | Age |    | Position
|                   |  |     |    |         
|John D. Loewenberg |  |     | 63 |          |  | Chairman of the Board of Directors                 
|Bradley D. Fire    |  |     | 34 |          |  | Director                                           
|Alain J. Hanover   |  |     | 55 |          |  | Director                                           
|Charles F. Kane    |  |     | 46 |          |  | Director                                           
|Peter Gyenes       |  |     | 58 |          |  | Director                                           
|David C. Mahoney   |  |     | 59 |          |  | President, Chief Executive Officer
    and Director
|Milton A. Alpern   |  |     | 52 |          |  | Chief Financial Officer and Treasurer              
|Craig Cervo        |  |     | 57 |          |  | Vice President, Product Development                

8



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Mr. Loewenberg has been a director of the
Company since March 2001 and Chairman of the Board of Directors
since July 2002. Mr. Loewenberg has been the Managing
Partner of JDL Enterprises, a consulting company, since 1996.
Mr. Loewenberg served as interim President and CEO of Wang
Healthcare Information Systems, an electronic medical record
solution company, from March 1998 to September 1999.
Mr. Loewenberg is currently a director of CompuCom and
DocuCorp International.

Mr. Fire has been a director of the Company
since February 2003. Mr. Fire has been the owner of Pepper
Ranch, an equestrian facility, since March 2000. Mr. Fire
served as a Senior Software Engineer of Go2Net, Inc., an
Internet services company, from June 1998 to February 2000.
Mr. Fire served as the co-Chief Executive Officer of
Silicon Investor, a consumer website devoted to discussion about
technology stocks, from May 1995 to June 1998.

Mr. Hanover has been a director of the
Company since July 1992. Mr. Hanover has been the Managing
Director and CEO of Navigator Technology Ventures, a venture
capital firm, since January 2002. He was the Managing Partner of
Main Street Partners LLC, a venture capital firm, from August
2000 to December 2001. Mr. Hanover served as the President
and Chief Executive Officer of InCert Software Corp., a computer
software development and distribution company, from October 1997
to July 2000. Mr. Hanover served as Chairman of the Board
of Directors and Chief Executive Officer of Viewlogic Systems,
Inc., an engineering software company, from 1984 until May 1997.

Mr. Kane has been a director of the Company
since March 2001. Mr. Kane has been the Senior Vice
President and Chief Financial Officer of Aspen Technology, Inc.,
a provider of process management software and implementation
services, since July 2003. He served as President and Chief
Executive Officer of Corechange, Inc., an e-business access
framework software provider, from May 2001 until its sale to
Open Text Corporation in February 2003. From May 2000 to May
2001, Mr. Kane served as the Chief Operating Officer of
Corechange. Before joining Corechange, from March 2000 to May
2000, Mr. Kane served as Executive Vice President and Chief
Financial Officer of Ascential Software Corporation (formerly
known as Informix Corporation), a global provider of information
management software. Mr. Kane served as Executive Vice
President and Chief Financial Officer of Ardent Software, Inc.,
a data integration software supplier, from November 1995 to
March 2000 when it was acquired by Ascential.

Mr. Gyenes has been a director of the
Company since May 2000. Mr. Gyenes has served as the Chief
Executive Officer of Ascential Software Corporation (formerly
known as Informix Corporation), a global provider of information
management software, since July 2000. Mr. Gyenes was
Chairman, President and Chief Executive Officer of Ardent
Software, Inc., a data integration software supplier, from April
1997 until the sale of Ardent to Ascential in March 2000.
Mr. Gyenes is a member of the Board of Directors of
Ascential Software Corporation, Concerto Software and ViryaNet.
Mr. Gyenes is also a member of the Board of Trustees of the
Massachusetts Software and Internet Council.

Mr. Mahoney was elected interim President
and Chief Executive Officer of Applix on February 28, 2003
and served in that capacity until April 22, 2003 at which
time he was elected President and Chief Executive Officer.
Mr. Mahoney has also been a director of the Company since
October 1992. Mr. Mahoney served as Chief Executive Officer
of Verbind, Inc., a provider of real-time behavioral analysis
and event triggering technology, from May 2001 until February
2003, following the sale of the company to SAS Institute. Prior
to joining Verbind, Mr. Mahoney served as Chairman of the
Board of Directors of LeadingSide, Inc. (formerly Dataware
Technologies, Incorporated), an e-business solutions provider,
from February 2000 to May 2001, and President and Chief
Executive Officer of LeadingSide from January 1999 to February
2000. LeadingSide filed for bankruptcy protection in April 2001.
Mr. Mahoney served as President and Chief Executive Officer
of Sovereign Hill Software, Inc., a collaborative knowledge
discovery software provider, from January 1998 to December 1998,
when it merged with Dataware Technologies. Mr. Mahoney
served as Chairman of the Board and Chief Executive Officer of
ePresence, Inc. (formerly Banyan Systems, Inc.), a networking
software company, from 1983 until May 1997.

Mr. Alpern was elected Chief Financial
Officer and Treasurer on June 16, 2003. From February 2002
through March 2003, Mr. Alpern served as the Chief
Financial Officer of Viisage Technology, Inc., a publicly-held
provider of facial recognition and identity verification
software and solutions. Prior to joining Viisage

9



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##### Table of Contents



Technology, Mr. Alpern was the Chief
Financial Officer of Eprise Corporation, a publicly-held
provider of business Web site content management software and
services, from March 1998 through February 2002.


Mr. Cervo joined the Company in October 1992
as Vice President, Research & Development and was elected
Vice President of Product Development in October of 1994 and
served as Chief Technology Officer in March 2001 until February
2004.

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




PART II




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

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

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|Fiscal 2003    |  | High |       | Low
|               |  |      |       |    
|First Quarter  |  | $    | 2.040 |     |  | $ | 1.050 | 
|Second Quarter |  | $    | 2.400 |     |  | $ | 1.310 | 
|Third Quarter  |  | $    | 3.010 |     |  | $ | 1.510 | 
|Fourth Quarter |  | $    | 4.370 |     |  | $ | 2.650 | 

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|Fiscal 2002    |  | High |       | Low
|               |  |      |       |    
|First Quarter  |  | $    | 2.250 |     |  | $ | 1.290 | 
|Second Quarter |  | $    | 2.140 |     |  | $ | 1.400 | 
|Third Quarter  |  | $    | 1.790 |     |  | $ | 0.940 | 
|Fourth Quarter |  | $    | 1.500 |     |  | $ | 0.900 | 

Dividends

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

Holders

The approximate number of holders of record of
the Companys common stock on March 16, 2004 was 184.
This number does not include shareholders for whom shares are
held in a nominee or street name.

10



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##### Table of Contents






Item 6.     Selected
Consolidated Financial Data

|                         |                                                                          |                                         |   |        |   |      |   |        |   |      |   |         |   |  |   |         |   |  |   |        |  
|------------------------ | ------------------------------------------------------------------------ | --------------------------------------- | - | ------ | - | ---- | - | ------ | - | ---- | - | ------- | - |  | - | ------- | - |  | - | ------ | -
|                         |                                                                          |                                        
|                         |                                                                          | Years Ended December 31,               
|                         |                                                                          |                                        
|                         |                                                                          | 2003                                    |   | 2002   |   | 2001 |   | 2000   |   | 1999
|                         |                                                                          |                                         |   |        |   |      |   |        |   |     
|                         |                                                                          |                                        
|                         |                                                                          | (In thousands, except per share amount)
|Statement of Operations: |                                                                          |                                         |   |        |   |      |   |        |   |      |   |         |   |  |   |         |   |  |   |       
|                         | Software license                                                         |                                         | $ | 13,222 |   |      | $ | 16,050 |   |      | $ | 18,406  |   |  | $ | 23,735  |   |  | $ | 21,610 |  
|                         | Professional services and maintenance                                    |                                         |   | 14,133 |   |      |   | 20,546 |   |      |   | 20,999  |   |  |   | 16,504  |   |  |   | 15,261 |  
|                         | Total revenues                                                           |                                         | $ | 27,355 |   |      | $ | 36,596 |   |      | $ | 39,405  |   |  | $ | 40,239  |   |  | $ | 36,871 |  
|                         | Sales and marketing                                                      |                                         |   | 10,747 |   |      |   | 15,311 |   |      |   | 21,671  |   |  |   | 25,580  |   |  |   | 19,957 |  
|                         | General and administrative                                               |                                         |   | 7,653  |   |      |   | 5,249  |   |      |   | 4,484   |   |  |   | 4,292   |   |  |   | 4,485  |  
|                         | Product development                                                      |                                         |   | 5,512  |   |      |   | 5,699  |   |      |   | 6,848   |   |  |   | 7,502   |   |  |   | 7,101  |  
|                         | Compensation expenses and amortization of
    acquired intangible asset  |                                         |   | 833    |   |      |   | 2,405  |   |      |   | 1,717   |   |  |   |        |   |  |   |       |  
|                         | Write down of notes receivable                                           |                                         |   |       |   |      |   | 964    |   |      |   |        |   |  |   |        |   |  |   |       |  
|                         | Restructuring expenses                                                   |                                         |   | 3,238  |   |      |   | 381    |   |      |   | 1,700   |   |  |   |        |   |  |   |       |  
|                         | Operating loss                                                           |                                         |   | (7,748 | ) |      |   | (5,442 | ) |      |   | (11,886 | ) |  |   | (12,877 | ) |  |   | (7,624 | )
|                         | Net gain from sale of CRM business                                       |                                         |   | 7,910  |   |      |   |       |   |      |   |        |   |  |   |        |   |  |   |       |  
|                         | Permanent impairment of cost based investment                            |                                         |   |       |   |      |   |       |   |      |   | (1,250  | ) |  |   |        |   |  |   |       |  
|                         | Income (loss) from continuing operations                                 |                                         |   | 167    |   |      |   | (5,570 | ) |      |   | (13,404 | ) |  |   | (15,307 | ) |  |   | (4,251 | )
|                         | Net (loss) income                                                        |                                         |   | (10    | ) |      |   | (5,774 | ) |      |   | (12,323 | ) |  |   | (18,912 | ) |  |   | 2,380  |  
|Per Share Data :         |                                                                          |                                         |   |        |   |      |   |        |   |      |   |         |   |  |   |         |   |  |   |       
|                         | Basic and diluted income (loss) per share
    from continuing operations |                                         | $ | 0.01   |   |      | $ | (0.46  | ) |      | $ | (1.13   | ) |  | $ | (1.36   | ) |  | $ | (0.40  | )
|                         | Basic and diluted (loss) income per share                                |                                         | $ | (0.00  | ) |      | $ | (0.47  | ) |      | $ | (1.04   | ) |  | $ | (1.68   | ) |  | $ | 0.22   |  

|                    |                                                   |                          |   |        |   |      |   |         |   |      |   |        |   |  |   |        |  |  |   |        | 
|------------------- | ------------------------------------------------- | ------------------------ | - | ------ | - | ---- | - | ------- | - | ---- | - | ------ | - |  | - | ------ |  |  | - | ------ | 
|                    |                                                   |                         
|                    |                                                   | Years Ended December 31,
|                    |                                                   |                         
|                    |                                                   | 2003                     |   | 2002   |   | 2001 |   | 2000(a) |   | 1999
|                    |                                                   |                          |   |        |   |      |   |         |   |     
|                    |                                                   |                         
|                    |                                                   | (In thousands)          
|Balance Sheet Data: |                                                   |                          |   |        |   |      |   |         |   |      |   |        |   |  |   |        |  |  |   |       
|                    | Cash, cash equivalents and short-term investments |                          | $ | 9,241  |   |      | $ | 8,389   |   |      | $ | 8,228  |   |  | $ | 12,546 |  |  | $ | 25,476 | 
|                    | Restricted cash                                   |                          |   | 817    |   |      |   | 933     |   |      |   | 1,050  |   |  |   |       |  |  |   |       | 
|                    | (Deficit) working capital                         |                          |   | (2,119 | ) |      |   | (4,457  | ) |      |   | (175   | ) |  |   | 12,113 |  |  |   | 28,455 | 
|                    | Total assets                                      |                          |   | 21,949 |   |      |   | 23,547  |   |      |   | 24,938 |   |  |   | 33,074 |  |  |   | 54,681 | 
|                    | Long-term debt                                    |                          |   |       |   |      |   |        |   |      |   |       |   |  |   |       |  |  |   | 1,080  | 
|                    | Total stockholders equity                        |                          | $ | 2,255  |   |      | $ | 2,419   |   |      | $ | 6,952  |   |  | $ | 18,234 |  |  | $ | 35,713 | 



---



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






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

OVERVIEW OF THE COMPANYS OPERATIONS

The Company is a global provider of business
intelligence (BI) and business performance management
(BPM) solutions, focused on interactive planning,
budgeting, forecasting and analytics as well as financial
reporting. These solutions enable customers to continuously
manage and monitor performance across financial

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##### Table of Contents



and operational functions within the enterprise,
with the views of past performance, the current state of
business, and future opportunities.


The Company sells its products through both a
direct sales force and an expanding network of partners, both
domestically and internationally. These organizations provide
additional implementation resources, domain expertise and
complementary applications using the Companys software
products. The Company continues to focus its efforts selling and
marketing the licensing and maintenance of its products while
increasing the engagement of partners to provide consulting
services on the implementation and integration of its product.

The Company has decided to strategically and
tactically focus its efforts including development, sales and
marketing on its BI and BPM products. In the first quarter of
2003, the Company sold its CRM business (see Note 11 of the
Notes to the Consolidated Financial Statement). The
Companys operating results reflect the operations of the
CRM business up through its sale, which occurred on
January 21, 2003, followed by a March 17, 2003 closing
relating to the German component of the CRM business. The
Company is currently only selling BPM and BI products and
related services.

Financial and Business Highlights for
2003:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company BPM/BI license revenues were
    $12,969,000 for 2003 as compared to $11,114,000 for 2002. This
    represents a 17% license revenue increase.
|
| |  | The Company signed 45 new resellers in 2003.                                                                                                              

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

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

Revenue from consulting and training is
recognized at the time the services are rendered. For contracts
with multiple obligations (e.g., deliverable and undeliverable
products, support obligations, consulting, and training
services), the Company allocates revenue to each element of the
contract based on vendor specific objective evidence
(VSOE) of the fair value of the elements. The Company has
determined fair value based upon prices it charges customers
when these elements are sold separately. Maintenance contracts
are generally sold with the initial licenses. The related
maintenance revenue is deferred based upon VSOE, which is
determined by the renewal price of the annual maintenance
contract, and is recognized ratably over the

12



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##### Table of Contents



maintenance contract period. The Company
recognizes consulting and training service revenues, including
those sold with license fees, as the services are performed
based upon their established VSOE. The Company determines the
amount of revenue to allocate to the licenses sold with services
or maintenance using the residual method of
accounting. Under the residual method, the Company allocates the
total value of the arrangement first to the undelivered elements
based on their VSOE and the remainder to the delivered element,
the software license.


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

Accounts
Receivable and Bad Debt

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

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. If
events change and the Company has overestimated the economic
life of its intangible asset, the Company will begin to amortize
the remaining unamortized carrying value of this asset over the
newly estimated life, which may result in additional
amortization expense.

Restructuring

During 2003, 2002 and 2001, the Company recorded
charges in connection with its restructuring programs. These
charges include estimates pertaining to the settlements of
contractual obligations, including the restructuring of its
Westborough, MA headquarters lease and employee separation
costs 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.

13



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##### Table of Contents



Deferred Income
Taxes

The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards
No. 109 Accounting for Income Taxes (SFAS
No. 109), which requires that deferred tax assets and
liabilities be recognized using enacted tax rates for the effect
of temporary differences between the book and tax bases of
recorded assets and liabilities. SFAS No. 109 also requires
that deferred tax assets be reduced by a valuation allowance if
it is more likely than not that some portion or all of the
deferred tax asset will not be realized. The Company evaluates
quarterly the realizability of its deferred tax assets by
assessing its valuation allowance and by adjusting the amount of
such allowance, if necessary. At December 31, 2003 and
December 31, 2002, the Companys deferred tax assets
were fully reserved. In the event the Company were to determine
in the future that it would be able to realize its deferred tax
assets in excess of its net-recorded amount, an adjustment to
the deferred tax asset would increase income in the period such
determination was made.

RESULTS OF OPERATIONS



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

Revenues

|                                                         |             |                         |            |            |  |      |     |            |   |      |            |            |  |  |     |    |   |   |            |            |  |  |     |    |  
|-------------------------------------------------------- | ----------- | ----------------------- | ---------- | ---------- |  | ---- | --- | ---------- | - | ---- | ---------- | ---------- |  |  | --- | -- | - | - | ---------- | ---------- |  |  | --- | -- | -
|                                                         |             |                        
|                                                         |             | Year Ended December 31,
|                                                         |             |                        
|                                                         |             |                         |            | Percent of |  |      |     | Percent of |   |      |            | Percent of
|                                                         |             | 2003                    |            | Revenue    |  | 2002 |     | Revenue    |   | 2001 |            | Revenue   
|                                                         |             |                         |            |            |  |      |     |            |   |      |            |           
|BPM & BI                                                 |             |                         | 12,969,000 |            |  |      | 47  | %          |   |      | 11,114,000 |            |  |  | 30  | %  |   |   | 9,928,000  |            |  |  | 25  | % 
|CRM                                                      |             |                         | 253,000    |            |  |      | 1   | %          |   |      | 4,936,000  |            |  |  | 14  | %  |   |   | 8,478,000  |            |  |  | 22  | % 
|                                                         |             |                         |            |            |  |      |     |            |   |      |            |            |  |  |     |    |   |   |            |            |  |  |     |   
|Total Software License Revenues                          |             | $                       | 13,222,000 |            |  |      | 48  | %          |   | $    | 16,050,000 |            |  |  | 44  | %  |   | $ | 18,406,000 |            |  |  | 47  | % 
|                                                         | Training    |                         |            | 424,000    |  |      |     | 1          | % |      |            | 483,000    |  |  |     | 1  | % |   |            | 829,000    |  |  |     | 2  | %
|                                                         | Consulting  |                         |            | 2,613,000  |  |      |     | 10         | % |      |            | 5,389,000  |  |  |     | 15 | % |   |            | 7,783,000  |  |  |     | 20 | %
|                                                         | Maintenance |                         |            | 11,096,000 |  |      |     | 41         | % |      |            | 14,674,000 |  |  |     | 40 | % |   |            | 12,387,000 |  |  |     | 31 | %
|                                                         |             |                         |            |            |  |      |     |            |   |      |            |            |  |  |     |    |   |   |            |            |  |  |     |   
|Total Professional Services and Maintenance
    Revenues |             |                         | 14,133,000 |            |  |      | 52  | %          |   |      | 20,546,000 |            |  |  | 56  | %  |   |   | 20,999,000 |            |  |  | 53  | % 
|                                                         |             |                         |            |            |  |      |     |            |   |      |            |            |  |  |     |    |   |   |            |            |  |  |     |   
|Total Revenues                                           |             | $                       | 27,355,000 |            |  |      | 100 | %          |   | $    | 36,596,000 |            |  |  | 100 | %  |   | $ | 39,405,000 |            |  |  | 100 | % 
|                                                         |             |                         |            |            |  |      |     |            |   |      |            |            |  |  |     |    |   |   |            |            |  |  |     |   

Total revenues for the year ended
December 31, 2003 were $27,355,000, a 25% decrease from
revenue of $36,596,000 for the year ended December 31,
2002. The decrease in total revenues was primarily due to the
Companys sale of its CRM business in the first quarter of
2003, and increased reliance on partners for delivery of
services including product implementations. This was partially
offset by a $1,855,000 increase in BPM/ BI license revenues.

Software
Licenses

Software license revenue decreased in 2003 to
$13,222,000 from $16,050,000 in 2002. This decrease in software
license revenue of $2,828,000 was primarily due to the
Companys sale of the CRM business in the first quarter of
2003, as CRM software license revenue decreased by $4,683,000 to
$253,000 in 2003 from $4,936,000 in 2002. This software license
revenue decrease was partially offset by a $1,855,000, or 17%
increase in BPM and BI software license revenue, to $12,969,000
in 2003 from $11,114,000 in 2002.

Domestic software license revenue decreased 42%
to $4,244,000 in 2003 from $7,288,000 in 2002. International
software license revenue increased 2% to $8,978,000 in 2003 from
$8,762,000 in 2002.

14



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##### Table of Contents



Professional
Services and Maintenance

Professional services and maintenance revenues
decreased 31% to $14,133,000 in 2003 as compared to $20,546,000
in 2002. Maintenance revenues decreased 24% to $11,096,000 in
2003 compared to $14,674,000 in 2002, while consulting and
training revenues decreased 48% to $3,037,000 in 2003 compared
to $5,872,000 in 2002. The total maintenance, consulting and
training revenues decrease of $6,413,000 was primarily due to
the Companys sale of the CRM business in the first quarter
2003, as well as the Companys focus on more selective
consulting engagements, greater reliance on indirect Applix
partners and the increase in BPM/ BI implementations, which
require fewer consulting hours to implement these products. The
Company will continue to rely on its partners to provide
consulting, including BPM/ BI implementations as it focuses on
maintenance services, which includes telephonic support,
unspecified product upgrades and bug fixes and patches.

Cost of Revenues

|                                                           |                               |                         |                    |             |           |            |    |             |   |      |            |             |            |            |    |    |   |   |            |           |            |            |   |     |   |  | 
|---------------------------------------------------------- | ----------------------------- | ----------------------- | ------------------ | ----------- | --------- | ---------- | -- | ----------- | - | ---- | ---------- | ----------- | ---------- | ---------- | -- | -- | - | - | ---------- | --------- | ---------- | ---------- | - | --- | - |  | 
|                                                           |                               |                        
|                                                           |                               | Year Ended December 31,
|                                                           |                               |                        
|                                                           |                               |                         |                    | Percent of  |           |            |    | Percent of  |   |      |            | Percent of 
|                                                           |                               | 2003                    |                    | Revenue (A) |           | 2002       |    | Revenue (A) |   | 2001 |            | Revenue (A)
|                                                           |                               |                         |                    |             |           |            |    |             |   |      |            |            
|Cost of Software License Revenues                          |                               | $                       | 1,850,000          |             |           |            | 14 | %           |   | $    | 2,040,000  |             |            |            | 13 | %  |   | $ | 1,214,000  |           |            |            | 7 | %  
|Cost of Professional Services and Maintenance
    Revenues |                               |                         |                    |             |           |            |    |             |   |      |            |             |            |            |    |    |   |   |            |           |            |            |   |    
|                                                           | Cost of Professional Services |                         |                    | 2,594,000   |           |            |    | 85          | % |      |            | 5,823,000   |            |            |    | 99 | % |   |            | 9,899,000 |            |            |   | 115 | %
|                                                           | Cost of Maintenance Revenues  |                         |                    | 2,676,000   |           |            |    | 24          | % |      |            | 4,166,000   |            |            |    | 28 | % |   |            | 3,758,000 |            |            |   | 30  | %
|                                                           |                               |                         |                    |             |           |            |    |             |   |      |            |             |            |            |    |    |   |   |            |           |            |            |   |    
|                                                           |                               |                         | 5,270,000          |             |           |            |    |             |   |      | 9,989,000  |             |            |            |    |    |   |   | 13,657,000 |           |            |            |   |    
|                                                           |                               |                         |                    |             |           |            |    |             |   |      |            |             |            |            |    |    |   |   |            |           |            |            |   |    
|Total Cost of Revenues                                     |                               | $                       | 7,120,000          |             |           |            |    |             |   | $    | 12,029,000 |             |            |            |    |    |   | $ | 14,871,000 |           |            |            |   |    
|                                                           |                               |                         |                    |             |           |            |    |             |   |      |            |             |            |            |    |    |   |   |            |           |            |            |   |    
|Gross Margin Software License                              |                               | $                       | 11,372,000         |             |           |            |    |             |   | $    | 14,010,000 |             |            |            |    |    |   | $ | 17,192,000 |           |            |            |   |    
|                                                           |                               | Professional Services   |                    |             | 443,000   |            |    |             |   |      |            |             | 49,000     |            |    |    |   |   |            |           | (1,287,000 | )          |   |     |   | 
|                                                           |                               | Maintenance             |                    |             | 8,420,000 |            |    |             |   |      |            |             | 10,508,000 |            |    |    |   |   |            |           | 8,629,000  |            |   |     |   | 
|                                                           |                               |                         |                    |             |           |            |    |             |   |      |            |             |            |            |    |    |   |   |            |           |            |            |   |    
|                                                           |                               |                         | Total Gross Margin |             | $         | 20,235,000 |    |             |   |      |            |             | $          | 24,567,000 |    |    |   |   |            |           | $          | 24,534,000 |   |     |   |  | 
|                                                           |                               |                         |                    |             |           |            |    |             |   |      |            |             |            |            |    |    |   |   |            |           |            |            |   |    



---

(A) Percentage represents:



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

Cost
of Software License Revenues

Cost of software license revenues consists
primarily of third-party software royalties, cost of product
packaging, documentation materials, order fulfillment employees
and amortization of capitalized software costs. The amortization
of capitalized software costs begins upon general release of the
software to customers. Cost of software license revenues
decreased 9% to $1,850,000 in 2003, compared to $2,040,000 for
2002. This decrease of $190,000 was primarily due to a decrease
in amortization of capitalized software development costs and a
decrease in third-party royalties, incurred from embedded third
party technology in the Companys CRM product which was
sold in the first quarter of 2003. As a percentage of software
license revenues, cost of software license revenues increased to
14% for 2003 as compared to 13% in 2002. The increase as a
percentage of software license revenues was also due to the
decline in software license revenues. Cost of

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##### Table of Contents



software license revenues is anticipated to
decrease in 2004 due to capitalized software development costs
becoming fully amortized in the first half of 2004 and a
decrease in third party software royalties associated with the
reselling of a third party product.


Cost of
Professional Services and Maintenance Revenues

The cost of professional services and maintenance
revenues consists primarily of personnel salaries and benefits,
facilities and system costs incurred to provide consulting,
training and customer support and payments to indirect channel
partners to provide first level support to end-user customers,
which is generally amortized over the 12-month maintenance
support period of the underlying contract with the end-user
customer. Cost of professional services and maintenance revenue
decreased 47% to $5,270,000 in 2003 from $9,989,000 in 2002.
Cost of professional services and maintenance revenue as a
percentage of professional services and maintenance revenue was
37% in 2003 as compared to 49% in 2002. The improvement in
professional services and maintenance revenue gross margin is
due to higher utilization of the Companys service
professionals, and a change in revenue mix from lower margin
consulting revenues to higher margin maintenance revenues. The
decrease in professional services and maintenance revenues was
primarily due to the sale of the CRM business in the first
quarter of 2003.

Operating Expenses

|                                                                   |  |                         |            |            |  |      |     |            |  |      |            |            |  |  |    |   |  |   |            |  |  |  |    |  
|------------------------------------------------------------------ |  | ----------------------- | ---------- | ---------- |  | ---- | --- | ---------- |  | ---- | ---------- | ---------- |  |  | -- | - |  | - | ---------- |  |  |  | -- | -
|                                                                   |  |                        
|                                                                   |  | Year Ended December 31,
|                                                                   |  |                        
|                                                                   |  |                         |            | Percent of |  |      |     | Percent of |  |      |            | Percent of
|                                                                   |  | 2003                    |            | Revenue    |  | 2002 |     | Revenue    |  | 2001 |            | Revenue   
|                                                                   |  |                         |            |            |  |      |     |            |  |      |            |           
|Sales and marketing                                                |  |                         | 10,747,000 |            |  |      | 39  | %          |  |      | 15,311,000 |            |  |  | 42 | % |  |   | 21,671,000 |  |  |  | 55 | %
|Product development                                                |  |                         | 5,512,000  |            |  |      | 20  | %          |  |      | 5,699,000  |            |  |  | 16 | % |  |   | 6,848,000  |  |  |  | 17 | %
|General and administrative                                         |  |                         | 7,653,000  |            |  |      | 28  | %          |  |      | 5,249,000  |            |  |  | 14 | % |  |   | 4,484,000  |  |  |  | 11 | %
|Compensation expenses and amortization of
    acquired intangibles |  |                         | 833,000    |            |  |      | 3   | %          |  |      | 2,405,000  |            |  |  | 7  | % |  |   | 1,717,000  |  |  |  | 4  | %
|Compensation expense related to executive stock
    loans          |  |                         |           |            |  |      |    |            |  |      | 964,000    |            |  |  | 3  | % |  |   |           |  |  |  |   |  
|Restructuring expense                                              |  |                         | 3,238,000  |            |  |      | 12  | %          |  |      | 381,000    |            |  |  | 1  | % |  |   | 1,700,000  |  |  |  | 4  | %
|                                                                   |  |                         |            |            |  |      |     |            |  |      |            |            |  |  |    |   |  |   |            |  |  |  |    |  
|Total Operating Expenses                                           |  | $                       | 27,983,000 |            |  |      | 102 | %          |  | $    | 30,009,000 |            |  |  | 82 | % |  | $ | 36,420,000 |  |  |  | 92 | %
|                                                                   |  |                         |            |            |  |      |     |            |  |      |            |            |  |  |    |   |  |   |            |  |  |  |    |  

Sales and
Marketing

Sales and marketing expenses consist primarily of
salaries and benefits, commissions and bonuses for the
Companys sales and marketing personnel, field office
expenses, travel and entertainment, promotional and advertising
expenses and the cost of the Companys international
operations, which are sales operations. Sales and marketing
expenses decreased 30% to $10,747,000 for the year ended
December 31, 2003 from $15,311,000 for the year ended
December 31, 2002. The overall decrease in spending was
primarily attributable to the decrease in sales commissions that
resulted from a decrease in the Companys license revenues
and a reduction in sales and marketing salaries, commissions,
bonuses and benefits from those employees transferred in
connection with the sale of the CRM business in the first
quarter of 2003. Sales and marketing expenses decreased as a
percentage of total revenue to 39% for the year ended
December 31, 2003 compared to 42% for the year ended
December 31, 2002. The Company anticipates an increase in
the size of its direct sales force and an increase in marketing
efforts associated with its current products and future product
releases. As a result, there may be an increase in sales and
marketing costs in 2004 as compared to 2003. The Company will,
however, continue to closely monitor discretionary costs.

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Product
Development

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

Product development expenses decreased 3% to
$5,512,000 for the year ended December 31, 2003 from
$5,699,000 for the year ended December 31, 2002. These
expenses represent 20% of total revenue for year ended
December 31, 2003 compared to 16% of total revenue for the
year ended December 31, 2002. The increase in product
development expenses as a percentage of total revenues was
primarily due to the Company not capitalizing any additional
product development costs related to its software products as no
costs met the criteria for capitalization in 2003. This is
compared to $1,553,000 which the Company capitalized in product
development costs for the year ended December 31, 2002.
This percentage of revenue increase was partially offset by a
reduction in product development salaries and benefits from
those employees transferred in connection with the sale of the
CRM business in the first quarter of 2003. The Company
anticipates that it will continue to devote substantial
resources to the development of new products, new versions of
its existing products including Applix TM1 and related modules,
which includes Applix TM1 Web.

General and
Administrative

General and administrative expenses consist
primarily of salaries and benefits and occupancy costs for
administrative, executive and finance, information technology
and human resource personnel. General and administrative
expenses increased 46% to $7,653,000 for the year ended
December 31, 2003 compared to $5,249,000 for the year ended
December 31, 2002. The increase was primarily due to
executive termination costs, including severance pay, extended
medical benefits, and stock-based compensation related to the
modifications of terminated executives stock awards, costs
associated with the Companys two financial restatements,
costs associated with the related SEC investigation and legal
and auditing fees. As a percentage of total revenues, general
and administrative expenses were 28% in 2003 compared to 14% in
2002. The increase in general and administrative expenses as a
percentage of total revenues in 2003 as compared to 2002 was due
in part to the decrease in total revenues.



| |                                                                        
| | -----------------------------------------------------------------------
| | Compensation Expenses and Amortization of
    Acquired Intangible Asset

Compensation expenses and amortization of
acquired intangibles consists primarily of contingent cash
consideration relating to the Companys March 2001
acquisition of Dynamic Decisions and the amortization of
identified intangible assets, consisting of customer
relationships, associated with the acquisition. For the years
ended 2003 and 2002, the Company recorded compensation expense,
which includes the impact of foreign currency exchange rate
fluctuations of translating the Australian dollar to the U.S.
dollar, related to these contingent payments of $583,000 and
$2,153,000, respectively. Amortization expense for the customer
relationships associated with the Dynamic Decisions acquisition
was $250,000 and $252,000, for the year ended 2003 and 2002,
respectively. All contingent amounts due for the Dynamic
Decisions acquisition had been paid in 2003 and no further
amounts are due.

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##### Table of Contents



Write
down of Notes Receivable

In September 2000, the Company sold 256,002
shares of common stock to certain Company executives. The
purchases of such shares were funded by loans from the Company
to the executives evidenced by full-recourse promissory notes
due and payable on July 31, 2005. Repayment terms were
extended to the original maturity date for several employees who
subsequently left the Company. The aggregate principal amount of
the notes totaled $1,120,000 at December 31, 2002. Certain
of these loans are and have been past due for some time, and
subsequent to December 31, 2002, in connection with a
severance arrangement the Company forgave one of the loans. As a
result of the foregoing, for accounting purposes only the
Company has characterized all of the notes as non-recourse. In
this regard, the accounting for these notes has been treated as
a repurchase of stock and the issuance of options. During the
year ended December 31, 2002, the Company recorded a charge
of $964,000 for the difference between the amounts due on the
loans, including accrued interest of $128,000, and the fair
value of the underlying stock at December 31, 2002. The
Company may incur compensation charges if the fair value of the
underlying stock appreciates over the original purchase price,
plus interest. These loans continue to be full recourse, and the
Company intends to enforce collection of those amounts that are
due. As of December 31, 2003, all of the promissory notes
remained outstanding, except for the one loan forgiven by the
Company. In February 2004, the Company collected approximately
$231,000 of the outstanding promissory notes.

Restructuring
Expense

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

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

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

The balance at December 31, 2003, as well as
the Companys 2003 payments made against these accruals are
detailed as follows:

|                              |  |              |        |          |  |              |        |  |  |   |   | 
|----------------------------- |  | ------------ | ------ | -------- |  | ------------ | ------ |  |  | - | - | 
|                              |  | Balance at   |        |          |  | Balance at  
|                              |  | December 31, |        | Payments |  | December 31,
|Cash Charges                  |  | 2002         |        | Made     |  | 2003        
|                              |  |              |        |          |  |             
|Work force reduction          |  | $            | 52,000 |          |  | $            | 52,000 |  |  | $ |  | 
|Office closures               |  |              | 17,000 |          |  |              | 17,000 |  |  |   |  | 
|Other contractual obligations |  |              | 2,000  |          |  |              | 2,000  |  |  |   |  | 
|                              |  |              |        |          |  |              |        |  |  |   |   | 
|Total restructuring           |  | $            | 71,000 |          |  | $            | 71,000 |  |  | $ |  | 
|                              |  |              |        |          |  |              |        |  |  |   |   | 

In the fourth quarter of 2003, the Company
adopted a plan of restructuring to further reduce operating
costs. Under this plan, the Company ceased to use and made the
determination that it had no future use and

18



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##### Table of Contents



benefit of certain space pertaining to its
Westborough headquarters office lease. Additionally, it
had determined that it would abandon support assets associated
with this space, which were removed from service shortly after
the implementation of the plan. In January 2004, the Company
entered into a lease amendment of its original lease with its
landlord for its Westborough, MA headquarters. The amendment
required the payment of a $3,000,000 restructuring fee to the
landlord, which was paid on January 22, 2004 and was
identified in the charge described above, net of amounts already
accrued. Per terms of the amendments, the original lease was
amended as follows: 1) a reduction in the amount of space leased
was reduced from 49,960 square feet to 24,376 square feet, 2) a
reduction in annual rental payments from approximately
$1,400,000 to $550,000, 3) a reduction in remaining term of the
lease from 9 3/4 years to 7 years, and 4) a
reduction of the amount of the required irrevocable standby
letter of credit from $817,000 to $400,000. As a result of this
restructuring plan, the Company recorded a net restructuring
charge for this space of $3,238,000, which included certain
transaction costs including professional service fees (brokerage
and legal) and $50,000 in non-cash charges relating to impaired
assets.


The components of the restructuring cash charges,
are detailed as follows:

|                                                        |  |              |           |  
|------------------------------------------------------- |  | ------------ | --------- | -
|                                                        |  | Balance at  
|                                                        |  | December 31,
|Cash Charges                                            |  | 2003        
|                                                        |  |             
|Payment to landlord for abandoned space                 |  | $            | 3,000,000 |  
|Deferred rent obligation related to abandoned
    space |  |              | (162,000  | )
|Professional service fees                               |  |              | 400,000   |  
|                                                        |  |              |           |  
|Total restructuring                                     |  | $            | 3,238,000 |  
|                                                        |  |              |           |  

Non-Operating Income

|                                         |       |                                   |       |         |  |      |    |            |  |  |     |    |  |  |   |  | 
|---------------------------------------- | ----- | --------------------------------- | ----- | ------- |  | ---- | -- | ---------- |  |  | --- | -- |  |  | - |  | 
|                                         |       |                                   |       |        
|                                         |       | Year Ended December 31,           |       |        
|                                         |       |                                   |       |        
|                                         |       |                                   |       | Percent |  |      |    |           
|                                         |       |                                   |       | of      |  |      |    | Percent of
|                                         |       | 2003                              |       | Revenue |  | 2002 |    | Revenue   
|                                         |       |                                   |       |         |  |      |    |           
|                                         |       |                                  
|                                         |       | (in thousands except percentages)
|Interest and other income (expense), net |       |                                   | 933   |         |  |      | 3  | %          |  |  | (47 | )  |  |  |  | 
|Net (loss) gain from sales of subsidiary |       |                                   | (164  | )       |  |      | (1 | )%         |  |  | 141 |    |  |  |  | 
|Net gain from sale of CRM business       |       |                                   | 7,910 |         |  |      | 29 | %          |  |  |    |    |  |  |  | 
|                                         |       |                                   |       |         |  |      |    |            |  |  |     |    |  |  |   | 
|                                         | Total |                                   | $     | 8,679   |  |      |    |            |  |  | $   | 94 |  |  |   |  | 
|                                         |       |                                   |       |         |  |      |    |            |  |  |     |    |  |  |   | 



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

Interest and other income (expense), net
increased to income of $933,000 in 2003 from expenses of $47,000
in 2002. This increase is primarily attributable to favorable
foreign currency fluctuations in the British pound, Euro, and
Australian dollar. Additionally the increase was due to an
increase in interest income due to an increase in the average
cash and cash equivalents balance and a reduction in effective
interest expense related to the Companys bank credit
facilities.



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

In December 2002, the Company sold the stock of
its Dutch subsidiary, a remote sales office, and recorded a gain
from the sale of $141,000. The transaction included
substantially all of the subsidiarys assets and
liabilities and an amendment to the existing distribution
agreement between the Company and the purchaser to provide the
purchaser exclusive rights to resell the Companys CRM
products in the Netherlands. In 2003, the Company eliminated the
gain on the sale as a result of certain post-closing adjustments
and the additional accrual of transaction costs.

19



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##### Table of Contents





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

In the first quarter of 2003, the Company
completed the sale of certain of its assets relating to its
customer relationship management software solutions (the
CRM Business) to iET Acquisition, LLC
(iET), a wholly-owned subsidiary of Platinum Equity
Holdings, LLC for $5,750,000 in cash consideration, of which
$487,000 was paid back as of December 31, 2003, to iET for
net working capital adjustments. The sale excluded approximately
$2,800,000 in net accounts receivable generated from the sale of
CRM products and services.

The Company has recorded a net gain before tax of
$7,910,000, which includes net cash consideration of $5,263,000
and $3,552,000 of net liabilities assumed by iET less
transaction costs of $905,000. The purchase price is subject to
certain post closing adjustments relating to the net working
capital as set forth in the Asset Purchase Agreement between the
Company and iET, dated January 21, 2003.

iET paid $4,250,000 of the purchase price in cash
at the initial closing and paid an additional $1,500,000 in cash
on March 17, 2003 upon the closing of the sale of certain
of the assets of the Companys Germany subsidiary, Applix
GmbH. During the period between the initial closing and
completion of the Companys Germany subsidiary closing,
Applix GmbH continued to resell the CRM software products and to
provide professional services and maintenance support under a
resellers agreement between the Company and iET. The
Companys results for the year ended December 31, 2003
included CRM license revenues of $253,000 and CRM professional
services and maintenance revenues of $999,000.



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

The provision for income taxes represents the
Companys state and foreign income tax obligations and
amortization of a deferred tax liability. For the years ended
December 31, 2003 and 2002, provisions for income taxes
were $764,000 and $222,000, respectively. This increase is
primarily attributable to foreign income taxes related to the
Companys sale of its CRM business including the sale of
related foreign assets and transferred liabilities and an
offsetting benefit of $75,000 recorded in 2003 for the
amortization of a deferred tax liability relating to the
Companys acquisition of Dynamic Decisions.



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

Total revenue from continuing operations
decreased to $36,596,000 in 2002 from $39,405,000 in 2001.
Software license revenue in 2002 of $16,050,000 was
approximately 13% lower than 2001 software license revenues of
$18,406,000 and represented 44% of revenue from continuing
operations for 2002 and 47% of revenue from continuing
operations for 2001. Domestic software license revenue increased
8% to $7,288,000 in 2002 from $6,776,000 in 2001. International
software license revenue decreased 25% to $8,762,000 in 2002
from $11,630,000 in 2001. The decrease was primarily due to the
decline in the global economy especially in the European market
and the continued slowdown in CRM market and in information
technology spending.

Professional services and maintenance revenues
decreased 2% to $20,546,000 in 2002 as compared to $20,999,000
in 2001 and represented 56% and 53% of total revenue from
continuing operations for 2002 and 2001, respectively.
Maintenance revenues increased 18% to $14,674,000 in 2002
compared to $12,387,000 in 2001, while consulting and training
revenues decreased 32% to $5,872,000 in 2002 compared to
$8,612,000 in 2001. Consulting and training revenues declined in
2002 as a result of the Companys focus on more selective
consulting engagements, greater reliance on external authorized
Applix indirect partners and the increase in business analytics
implementations, which require fewer consulting hours to
implement the solutions.

Gross margin from continuing operations increased
to 67% in 2002 from 62% in 2001. Software license revenue gross
margin from continuing operations decreased to 87% in 2002 from
93% in 2001, due to an increase in amortization of capitalized
software development costs and third party royalties.
Professional services and maintenance revenue gross margin from
continuing operations increased to 51% in 2002 from 35% in 2001
due to a change in revenue mix from lower margin consulting
revenues to higher margin maintenance revenues.

20



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##### Table of Contents



Sales and marketing expenses from continuing
operations decreased 29% to $15,311,000 in 2002 from $21,671,000
in 2001. Sales and marketing expenses were 42% of total revenues
in 2002 compared to 55% in 2001. The decrease, which was
partially offset by an increase in bad debt expense, was
primarily due to the Companys cost control initiatives and
the decrease in sales commissions that resulted from a decrease
in the Companys software license revenues. In response to
the weakening global economy, the Company reduced its
expenditures in 2002.

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

General and administrative expenses from
continuing operations increased 17% to $5,249,000 in 2002 from
$4,484,000 in 2001. The increase was primarily due to increased
rent and related costs of the Companys new corporate
headquarters, legal and auditing fees, and corporate insurance
premiums. As a percentage of total revenues, general and
administrative expenses were 14% in 2002 compared to 11% in
2001. The increase in general and administrative expenses as a
percentage of total revenues in 2002 as compared to 2001 was due
in part to the decrease in total revenues.

Compensation expenses and amortization of
acquired intangible asset consists primarily of contingent cash
consideration relating to the Companys March 2001
acquisition of Dynamic Decisions and the amortization of
identified intangible assets, consisting of customer
relationships, associated with the acquisition For 2002 and
2001, the Company recorded compensation expense related to these
contingent payments of $2,153,000 and $1,531,000, respectively.
For 2002 and 2001, the amortization expense for the customer
relationships associated with the Dynamic Decisions acquisition
was $252,000 and $186,000, respectively.

The Company initiated three restructuring actions
in 2001 involving strategic decisions and continues to
re-evaluate the current state of on-going businesses.

Net interest income from continuing operations
decreased to $47,000 in 2002 from other income of $290,000 in
2001.

In December 2000, the Board of Directors
committed to a plan to dispose of the operations of the
Companys 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 was
reclassified as a discontinued operation. On March 30,
2001, the Company completed the sale of the VistaSource business
and received the purchase price of $1,300,000. For the year
ended December 31, 2001, the Company recognized a gain of
$1,081,000 for discontinued operations due to a favorable
liquidation of the net assets and liabilities of the VistaSource
business compared to previous estimates. The Companys
results of operations for the year ended December 31, 2003
and 2002 included $177,000 and $204,000, respectively, in
expenses primarily relating to certain defense costs incurred
from a claim filed against VistaSource (See Note 18) and
legal and accounting costs associated with winding down the
VistaSource business.

In December 2002, the Company sold the stock of
its Dutch subsidiary, a remote sales office, and recorded a gain
from the sale of $141,000. The transaction included
substantially all of the subsidiarys assets and
liabilities and an amendment to the existing distribution
agreement between the Company and the purchaser to provide the
purchaser exclusive rights to resell the Companys CRM
products in the Netherlands. In 2003, the Company eliminated the
gain on the sale as a result of certain post-closing adjustments
and the additional accrual of transaction costs.

As a result of net operating losses incurred in
2001 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

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December 31, 2001. 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 $222,000 for the year ended
December 31, 2002, for state and foreign income tax
liabilities, as compared to a provision of $558,000 for the year
ended December 31, 2001.


Liquidity and Capital Resources

The Company derives its liquidity primarily from
the Companys cash flow from operations and from working
capital. The Companys cash and cash equivalent balance
were $10,058,000 and $9,322,000 as of December 31, 2003 and
December 31, 2002, respectively, which includes restricted
cash of $817,000 and $933,000, respectively. The Companys
days sales outstanding (DSO) in accounts
receivable was 63 days as of December 31, 2003,
compared with 53 days as of December 31, 2002. The
Company has a Non-Recourse Accounts Receivable Purchase
Agreement (Receivables Purchase Agreement) with a
certain bank, which allows the Company from time to time to sell
qualifying accounts receivable to the bank, in an aggregate
amount of up to $2 million, at a purchase price equal to
the balance of the accounts less a discount rate and a fee. The
Company did not factor any accounts receivable to the bank for
the year-ended December 31, 2003, compared to $905,000 on
or about December 31, 2002. The Companys Receivable
Purchase Agreement expired in January 2004.

In connection with the Companys sale of its
CRM Business to iET in the first quarter of 2003, the Asset
Purchase Agreement allows for post-closing adjustments to be
made based upon finalization of the net working capital as
defined by the Agreement. The Company has already paid back
$487,000 of the cash consideration received from iET.

Cash used in the Companys operating
activities was $4,269,000 for the year ended December 31,
2003 compared to cash provided by operating activities of
$1,816,000 for the same period in the prior year. The net loss
of $10,000 for the year ended December 31, 2003 was
primarily due to the effect of the non-operating gain of
$7,910,000 generated from the sale of the CRM Business. Cash
used in the Companys operating activities was also
effected by the decrease in operating liabilities of $505,000
and decrease in operating assets of $256,000.

Cash provided by investing activities totaled
$4,924,000 for the year ended December 31, 2003 compared to
cash used in investing activities of $1,871,000 for the year
ended December 31, 2002. The increase in cash provided in
investing activities is primarily a result of the net cash
proceeds of $5,263,000 from the sale of the CRM Business.

Cash provided by financing activities totaled
$661,000 for the year ended December 31, 2003, which
consisted of proceeds of $898,000 from the issuance of stock
under stock plans, partially offset by net payments of $237,000
owed to a certain bank from amounts outstanding at
December 31, 2002 related to the Receivable Agreement. This
compares to total cash provided by financing activities of
$258,000 for the year ended December 31, 2002.

Cash paid for income taxes by the Company of
$574,000 and $319,000 for the years ended December 31, 2003
and 2002, respectively, was primarily due to foreign taxes paid
by the Companys foreign subsidiaries.

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Contractual Obligations and Off-Balance Sheet
Arrangements

The Company had future cash commitments, which
includes the net effects of the Companys amended
Westborough, Massachusetts headquarters lease, for the
cash payments pertaining to its obligation under its
non-cancelable leases. The Companys future minimum
operating and capital lease payments for its office facilities
and certain equipment are:

|                                   |  |       |           |           |  |       |           |       |  |         |           |  |  |   |           |  |  |   |           | 
|---------------------------------- |  | ----- | --------- | --------- |  | ----- | --------- | ----- |  | ------- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                   |  | Total |           | Less Than |  | 1  3 |           | 4  5 |  | After  
|                                   |  | Years |           | 1 year    |  | Years |           | Years |  | 5 Years
|                                   |  |       |           |           |  |       |           |       |  |        
|Non-cancelable operating leases    |  | $     | 7,298,000 |           |  | $     | 1,319,000 |       |  | $       | 2,155,000 |  |  | $ | 2,018,000 |  |  | $ | 1,806,000 | 
|Non-cancelable capital leases      |  |       | 75,000    |           |  |       | 31,000    |       |  |         | 44,000    |  |  |   |          |  |  |   |          | 
|Purchase obligations               |  |       | 427,000   |           |  |       | 427,000   |       |  |         |          |  |  |   |          |  |  |   |          | 
|Long-term debt obligations         |  |       |          |           |  |       |          |       |  |         |          |  |  |   |          |  |  |   |          | 
|Other long-term obligations        |  |       |          |           |  |       |          |       |  |         |          |  |  |   |          |  |  |   |          | 
|                                   |  |       |           |           |  |       |           |       |  |         |           |  |  |   |           |  |  |   |           | 
|Total contractual cash obligations |  | $     | 7,800,000 |           |  | $     | 1,777,000 |       |  | $       | 2,199,000 |  |  | $ | 2,018,000 |  |  | $ | 1,806,000 | 
|                                   |  |       |           |           |  |       |           |       |  |         |           |  |  |   |           |  |  |   |           | 

The Company does not have any off-balance-sheet
arrangements with unconsolidated entities or related parties,
and as such, the Companys liquidity and capital resources
are not subject to off-balance-sheet risks from unconsolidated
entities.

The Company has plans for approximately $500,000
in capital expenditures in the next 12 months, including
hardware, software, upgrades and replacements. The Company may
finance these purchases through use of third-party financing
arrangements including its equipment line of credit.

In January 2004, the Company entered into an
amendment of its original office lease with its landlord for its
Westborough, Massachusetts headquarters. The amendment
required the payment of a $3,000,000 restructuring fee to the
landlord, which was paid on January 22, 2004. Per terms of
the amendment, the amount of space leased by the Company from
the landlord have been reduced from 49,960 square feet to 24,376
square feet, reduction in annual rent payments from
approximately $1,400,000 to $550,000, and a reduction in
remaining term of the lease from 9 3/4 years to
7 years.

In February 2004, a member of the Companys
board of directors, along with another investor, who is related
to the Board member, purchased 657,894 shares of common stock
from the Company for $3 million.

On March 19, 2004, the Company entered into
two credit facilities, providing for loans and other financial
accommodations, with Silicon Valley Bank (SVB). The
first facility, a domestic working capital line of credit, has
an interest rate of prime plus 1.00% and allows the borrowings
of up to the lesser of (i) $2,000,000 and (ii) an
amount based upon a percentage the Companys qualifying
domestic accounts receivable. The second facility, an equipment
line of credit, has an interest rate of prime plus 1.50% and
provides for borrowings of up to $1,000,000. The obligations of
the Company to SVB are guaranteed by the Company and certain of
its domestic subsidiaries and are secured by substantially all
of the assets of the Company and such domestic subsidiaries. The
facilities will expire on March 18, 2005.

The Company has incurred losses from continuing
operations for the last several years. As of December 31,
2003, the Company had an accumulated deficit of
$45.4 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
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 expected to be generated from operations, and the SVB
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

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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, as it focuses its
resources on TM1 and related modules, and worldwide economic
conditions including information technology spending. Should the
Company not meet its plans to generate sufficient revenue or
positive cash flows, it may need to raise additional capital or
reduce spending


New Accounting
Pronouncements

In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46
(FIN 46), Consolidation of Variable
Interest Entities, which is an interpretation of
Accounting Research Bulletin No. 51, Consolidated
Financial Statements. FIN 46 addresses consolidation
by business enterprises of variable interest entities and
requires existing unconsolidated variable interest entities to
be consolidated by their primary beneficiaries if the entities
do not effectively disperse risks among parties involved.
Variable interest entities that effectively disperse risks will
not be consolidated unless a single party holds an interest or
combination of interests that effectively recombines risks that
were previously dispersed. FIN 46 applies immediately to
variable interest entities created after January 30, 2003,
and to variable interest entities in which an enterprise obtains
an interest after that date. FIN 46 applies in the first
fiscal year or interim period beginning after June 15, 2003
to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003.
FIN 46 applies to public enterprises as of the beginning of
the applicable interim or annual period. Adoption of FIN 46
did not have a material effect on its financial position or
results of operations.

RISK FACTORS



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

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



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

We typically receive a majority of our orders in
the last month of each fiscal quarter because our customers
often delay purchases of products until the end of the quarter
as 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

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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 OUR CURRENT PRODUCTS.

In the first quarter of 2003 we sold our CRM
Business, which represented 42% of our total revenue in 2002. We
have devoted a substantial amount of resources to the
development and marketing of our current products. We believe
that our future financial performance will be dependent in large
part on the success of our ability to market our BI and BPM
solutions.



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

We have incurred losses from continuing
operations for the last several years. Operating losses and
negative cash flows may continue because of costs and expenses
relating to brand development, marketing and other promotional
activities, continued development of our information technology
infrastructure, expansion of product offerings and development
of relationships with other businesses. Although we made
progress in 2003 towards achieving profitability, there can be
no assurance that we will achieve a profitable level of
operations in the future.

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



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

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

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

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

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| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. During the first half of 2003, we engaged a new
President and Chief Executive Officer, David Mahoney, and a new
Chief Financial Officer, Milton A. Alpern. The transition of
these positions may result in the distraction of management and
a delay in our ability to execute our business strategies. The
loss of any of our members of management, or any of our staff of
sales and development professionals, could prevent us from
successfully executing our business strategies. Any such loss of
technical knowledge and industry expertise could negatively
impact our success. Moreover, the loss of any critical employees
or a group thereof, particularly to a competing organization,
could cause us to lose market share, and the Applix brand could
be diminished.



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

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



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

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| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | economic or political instability in some
    international markets could result in the forfeiture of some
    foreign assets and the loss of sums spent developing and
    marketing those assets.



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | BECAUSE THE BUSINESS PERFORMANCE MANAGEMENT
    AND BUSINESS INTELLIGENCE MARKETS ARE HIGHLY COMPETITIVE, WE MAY
    NOT BE ABLE TO SUCCEED.

If we fail to compete successfully in the highly
competitive and rapidly changing business performance management
and business intelligence markets, we may not be able to
succeed. We face competition primarily from business
intelligence firms. We also face competition from 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 IN PART ON THIRD-PARTY
    SYSTEMS INTEGRATORS TO SELL OUR PRODUCTS, OUR OPERATING RESULTS
    WILL LIKELY SUFFER IF WE DO NOT DEVELOP AND MAINTAIN THESE
    RELATIONSHIPS.

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



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

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



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

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

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

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Item 7A.     Quantitative
and Qualitative Disclosures about Market Risk

As a multinational corporation, the Company is
exposed to market risk, primarily from changes in foreign
exchange rates. These exposures may change over time and could
have a material adverse impact on the Companys financial
results. Most of the Companys international sales through
its subsidiaries are denominated in foreign currencies. The
Companys exposure to changes in net income, due to foreign
exchange rates fluctuations, in the Companys foreign
subsidiaries is mitigated to some extent by expenses incurred by
the foreign subsidiary in the same currency. The Companys
primary foreign currency exposures relate to its short-term
intercompany balances with its foreign subsidiaries. These
foreign subsidiaries have functional currencies denominated in
the Euro, Australian dollar, British pound and Swiss franc that
are remeasured at each period end with any exchange gains or
losses recorded in the Companys consolidated statements of
operations. Based on foreign currency exposures existing at
December 31, 2003, a 10% unfavorable movement in foreign
exchange rates related to the British pound, Euro, Australian
dollar, and Swiss franc would result in approximately a $719,000
loss to earnings. The Company has currently not engaged in
activities to hedge these exposures.

At December 31, 2003, the Company held
$10,058,000 in cash equivalents, including $817,000 of
restricted cash, consisting primarily of money market funds.
Cash equivalents are classified as available for sale and
carried at fair value, which approximates cost. A hypothetical
10% increase in interest rates would not have a material impact
on the fair market value of these instruments due to their short
maturity and the Companys intention that all the
securities will be sold within one year. There have been no
significant changes in cash equivalents since December 31,
2003.






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

|                                                                        |  |                                          |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------- |  | ---------------------------------------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ | - |  | - | ------ | -
|                                                                        |  | Q1 2003                                  |        | Q2 2003 |  | Q3 2003 |        | Q4 2003
|                                                                        |  |                                          |        |         |  |         |        |        
|                                                                        |  |                                         
|                                                                        |  | (Unaudited)                             
|                                                                        |  | (In thousands, except per share amounts)
|Revenue from continuing operations                                      |  | $                                        | 6,833  |         |  | $       | 5,942  |         |  | $ | 6,423  |   |  | $ | 8,157  |  
|Gross margin from continuing operations                                 |  | $                                        | 4,687  |         |  | $       | 4,331  |         |  | $ | 4,930  |   |  | $ | 6,287  |  
|Restructuring expenses                                                  |  |                                          |       |         |  | $       |       |         |  | $ |       |   |  | $ | 3,238  |  
|Compensation expenses and amortization of
    acquired intangible asset |  | $                                        | 646    |         |  | $       | 62     |         |  | $ | 63     |   |  | $ | 62     |  
|Net gain from sale of CRM business                                      |  | $                                        | 8,000  |         |  | $       | (78    | )       |  | $ | (12    | ) |  | $ |       |  
|Income (loss) from continuing operations                                |  | $                                        | 5,094  |         |  | $       | (1,671 | )       |  | $ | (602   | ) |  | $ | (2,654 | )
|Loss from discontinued operations                                       |  | $                                        | (33    | )       |  | $       | (23    | )       |  | $ | (106   | ) |  | $ | (15    | )
|                                                                        |  |                                          |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|Net income (loss)                                                       |  | $                                        | 5,061  |         |  | $       | (1,694 | )       |  | $ | (708   | ) |  | $ | (2,669 | )
|                                                                        |  |                                          |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|Net income (loss) per share, basic                                      |  | $                                        | 0.41   |         |  | $       | (0.14  | )       |  | $ | (0.06  | ) |  | $ | (0.21  | )
|Net income (loss) per share, diluted                                    |  | $                                        | 0.40   |         |  | $       | (0.14  | )       |  | $ | (0.06  | ) |  | $ | (0.21  | )
|Weighted average number of basic shares
    outstanding                 |  |                                          | 12,453 |         |  |         | 12,523 |         |  |   | 12,641 |   |  |   | 12,876 |  
|Weighted average number of diluted shares
    outstanding               |  |                                          | 12,649 |         |  |         | 12,523 |         |  |   | 12,641 |   |  |   | 12,876 |  

29



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##### Table of Contents



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



---



|    |                                                                
|--- | ---------------------------------------------------------------
|(a) | Changes in estimates in the allowance for
    doubtful accounts

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

The Companys Consolidated Financial
Statements are listed under Item 15 of this Annual Report
on Form 10-K are incorporated herein by reference.






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

This information was previously reported in a
Current Report on Form 8-K filed with the SEC on
September 22, 2003.






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

The Companys management, with the
participation of the Companys chief executive officer and
chief financial officer, evaluated the effectiveness of the
Companys disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 (the Exchange Act)) as of
December 31, 2003. Based on this evaluation, the
Companys chief executive officer and chief financial
officer concluded that, as of December 31, 2003, the
Companys disclosure controls and procedures were
(1) designed to ensure that material information relating
to the Company, including its consolidated subsidiaries, is made
known to the Companys chief executive officer and chief
financial officer by others within those entities, particularly
during the period in which this report was being prepared and
(2) effective, in that they provide reasonable assurance that
information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms.

No change in the Companys internal control
over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the fiscal
quarter ended December 31, 2003 that has materially
affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.

In February 2004, the Company discovered that it
was unable to locate certain of its fixed assets. The net book
value of these fixed assets was deemed immaterial. In response
to both (1) its discovery of these missing fixed assets and
(2) communications during 2004 from Deloitte & Touche
LLP, the Companys independent

30



---



##### Table of Contents



accountants, concerning internal control issues
identified by Deloitte & Touche LLP, the Company began
implementing improvements to its internal control over financial
reporting in February 2004. The implementation of these
improvements was an ongoing process that continued through March
2004.





PART III






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

The response to this item is contained in part
under the caption Directors and Executive Officers of the
Registrant in Part I of this Annual Report on
Form 10-K, and in part in the Companys Proxy
Statement for the Annual Meeting of Stockholders to be held on
May 27, 2004 (the 2004 Proxy Statement) in the
sections entitled Board of Directors and Corporate
Governance Information  Members of the Board of
Directors, Other Matters  Section 16(a)
Beneficial Ownership Reporting Compliance, Board of
Directors and Corporate Governance Information  
Board Committees, and Board of Directors and
Corporate Governance Information  Code of Business
Conduct and Ethics, which sections are incorporated herein
by reference.






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

The response to this item is contained in the
2004 Proxy Statement in the section entitled Executive
Compensation And Related Matters, which section is
incorporated herein by reference.






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

The response to this item is contained in the
2004 Proxy Statement in the sections entitled General
Information About the Annual Meeting  Beneficial
Ownership of Voting Stock and Executive Compensation
and Related Matters  Equity Compensation Plan
Disclosure, which sections are incorporated herein by
reference.






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

The response to this item is contained in the
2004 Proxy Statement in the section entitled Executive
Compensation and Related Matters  Certain
Relationships and Related Transactions, which section is
incorporated herein by reference.






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

The information required by this item is
contained in the 2004 Proxy Statement
Proposal 4  Ratification of Selection of
Independent Auditors  Independent Auditors Fees
And Other Matters, which section is incorporated herein by
reference.




PART IV






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

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

1. Consolidated Financial
Statements.

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

2. Consolidated Financial Statement
Schedule.

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

31



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##### Table of Contents



3. Exhibits.

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

| |    |         |  |   |  |                                                                                                                                                                                                                                                                                                                                                                   
| | -- | ------- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2  | .1(1)   |  |  |  | Asset Purchase Agreement, dated January 21,
    2003, by and between iET Acquisition, LLC and the Registrant.                                                                                                                                                                                                                                                     
| | 3  | .1(2)   |  |  |  | Restated Articles of Organization.                                                                                                                                                                                                                                                                                                                                
| | 3  | .2(2)   |  |  |  | By-laws.                                                                                                                                                                                                                                                                                                                                                          
| | 4  | .1(3)   |  |  |  | Form of Rights Agreement, dated as of
    September 18, 2000, between the Registrant and American
    Stock Transfer & Trust Company, which includes as
    Exhibit A the terms of the Series A Junior
    Participating Preferred Stock, as Exhibit B the Form of
    Rights Certificate, and as Exhibit C the Summary of Rights
    to Purchase Preferred Stock.
| | 4  | .2(13)  |  |  |  | First Amendment to Form of Rights Agreement,
    dated February 27, 2004, between the Registrant and
    American Stock Transfer Company.                                                                                                                                                                                                                         
| | 10 | .1(4)+  |  |  |  | Applix, Inc. 1994 Equity Incentive Plan, as
    amended.                                                                                                                                                                                                                                                                                                          
| | 10 | .2(2)+  |  |  |  | Applix, Inc. 1984 Stock Option Plan.                                                                                                                                                                                                                                                                                                                              
| | 10 | .3(5)+  |  |  |  | Applix, Inc. 2000 Director Stock Option Plan, as
    amended.                                                                                                                                                                                                                                                                                                     
| | 10 | .4(6)   |  |  |  | Applix, Inc. 2001 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                                                   
| | 10 | .5(7)   |  |  |  | Single Tenant Commercial Lease by and between
    Westborough Land Realty Trust and the Registrant, dated
    January 23, 2001.                                                                                                                                                                                                                                   
| | 10 | .6      |  |  |  | Letter of Intent Single Tenant Commercial Lease
    by and between Westborough Land Realty Trust and the Registrant,
    dated December 12, 2003.                                                                                                                                                                                                                 
| | 10 | .7      |  |  |  | First Amendment of Single Tenant Commercial Lease
    by and Between Westborough Land Realty Trust and the Registrant
    dated December 31, 2003.                                                                                                                                                                                                                
| | 10 | .8      |  |  |  | Second Amendment of Single Tenant Commercial
    Lease by and Between Westborough Land Realty Trust and the
    Registrant dated January 22, 2004.                                                                                                                                                                                                                
| | 10 | .9+*    |  |  |  | Severance Agreement, dated February 27,
    2003, between the Registrant and Alan Goldsworthy.                                                                                                                                                                                                                                                                    
| | 10 | .10(6)+ |  |  |  | Executive Stock Option Acceleration Agreement
    between the Registrant and Craig Cervo, dated June 9, 2000.                                                                                                                                                                                                                                                     
| | 10 | .16(11) |  |  |  | Borrower Agreement by the Registrant, Applix (UK)
    Limited, Applix Australia Pty, Ltd., Veriteam, Ltd. in favor of
    the Export-Import Bank and Silicon Valley Bank.                                                                                                                                                                                         
| | 10 | .17(11) |  |  |  | Loan and Security Agreement, dated
    December 5, 2001 between the Registrant and Silicon Valley
    Bank.                                                                                                                                                                                                                                                       
| | 10 | .18(11) |  |  |  | Non-Recourse Receivables Purchase Agreement dated
    December 31, 2001, between the Registrant and Silicon
    Valley Bank.                                                                                                                                                                                                                                      
| | 10 | .19     |  |  |  | Purchase Agreement by and between Brad Fire and
    the Registrant, dated February 27, 2004.                                                                                                                                                                                                                                                                      
| | 10 | .20     |  |  |  | Purchase Agreement by and between Jeffrey A.
    Dryer and the Registrant, dated February 27, 2004.                                                                                                                                                                                                                                                               
| | 10 | .21     |  |  |  | Loan and Security Agreement, dated March 19,
    2004 between the Registrant and Silicon Valley Bank.                                                                                                                                                                                                                                                             
| | 10 | .22(12) |  |  |  | Applix, Inc. 2003 Director Equity Plan.                                                                                                                                                                                                                                                                                                                           
| | 21 | .1      |  |  |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                   
| | 23 | .1      |  |  |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                 
| | 23 | .2      |  |  |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                                                                                                     
| | 31 | .1      |  |  |  | Certification Pursuant to Rule 13a-14(a) and
    15d-14(a) of the Exchange Act, as Adopted Pursuant to
    section 302 of the Sarbanes-Oxley Act of 2002 (Chief
    Executive Officer).                                                                                                                                                                           
| | 31 | .2      |  |  |  | Certification Pursuant to Rule 13a-14(a) and
    15d-14(a) of the Exchange Act, as Adopted Pursuant to
    section 302 of the Sarbanes-Oxley Act of 2002 (Chief
    Financial Officer).                                                                                                                                                                           
| | 32 | .1      |  |  |  | Certification Pursuant to
    18 U.S.C. Section 1350 (Chief Executive Officer).                                                                                                                                                                                                                                                                                   
| | 32 | .2      |  |  |  | Certification Pursuant to
    18 U.S.C. Section 1350 (Chief Financial Officer).                                                                                                                                                                                                                                                                                   

32



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##### Table of Contents





---



| |    |                                                                                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Incorporated by reference from the
    Registrants Current Report on Form 8-K, as filed with
    the Commission on February 5, 2003.                                                                                
|
| | 2. | Incorporated by reference from the
    Registrants Registration Statement on Form S-1 (File
    no. 33-85688).                                                                                                      
|
| | 3. | Incorporated by reference to the
    Registrants Registration Statement on Form 8-A dated
    September 20, 2000.                                                                                                   
|
| | 4. | Incorporated by reference to the
    Registrants Proxy Statement on Schedule 14A, filed
    with the Commission on April 3, 2001.                                                                                   
|
| | 5. | Incorporated by reference to the
    Registrants Report on Form 10-Q for the fiscal
    quarter ended June 30, 2002, as filed with the Commission
    on August 14, 2002.                                           
|
| | 6. | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    fiscal quarter ended June 30, 2001, as filed with the
    Commission on August 13, 2001.                                 
|
| | 7. | Incorporated by reference to the
    Registrants Report on Form 10-K for the fiscal year
    ended December 31, 2000, as originally filed with the
    Commission on April 2, 2001 and amended on June 15,
    2001.
|
| | 8. | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    fiscal quarter ended September 30, 2001, as filed with the
    Commission on November 14, 2001.                          
|
| | 9. | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    fiscal quarter ended March 31, 2002, as filed with the
    Commission on May 15, 2002.                                   



|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the fiscal
    quarter ended September 30, 2000, as filed with the
    Commission on November 14, 2000.
|   
|11. | Incorporated by reference to the
    Registrants Report on Form 10-K for the fiscal year
    ended December 31, 2001, as originally filed with the
    Commission on April 1, 2002.       
|   
|12. | Incorporated by reference to the
    Registrants Definitive Proxy Statement filed with the
    Commission on April 30, 2003.                                                              
|   
|13. | Incorporated by reference to the
    Registrants Current Report on Form 8-K/A as filed
    with the Commission on March 4, 2004.                                                          



| |   |                  
| | - | -----------------
| | * | Previously filed.



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

(b) Reports on Form 8-K

On October 23, 2003, the Company furnished a
Current Report on Form 8-K under Item 9,
Regulation FD Disclosure (Information furnished
pursuant to Item 12, Disclosure of Results of
Operations and Financial Condition), containing a copy of
its press release relating to the Companys third quarter
financial results.

33



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf as of
March 29, 2004 by the undersigned, thereunto duly
authorized.



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



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

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

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

|                                         |  |                                                                                        |  |                |  | 
|---------------------------------------- |  | -------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                         |  |                                                                                        |  |               
|Signature                                |  | Title                                                                                  |  | Date          
|                                         |  |                                                                                        |  |               
|                                        
|/s/ DAVID C. MAHONEYDavid C. Mahoney     |  | President and Chief Executive Officer
    (Principal Executive Officer)                |  | March 29, 2004
|                                        
|/s/ MILTON A. ALPERNMilton A. Alpern     |  | Chief Financial Officer and Treasurer
    (Principal Financial and Accounting Officer) |  | March 29, 2004
|                                        
|/s/ JOHN D. LOEWENBERGJohn D. Loewenberg |  | Chairman of the Board of Directors                                                     |  | March 29, 2004
|                                        
|/s/ BRADLEY D. FIREBradley D. Fire       |  | Director                                                                               |  | March 29, 2004
|                                        
|/s/ PETER GYENESPeter Gyenes             |  | Director                                                                               |  | March 29, 2004
|                                        
|/s/ ALAIN J. HANOVERAlain J. Hanover     |  | Director                                                                               |  | March 29, 2004
|                                        
|/s/ CHARLES F. KANECharles F. Kane       |  | Director                                                                               |  | March 29, 2004

34



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##### Table of Contents



Index to Consolidated Financial
Statements

|                                                                                                             |  |      |    | 
|------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                             |  | Page
|                                                                                                             |  |     
|Report of Deloitte and
    Touche LLP, Independent Auditors                                                  |  |      | 36 | 
|Report of Ernst &
    Young LLP, Independent Auditors                                                        |  |      | 37 | 
|Consolidated Balance Sheets
    at December 31, 2003 and 2002                                                |  |      | 38 | 
|Consolidated Statements of
    Operations for the years ended December 31, 2003, 2002 and
    2001           |  |      | 40 | 
|Consolidated Statements of
    Stockholders Equity for the years ended December 31,
    2003, 2002 and 2001 |  |      | 41 | 
|Consolidated Statements of
    Cash Flows for the years ended December 31, 2003, 2002 and
    2001           |  |      | 42 | 
|Notes to Consolidated
    Financial Statements                                                               |  |      | 43 | 

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

35



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##### Table of Contents






Report of Deloitte & Touche LLP,
Independent Auditors

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

We have audited the accompanying consolidated
balance sheet of Applix, Inc. as of December 31, 2003 and
the related consolidated statement of operations,
stockholders equity and other comprehensive income, and
cash flows for the year ended December 31, 2003. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

We conducted our audit in accordance with
auditing standards generally accepted in the United States of
America. 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 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Applix, Inc. as of
December 31, 2003 and the results of its operations and its
cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts

March 29, 2004


36



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##### Table of Contents






Report of Ernst & Young LLP, Independent
Auditors

The Board of Directors and Stockholders

Applix, Inc.


We have audited the accompanying consolidated
balance sheet of Applix, Inc. as of December 31, 2002, and
the related consolidated statements of operations,
stockholders equity, and cash flows for each of the two
years in the period ended December 31, 2002. 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 in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Applix, Inc. at
December 31, 2002, and the consolidated results of its
operations and its cash flows for each of the two years in the
period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.

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



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

Boston, Massachusetts

March 7, 2003, except for Note 11,


as to which the date is March 17, 2003,


and Note 9, as to which the date is May 12,
2003


37



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##### Table of Contents



APPLIX, INC.




CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002


(In thousands, except share and par value
amounts)


ASSETS

|                                                                                                   |                                                 |                                                                                                |        |         |        |   |        |         |        | 
|-------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------ | ------- | ------ | - | ------ | ------- | ------ | 
|                                                                                                   |                                                 | 2003                                                                                           |        | 2002   
|                                                                                                   |                                                 |                                                                                                |        |        
|Current assets:                                                                                    |                                                 |                                                                                                |        |         |        |   |        |        
|                                                                                                   |                                                 | Cash and cash equivalents                                                                      |        | $       | 9,241  |   |        | $       | 8,389  | 
|                                                                                                   |                                                 | Accounts receivable, less allowance for doubtful
    accounts of $252 and $2,098, respectively |        |         | 5,715  |   |        |         | 5,810  | 
|                                                                                                   |                                                 | Other current assets                                                                           |        |         | 2,125  |   |        |         | 1,906  | 
|                                                                                                   |                                                 |                                                                                                |        |         |        |   |        |        
|                                                                                                   | Total current assets                            |                                                                                                |        | 17,081  |        |   |        | 16,105  |       
|Restricted cash                                                                                    |                                                 |                                                                                                | 817    |         |        |   | 933    |        
|Property and equipment                                                                             |                                                 |                                                                                                |        |         |        |   |        |        
|                                                                                                   |                                                 | Computer equipment and software                                                                |        |         | 11,064 |   |        |         | 12,194 | 
|                                                                                                   |                                                 | Furniture, equipment and leasehold improvements                                                |        |         | 2,340  |   |        |         | 2,439  | 
|                                                                                                   |                                                 |                                                                                                |        |         |        |   |        |        
|                                                                                                   | Total property and equipment, at cost           |                                                                                                |        | 13,404  |        |   |        | 14,633  |       
|                                                                                                   | Less: accumulated depreciation and amortization |                                                                                                |        | (12,431 | )      |   |        | (12,758 | )     
|                                                                                                   |                                                 |                                                                                                |        |         |        |   |        |        
|                                                                                                   |                                                 |                                                                                                | 973    |         |        |   | 1,875  |        
|Capitalized software costs, net of accumulated
    amortization of $1,575 and $2,733, respectively |                                                 |                                                                                                | 265    |         |        |   | 1,460  |        
|Other assets                                                                                       |                                                 |                                                                                                | 843    |         |        |   | 925    |        
|Intangible assets, net of accumulated
    amortization of $688 and $438, respectively              |                                                 |                                                                                                | 812    |         |        |   | 1,062  |        
|Goodwill                                                                                           |                                                 |                                                                                                | 1,158  |         |        |   | 1,187  |        
|                                                                                                   |                                                 |                                                                                                |        |         |        |   |        |        
|TOTAL ASSETS                                                                                       |                                                 | $                                                                                              | 21,949 |         |        | $ | 23,547 |        
|                                                                                                   |                                                 |                                                                                                |        |         |        |   |        |        

See accompanying Notes to Consolidated Financial
Statements.

38



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##### Table of Contents



APPLIX, INC.

CONSOLIDATED BALANCE SHEETS
(Continued)

December 31, 2003 and 2002


(In thousands, except share and par value
amounts)


LIABILITIES AND STOCKHOLDERS
EQUITY

|                                               |                                                                                                                             |      |        |         |   |   |        |         |  
|---------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ---- | ------ | ------- | - | - | ------ | ------- | -
|                                               |                                                                                                                             | 2003 |        | 2002   
|                                               |                                                                                                                             |      |        |        
|Current liabilities:                           |                                                                                                                             |      |        |         |   |   |        |        
|                                               | Accounts payable                                                                                                            |      | $      | 1,083   |   |   | $      | 2,296   |  
|                                               | Accrued expenses                                                                                                            |      |        | 6,657   |   |   |        | 9,492   |  
|                                               | Accrued restructuring expenses                                                                                              |      |        | 3,400   |   |   |        | 71      |  
|                                               | Deferred revenues                                                                                                           |      |        | 8,060   |   |   |        | 8,703   |  
|                                               |                                                                                                                             |      |        |         |   |   |        |        
|Total current liabilities                      |                                                                                                                             |      | 19,200 |         |   |   | 20,562 |        
|Long term liabilities                          |                                                                                                                             |      | 494    |         |   |   | 566    |        
|Commitments and contingencies (Note 18)        |                                                                                                                             |      |       |         |   |   |       |        
|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; 13,272,379 and 12,675,176 shares
    issued, respectively |      |        | 33      |   |   |        | 32      |  
|                                               | Additional paid-in capital                                                                                                  |      |        | 50,497  |   |   |        | 49,600  |  
|                                               | Accumulated deficit                                                                                                         |      |        | (45,375 | ) |   |        | (45,365 | )
|                                               | Accumulated other comprehensive loss                                                                                        |      |        | (1,539  | ) |   |        | (487    | )
|                                               |                                                                                                                             |      |        |         |   |   |        |        
|                                               |                                                                                                                             |      | 3,616  |         |   |   | 3,780  |        
|                                               | Less: treasury stock, 357,627 and 306,198
    shares at cost, respectively                                                  |      |        | (1,361  | ) |   |        | (1,361  | )
|                                               |                                                                                                                             |      |        |         |   |   |        |        
|Total stockholders equity                     |                                                                                                                             |      | 2,255  |         |   |   | 2,419  |        
|                                               |                                                                                                                             |      |        |         |   |   |        |        
|TOTAL LIABILITIES AND STOCKHOLDERS
    EQUITY |                                                                                                                             | $    | 21,949 |         |   | $ | 23,547 |        
|                                               |                                                                                                                             |      |        |         |   |   |        |        

See accompanying Notes to Consolidated Financial
Statements.

39



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##### Table of Contents



APPLIX, INC.



CONSOLIDATED STATEMENTS OF
OPERATIONS


Years Ended December 31, 2003, 2002 and
2001


(In thousands, except per share
amounts)


|                                                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |        |        |  
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------- | ------ | ------ | -
|                                                    |                                                                                                                                   | 2003                                        |        | 2002   |        | 2001
|                                                    |                                                                                                                                   |                                             |        |        |        |     
|Revenues:                                           |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|                                                    | Software license                                                                                                                  |                                             | $      | 13,222 |        |      | $      | 16,050 |        |   | $       | 18,406 |       
|                                                    | Professional services and maintenance                                                                                             |                                             |        | 14,133 |        |      |        | 20,546 |        |   |         | 20,999 |       
|                                                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|                                                    |                                                                                                                                   | Total revenues                              |        |        | 27,355 |      |        |        | 36,596 |   |         |        | 39,405 |  
|Cost of revenues:                                   |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|                                                    | Software license                                                                                                                  |                                             |        | 1,850  |        |      |        | 2,040  |        |   |         | 1,214  |       
|                                                    | Professional services and maintenance                                                                                             |                                             |        | 5,270  |        |      |        | 9,989  |        |   |         | 13,657 |       
|                                                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|                                                    |                                                                                                                                   | Total cost of revenues                      |        |        | 7,120  |      |        |        | 12,029 |   |         |        | 14,871 |  
|                                                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|Gross margin                                        |                                                                                                                                   |                                             | 20,235 |        |        |      | 24,567 |        |        |   | 24,534  |       
|Operating expenses:                                 |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|                                                    | Sales and marketing (includes $23 of stock-based
    compensation for the year ended December 31, 2003)                           |                                             |        | 10,747 |        |      |        | 15,311 |        |   |         | 21,671 |       
|                                                    | General and administrative (includes $267 of
    stock
    based           compensation
    for the year ended December 31, 2003) |                                             |        | 7,653  |        |      |        | 5,249  |        |   |         | 4,484  |       
|                                                    | Product development                                                                                                               |                                             |        | 5,512  |        |      |        | 5,699  |        |   |         | 6,848  |       
|                                                    | Restructuring expense                                                                                                             |                                             |        | 3,238  |        |      |        | 381    |        |   |         | 1,700  |       
|                                                    | Compensation expenses and amortization of
    acquired intangible asset (Note 9)                                                  |                                             |        | 833    |        |      |        | 2,405  |        |   |         | 1,717  |       
|                                                    | Write down of notes receivable                                                                                                    |                                             |        |       |        |      |        | 964    |        |   |         |       |       
|                                                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|                                                    |                                                                                                                                   | Total operating expenses                    |        |        | 27,983 |      |        |        | 30,009 |   |         |        | 36,420 |  
|                                                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|Operating loss                                      |                                                                                                                                   |                                             | (7,748 | )      |        |      | (5,442 | )      |        |   | (11,886 | )     
|Non-operating income (expenses):                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|Permanent impairment of cost based investment       |                                                                                                                                   |                                             |       |        |        |      |       |        |        |   | (1,250  | )     
|Interest and other income (expense), net            |                                                                                                                                   |                                             | 933    |        |        |      | (47    | )      |        |   | 290     |       
|Net (loss) gain from sale of subsidiary (Note 10)   |                                                                                                                                   |                                             | (164   | )      |        |      | 141    |        |        |   |        |       
|Net gain from sale of CRM business (Note 11)        |                                                                                                                                   |                                             | 7,910  |        |        |      |       |        |        |   |        |       
|                                                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|Income (loss) before taxes                          |                                                                                                                                   |                                             | 931    |        |        |      | (5,348 | )      |        |   | (12,846 | )     
|Provision for income taxes                          |                                                                                                                                   |                                             | (764   | )      |        |      | (222   | )      |        |   | (558    | )     
|                                                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|Income (loss) from continuing
    operations        |                                                                                                                                   |                                             | 167    |        |        |      | (5,570 | )      |        |   | (13,404 | )     
|Discontinued operations:                            |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|                                                    |                                                                                                                                   | Loss from discontinued operations           |        |        | (177   | )    |        |        | (204   | ) |         |        |       |  
|                                                    |                                                                                                                                   | Gain on disposal of discontinued operations |        |        |       |      |        |        |       |   |         |        | 1,081  |  
|                                                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|Net loss                                            |                                                                                                                                   | $                                           | (10    | )      |        | $    | (5,774 | )      |        | $ | (12,323 | )     
|                                                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|Net income (loss) per share, basic and
    diluted: |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|                                                    | Continuing operations                                                                                                             |                                             | $      | 0.01   |        |      | $      | (0.46  | )      |   | $       | (1.13  | )     
|                                                    | Discontinued operations                                                                                                           |                                             |        | (0.01  | )      |      |        | (0.02  | )      |   |         | 0.09   |       
|                                                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|                                                    |                                                                                                                                   | Total loss per share                        |        | $      | (0.00  | )    |        | $      | (0.47  | ) |         | $      | (1.04  | )
|                                                    |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|Weighted average number of shares
    outstanding:  |                                                                                                                                   |                                             |        |        |        |      |        |        |        |   |         |       
|                                                    | Basic                                                                                                                             |                                             |        | 12,601 |        |      |        | 12,223 |        |   |         | 11,861 |       
|                                                    | Diluted                                                                                                                           |                                             |        | 13,197 |        |      |        | 12,223 |        |   |         | 11,861 |       

See accompanying Notes to Consolidated Financial
Statements.

40



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##### Table of Contents



APPLIX, INC.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY


Years Ended December 31, 2003, 2002 and
2001


(in thousands, except share amounts)


|                                                                           |  |        |    |            |  |             |        |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|-------------------------------------------------------------------------- |  | ------ | -- | ---------- |  | ----------- | ------ | ------------- |  | ---------- | ------- | -------- |  | ------------- | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                                                           |  |        |    |            |  |             |        |               |  | Notes      |         |          |  |              
|                                                                           |  |        |    |            |  |             |        | Accumulated   |  | Receivable |         |          |  |              
|                                                                           |  |        |    | Additional |  |             |        | Other         |  | from Stock |         |          |  | Total        
|                                                                           |  | Common |    | Paid-in    |  | Accumulated |        | Comprehensive |  | Purchase   |         | Treasury |  | Stockholders
|                                                                           |  | Stock  |    | Capital    |  | Deficit     |        | (Loss) Income |  | Agreement  |         | Stock    |  | Equity       
|                                                                           |  |        |    |            |  |             |        |               |  |            |         |          |  |              
|Balance, 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                                                                   |  |        |    |            |  |             |        |               |  |            | (12,323 | )        |  |               |        |   |  |   |        |   |  |   |        |   |  |   | (12,323 | )
|Foreign currency exchange translation adjustment                           |  |        |    |            |  |             |        |               |  |            |         |          |  |               | 77     |   |  |   |        |   |  |   |        |   |  |   | 77      |  
|                                                                           |  |        |    |            |  |             |        |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Comprehensive loss                                                         |  |        |    |            |  |             |        |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   | (12,246 | )
|                                                                           |  |        |    |            |  |             |        |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2001                                                 |  |        | 31 |            |  |             | 49,212 |               |  |            | (39,591 | )        |  |               | (503   | ) |  |   | (1,120 | ) |  |   | (1,077 | ) |  |   | 6,952   |  
|Stock issued under stock plans
    (355,080 shares)                        |  |        | 1  |            |  |             | 388    |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   | 389     |  
|Write down of notes receivable                                             |  |        |    |            |  |             |        |               |  |            |         |          |  |               |        |   |  |   | 1,120  |   |  |   | (284   | ) |  |   | 836     |  
|Net loss                                                                   |  |        |    |            |  |             |        |               |  |            | (5,774  | )        |  |               |        |   |  |   |        |   |  |   |        |   |  |   | (5,774  | )
|Foreign currency exchange translation adjustment                           |  |        |    |            |  |             |        |               |  |            |         |          |  |               | 16     |   |  |   |        |   |  |   |        |   |  |   | 16      |  
|                                                                           |  |        |    |            |  |             |        |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Comprehensive loss                                                         |  |        |    |            |  |             |        |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   | (5,758  | )
|                                                                           |  |        |    |            |  |             |        |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2002                                                 |  |        | 32 |            |  |             | 49,600 |               |  |            | (45,365 | )        |  |               | (487   | ) |  |   |       |   |  |   | (1,361 | ) |  |   | 2,419   |  
|Stock issued under stock plans
    (549,573 shares)                        |  |        | 1  |            |  |             | 897    |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   | 898     |  
|Net loss                                                                   |  |        |    |            |  |             |        |               |  |            | (10     | )        |  |               |        |   |  |   |        |   |  |   |        |   |  |   | (10     | )
|Foreign currency exchange translation adjustment                           |  |        |    |            |  |             |        |               |  |            |         |          |  |               | (1,052 | ) |  |   |        |   |  |   |        |   |  |   | (1,052  | )
|                                                                           |  |        |    |            |  |             |        |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Comprehensive loss                                                         |  |        |    |            |  |             |        |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   | (1,062  | )
|                                                                           |  |        |    |            |  |             |        |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2003                                                 |  | $      | 33 |            |  | $           | 50,497 |               |  | $          | (45,375 | )        |  | $             | (1,539 | ) |  | $ |       |   |  | $ | (1,361 | ) |  | $ | 2,255   |  
|                                                                           |  |        |    |            |  |             |        |               |  |            |         |          |  |               |        |   |  |   |        |   |  |   |        |   |  |   |         |  

See accompanying Notes to Consolidated Financial
Statements.

41



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##### Table of Contents



APPLIX, INC.



CONSOLIDATED STATEMENTS OF CASH
FLOWS


Years Ended December 31, 2003, 2002 and
2001


(in thousands)


|                                                     |                                                                                               |                                                              |                                                 |      |        |        |       |        |        |        |        |         |        |        |  
|---------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------------- | ---- | ------ | ------ | ----- | ------ | ------ | ------ | ------ | ------- | ------ | ------ | -
|                                                     |                                                                                               | 2003                                                         |                                                 | 2002 |        | 2001  
|                                                     |                                                                                               |                                                              |                                                 |      |        |       
|Cash flows from operating
    activities:            |                                                                                               |                                                              |                                                 |      |        |        |       |        |        |        |        |        
|                                                     | Net loss                                                                                      |                                                              | $                                               | (10  | )      |        | $     | (5,774 | )      |        | $      | (12,323 | )     
|                                                     | Adjustments to reconcile net loss to net cash
    (used in) provided by operating activities: |                                                              |                                                 |      |        |        |       |        |        |        |        |         |       
|                                                     |                                                                                               | Depreciation                                                 |                                                 |      | 941    |        |       |        | 1,097  |        |        |         | 1,410  |       
|                                                     |                                                                                               | Amortization                                                 |                                                 |      | 1,445  |        |       |        | 1,387  |        |        |         | 1,086  |       
|                                                     |                                                                                               | Net gain on sale of CRM business                             |                                                 |      | (7,910 | )      |       |        |       |        |        |         |       |       
|                                                     |                                                                                               | Write-off of impaired investment                             |                                                 |      |       |        |       |        |       |        |        |         | 1,250  |       
|                                                     |                                                                                               | Gain from discontinued operations                            |                                                 |      |       |        |       |        |       |        |        |         | (1,081 | )     
|                                                     |                                                                                               | Net (gain) loss on sale of subsidiary                        |                                                 |      | 164    |        |       |        | (141   | )      |        |         |       |       
|                                                     |                                                                                               | Non-cash restructuring expenses                              |                                                 |      | 50     |        |       |        |       |        |        |         | 92     |       
|                                                     |                                                                                               | Write down of notes receivable                               |                                                 |      |       |        |       |        | 964    |        |        |         |       |       
|                                                     |                                                                                               | Non-cash stock compensation expense                          |                                                 |      | 290    |        |       |        |       |        |        |         | 30     |       
|                                                     |                                                                                               | Deferred income taxes                                        |                                                 |      |       |        |       |        | (131   | )      |        |         |       |       
|                                                     | Changes in operating assets and liabilities:                                                  |                                                              |                                                 |      |        |        |       |        |        |        |        |         |       
|                                                     |                                                                                               | (Increase) decrease in accounts receivable                   |                                                 |      | 1,048  |        |       |        | (1,358 | )      |        |         | 4,684  |       
|                                                     |                                                                                               | Sale of accounts receivables                                 |                                                 |      |       |        |       |        | 2,323  |        |        |         | 361    |       
|                                                     |                                                                                               | (Increase) decrease in other assets                          |                                                 |      | (909   | )      |       |        | (558   | )      |        |         | 566    |       
|                                                     |                                                                                               | (Increase) decrease in restricted cash                       |                                                 |      | 117    |        |       |        | 117    |        |        |         | (1,050 | )     
|                                                     |                                                                                               | Increase (decrease) in accounts payable                      |                                                 |      | (1,243 | )      |       |        | 182    |        |        |         | (540   | )     
|                                                     |                                                                                               | Increase (decrease) in accrued expenses                      |                                                 |      | (1,530 | )      |       |        | 2,156  |        |        |         | (1,256 | )     
|                                                     |                                                                                               | Increase (decrease) in accrued restructuring
    expenses    |                                                 |      | 3,279  |        |       |        | (695   | )      |        |         | 766    |       
|                                                     |                                                                                               | Increase in other liabilities                                |                                                 |      | 9      |        |       |        |       |        |        |         | 195    |       
|                                                     |                                                                                               | Increase (decrease) in deferred revenue                      |                                                 |      | (10    | )      |       |        | 2,247  |        |        |         | 2,389  |       
|                                                     |                                                                                               | Increase in accrued discontinued operations                  |                                                 |      |       |        |       |        |       |        |        |         | 196    |       
|                                                     |                                                                                               |                                                              |                                                 |      |        |        |       |        |        |        |        |        
|                                                     |                                                                                               |                                                              | Cash (used in) provided by operating activities |      |        | (4,269 | )     |        |        | 1,816  |        |         |        | (3,225 | )
|Cash flows from investing
    activities:            |                                                                                               |                                                              |                                                 |      |        |        |       |        |        |        |        |        
|                                                     |                                                                                               | Property and equipment expenditures                          |                                                 |      | (194   | )      |       |        | (680   | )      |        |         | (856   | )     
|                                                     |                                                                                               | Capitalized software costs                                   |                                                 |      |       |        |       |        | (1,553 | )      |        |         | (844   | )     
|                                                     |                                                                                               | Payment for disposition of subsidiary                        |                                                 |      |       |        |       |        |       |        |        |         | (100   | )     
|                                                     |                                                                                               | Net proceeds from CRM sale                                   |                                                 |      | 5,263  |        |       |        |       |        |        |         |       |       
|                                                     |                                                                                               | Net proceeds from sale of discontinued operation             |                                                 |      |       |        |       |        |       |        |        |         | 1,300  |       
|                                                     |                                                                                               | (Payments) proceeds from sale of subsidiary                  |                                                 |      | (145   | )      |       |        | 362    |        |        |         |       |       
|                                                     |                                                                                               | Payment for acquisition, net of cash acquired                |                                                 |      |       |        |       |        |       |        |        |         | (1,733 | )     
|                                                     |                                                                                               |                                                              |                                                 |      |        |        |       |        |        |        |        |        
|                                                     |                                                                                               |                                                              | Cash provided by (used in) investing activities |      |        | 4,924  |       |        |        | (1,871 | )      |         |        | (2,233 | )
|Cash flows from financing
    activities:            |                                                                                               |                                                              |                                                 |      |        |        |       |        |        |        |        |        
|                                                     |                                                                                               | Proceeds from issuance of common stock under
    stock plans |                                                 |      | 898    |        |       |        | 389    |        |        |         | 737    |       
|                                                     |                                                                                               | Payment on short-term borrowing                              |                                                 |      | (237   | )      |       |        | (368   | )      |        |         |       |       
|                                                     |                                                                                               | Proceeds from short-term borrowing                           |                                                 |      |       |        |       |        | 237    |        |        |         | 368    |       
|                                                     |                                                                                               |                                                              |                                                 |      |        |        |       |        |        |        |        |        
|                                                     |                                                                                               |                                                              | Cash provided by financing activities           |      |        | 661    |       |        |        | 258    |        |         |        | 1,105  |  
|Effect of exchange rate changes on cash              |                                                                                               |                                                              | (464                                            | )    |        |        | (42   | )      |        |        | 35     |        
|                                                     |                                                                                               |                                                              |                                                 |      |        |        |       |        |        |        |        |        
|Increase (decrease) in cash and cash
    equivalents |                                                                                               |                                                              | 852                                             |      |        |        | 161   |        |        |        | (4,318 | )      
|Cash and cash equivalents at beginning of
    period |                                                                                               |                                                              | 8,389                                           |      |        |        | 8,228 |        |        |        | 12,546 |        
|                                                     |                                                                                               |                                                              |                                                 |      |        |        |       |        |        |        |        |        
|Cash and cash equivalents at end of
    period       |                                                                                               | $                                                            | 9,241                                           |      |        | $      | 8,389 |        |        | $      | 8,228  |        
|                                                     |                                                                                               |                                                              |                                                 |      |        |        |       |        |        |        |        |        
|Supplemental disclosure of cash flow
    information |                                                                                               |                                                              |                                                 |      |        |        |       |        |        |        |        |        
|                                                     |                                                                                               | Stock issued for acquisition of Dynamic Decisions            |                                                 | $    |       |        |       | $      |       |        |        | $       | 227    |       
|                                                     |                                                                                               | Cash paid for income tax                                     |                                                 | $    | 574    |        |       | $      | 319    |        |        | $       | 311    |       

See accompanying Notes to Consolidated Financial
Statements.

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##### Table of Contents



APPLIX, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


1.     THE
COMPANY

Applix, Inc. (Applix or the
Company) is a global provider of Business
Intelligence (BI) and Business Performance Management (BPM)
solutions, focused on interactive planning, budgeting and
analytics, as well as financial reporting, which includes Applix
TM1 and Applix Integra technology and related modules, such as
Applix TM1 Web. The Companys products represent one
principal business segment, which Applix reports as its
continuing operations. Historically, the Company also provided
customer relationship management (CRM) solutions. The Company
sold certain assets relating to its CRM software solutions (the
CRM Business) in the first quarter of 2003 (See Note
11). The Companys operating results reflect the CRM
Business up through the sale of the business, which occurred on
January 21, 2003, followed by a March 17, 2003 closing
relating to the German CRM operations.

On March 30, 2001, the Company sold its
VistaSource business unit, previously reported as the Linux
Division. This unit has been reported as a discontinued
operation for all periods presented (See Note 3).

2.     SIGNIFICANT
ACCOUNTING POLICIES

Principles of
Consolidation

The consolidated financial statements include the
accounts of Applix, Inc. and all of its subsidiaries. All
significant intercompany transactions and balances have been
eliminated.

Reclassifications

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

Use of
Estimates

The preparation of financial statements and
accompanying notes in conformity with accounting principles
generally accepted in the United States of America 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 their
realizability, intangible assets, domestic and foreign income
tax liabilities, valuation of deferred tax assets, the allowance
for doubtful accounts, accrued liabilities, deferred revenue and
certain post-closing adjustments and transaction costs related
to the sale of the Companys CRM Business.

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

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

In instances where the services are deemed to be
essential to the functionality of the software, both license and
service revenues are recognized together on a percentage of
completion basis utilizing hours incurred to date as a
percentage of total estimated hours to complete the project.

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

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

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.

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 to
reasonably 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 some instances 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
Emerging Issues Task Force (EITF) 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent (EITF 99-19). When the Company
receives a net fee from the indirect channel partner to provide
second level support to the indirect channel partner, this
amount is recorded as revenue over the term of the maintenance
period at the net amount received because the Company does not
collect the fees from the end-user customer, does not have
latitude in establishing the price paid by the end-user customer
for maintenance services, and does not have the latitude to
select the supplier providing first level support. However, in
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 partners for such renewals
aggregated $705,000, $570,000, and $287,000 for the years ended
December 31, 2003, 2002, and 2001, respectively.

In December 2003, the SEC issued Staff Accounting
Bulletin (SAB) No. 104, Revenue Recognition,
which supersedes SAB No. 101, Revenue Recognition in
Financial Statements. SAB No. 104 rescinds accounting
guidance in SAB No. 101 related to multiple-element
arrangements as this guidance has been superseded as a result of
the issuance of EITF 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. The adoption of
SAB No. 104 did not have a material impact on the
Companys financial position or results of operations.

45



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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Cash and Cash
Equivalents

Cash and cash equivalents include all highly
liquid investments, including money market accounts, with a
remaining maturity of three months or less at time of purchase.
Cash and cash equivalents are carried at fair value, which
approximates their cost. Cash equivalents totaled $9,241,000 and
$8,389,000 at December 31, 2003 and 2002, respectively.
Realized and unrealized gains and losses from available-for-sale
securities were not material for the years ended
December 31, 2003 and 2002.

Restricted cash of $817,000 and $933,000 at
December 31, 2003 and 2002, respectively, represents the
required collateral on the Companys lease of its
headquarters located in Westborough, Massachusetts. Per terms of
the lease, the amount of the irrevocable standby letter of
credit will be reduced and the restrictions on the cash
equivalent will be released to the Company ratably over the term
of the lease.

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

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

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

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

The following table of qualifying accounts
provides a rollforward of the allowance for doubtful accounts
for years ended December 31, (in thousands):

|                           |  |      |       |      |  |      |       |  |  |   |       | 
|-------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                           |  | 2003 |       | 2002 |  | 2001
|                           |  |      |       |      |  |     
|Balance, beginning of year |  | $    | 2,098 |      |  | $    | 1,446 |  |  | $ | 1,397 | 
|Bad debt expense           |  |      | 15    |      |  |      | 1,198 |  |  |   | 316   | 
|Write-offs of accounts     |  |      | 1,861 |      |  |      | 546   |  |  |   | 267   | 
|                           |  |      |       |      |  |      |       |  |  |   |       | 
|Balance, end of year       |  | $    | 252   |      |  | $    | 2,098 |  |  | $ | 1,446 | 
|                           |  |      |       |      |  |      |       |  |  |   |       | 

Property and
Equipment

Property and equipment are recorded at cost.
Assets 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
financed under a capital lease are depreciated by the
straight-line method over their respective useful lives or the
lease term, whichever is shorter.

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                      |  |             |   |  |  |  |                                         |  
|--------------------- |  | ----------- | - |  |  |  | --------------------------------------- | -
|                      |  | 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 |  |  |  |                                         |  

Product
Development Costs

Product development costs are expensed as
incurred until technological feasibility has been established,
at which time such costs are capitalized until the product is
available for general release to customers. The Company
considers technological feasibility to be achieved when a
product design and working model of the software product have
been completed and the software product is ready for initial
customer testing. Capitalized software development costs are
then amortized on a product-by-product basis over the estimated
product life of between one to two years and are included in the
cost of software license revenue.

The Company evaluates the net realizable value of
capitalized software on an ongoing basis, relying on a number of
factors including demand for a product, operating results,
business plans and economic projections. In addition, the
Company considers non-financial data such as market trends,
product development cycles and changes in managements
market emphasis. The Company will continue to evaluate the net
realizable value of the capitalized software based primarily on
actual and forecasted sales and record a charge to write-down
the carrying value if factors indicate that the carrying value
will not be realizable.

There were no software development costs that
qualified for capitalization during the year ended
December 31, 2003. Amortization expense related to software
development cost was $1,195,000 (which includes $249,000 of
write-down to its net realizable value), $1,135,000, and
$712,000 for the years ended December 31, 2003, 2002 and
2001, respectively, and is included in the cost of software
license revenue.

Intangible
Goodwill and Assets

Prior to 2002, goodwill was amortized on a
straight-line basis over 6 years. The Company ceased to
record amortization expense on goodwill on January 1, 2002,
upon adoption of a new accounting standard. The Company tests
its goodwill for impairment annually or more frequently upon
occurrence of certain events or circumstances. Goodwill is
tested for impairment annually in a two-step process. First, the
Company determines if the fair value of its reporting
unit exceeds the carrying amount of the reporting unit. If
the fair value does not exceed the carrying amount, goodwill of
the reporting unit is potentially impaired, and the Company must
then measure the impairment loss by comparing the implied
fair value of the goodwill, as defined by SFAS
No. 142 Goodwill and Other Intangible Assets
(SFAS 142), to its carrying amount. The fair
value of the reporting unit is estimated using the Income
Approach, a present value technique. At September 30, 2003
and 2002, the Company evaluated its goodwill and determined that
the fair value had not decreased below the carrying value and,
accordingly, no impairment adjustments have been required to
date.

Intangible assets other than goodwill are
amortized on a straight-line basis over their estimated useful
lives, typically 6 years. Intangible assets other than
goodwill are evaluated for impairment whenever events or changes
in circumstances indicate that a carrying value of those assets
may not be recoverable based on expected undiscounted cash flows
attributable to those assets. Should such undiscounted cash
flows be less than the carrying value of the assets, an
impairment charge would be recorded to adjust the carrying value
to fair value. No impairment adjustments have been required to
date.

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As noted, prior to 2002, goodwill was amortized
as a period expense. Had the Company accounted for goodwill
prior to 2002 consistent with current accounting rules, net loss
and net loss per share would have been as follows for the year
ended December 31, 2001 (in thousands except for per share
amounts):

|                                               |  |                   |         |  
|---------------------------------------------- |  | ----------------- | ------- | -
|                                               |  | Year Ended       
|                                               |  | December 31, 2001
|                                               |  |                  
|Net loss:                                      |  | $                 | (12,323 | )
|Goodwill amortization, net of tax              |  |                   | 188     |  
|                                               |  |                   |         |  
|Adjusted net loss                              |  | $                 | (12,135 | )
|                                               |  |                   |         |  
|Loss per share, basic and diluted:             |  |                   |         |  
|As reported                                    |  | $                 | (1.04   | )
|                                               |  |                   |         |  
|Adjusted                                       |  | $                 | (1.02   | )
|                                               |  |                   |         |  
|Weighted average number of shares outstanding: |  |                   |         |  
|Basic                                          |  |                   | 11,861  |  
|Diluted                                        |  |                   | 11,861  |  

Amortization expense related to the
Companys sole intangible asset, the customer relationships
acquired in the Dynamic Decisions acquisition, totaled $250,000,
$252,000 and $186,000 during in 2003, 2002, and 2001
respectively. The estimated future annual amortization expense
for this intangible asset remaining as of December 31, 2003
is as follows:

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

Income
Taxes

Deferred tax assets and liabilities are provided
for differences between financial reporting and tax bases of
assets and liabilities and for loss and credit carryforwards 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.

For the year ended December 31, 2003, 2002,
and 2001 the Company recorded a provision for income taxes of
$764,000, $222,000 and $558,000, respectively. The year ended
December 31, 2003 includes $355,000 for United States
(federal and state) and foreign income taxes related to the
Companys sale of its CRM Business.

Additionally, during 2003, the Company evaluated
its ability to utilize its net operating loss carryforwards and
the impact of Section 382 of the United States
(U.S.) Internal Revenue Code of 1986, as amended
(Section 382) including use of such loss
carryforwards to offset its U.S. gain on the sale of U.S.
portion of its CRM Business. Section 382 provides annual
limitations to the use of net operating loss carry forwards
against future taxable income in the event of a change of
ownership. The Company has completed a full analysis of these
ownership changes and does not believe that the changes in
ownership will increase the Companys income tax expense as
a result of a limitation on its ability to use its net operating
loss carry forwards.

The Company has provided for amounts due in
various foreign tax jurisdictions. Judgment is required in
determining the Companys worldwide income tax expense
provision based upon the evaluation of the estimated forecasted
results for the year as a whole. Uncertainties may arise as a
consequence of cost

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

reimbursement arrangements among related
entities. Although management believes its estimates are
reasonable, no assurance can be given that the final tax outcome
of these matters will not be different from that which is
reflected in the Companys historical income tax provisions
and accruals. Such differences could have a material impact on
the Companys income tax provision and operating results in
the period in which such determination is made.

Net Income
(Loss) Per Share

Basic net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of
common shares outstanding during the period. Dilutive net income
(loss) is computed using the weighted average number of common
shares outstanding during the period, plus the dilutive effect,
if any, of potential common shares, which consists of stock
options.

|                                                                           |                         |                          |        |       |       |      |        |       |       |   |         |       |       |  
|-------------------------------------------------------------------------- | ----------------------- | ------------------------ | ------ | ----- | ----- | ---- | ------ | ----- | ----- | - | ------- | ----- | ----- | -
|                                                                           |                         |                         
|                                                                           |                         | Year Ended December 31, 
|                                                                           |                         |                         
|                                                                           |                         | 2003                     |        | 2002  |       | 2001
|                                                                           |                         |                          |        |       |       |     
|Numerator:                                                                 |                         |                          |        |       |       |      |        |       |       |   |         |      
|Income (loss) from continuing operations                                   |                         | $                        | 167    |       |       | $    | (5,570 | )     |       | $ | (13,404 | )    
|(Loss) gain from discontinued operations                                   |                         |                          | (177   | )     |       |      | (204   | )     |       |   | 1,081   |      
|                                                                           |                         |                          |        |       |       |      |        |       |       |   |         |      
|Net loss                                                                   |                         | $                        | (10    | )     |       | $    | (5,774 | )     |       | $ | (12,323 | )    
|                                                                           |                         |                          |        |       |       |      |        |       |       |   |         |      
|Denominator:                                                               |                         |                          |        |       |       |      |        |       |       |   |         |      
|Denominator for basic net loss per
    share  Weighted shares outstanding |                         |                          | 12,601 |       |       |      | 12,223 |       |       |   | 11,861  |      
|Diluted effect of assumed exercise of stock
    options                    |                         |                          | 596    |       |       |      |       |       |       |   |        |      
|                                                                           |                         |                          |        |       |       |      |        |       |       |   |         |      
|Denominator for diluted net income (loss)
    per share                    |                         |                          | 13,197 |       |       |      | 12,223 |       |       |   | 11,861  |      
|                                                                           |                         |                          |        |       |       |      |        |       |       |   |         |      
|Basic net income (loss) per share                                          |                         |                          |        |       |       |      |        |       |       |   |         |      
|                                                                           | Continuing operations   |                          | $      | 0.01  |       |      | $      | (0.46 | )     |   | $       | (1.13 | )    
|                                                                           | Discontinued operations |                          | $      | (0.01 | )     |      | $      | (0.02 | )     |   | $       | 0.09  |      
|                                                                           |                         |                          |        |       |       |      |        |       |       |   |         |      
|                                                                           |                         | Total net loss per share |        | $     | (0.00 | )    |        | $     | (0.47 | ) |         | $     | (1.04 | )
|                                                                           |                         |                          |        |       |       |      |        |       |       |   |         |      
|                                                                          
|Diluted net income (loss) per share                                        |                         |                          |        |       |       |      |        |       |       |   |         |      
|                                                                           | Continuing operations   |                          | $      | 0.01  |       |      | $      | (0.46 | )     |   | $       | (1.13 | )    
|                                                                           | Discontinued operations |                          | $      | (0.01 | )     |      | $      | (0.02 | )     |   | $       | 0.09  |      
|                                                                           |                         |                          |        |       |       |      |        |       |       |   |         |      
|                                                                           |                         | Total net loss per share |        | $     | (0.00 | )    |        | $     | (0.47 | ) |         | $     | (1.04 | )
|                                                                           |                         |                          |        |       |       |      |        |       |       |   |         |      

For the years ended December 31, 2003, 2002
and 2001, the Company excluded potential dilutive common stock
equivalents of 602,155, 167,007, and 142,029, respectively, from
its calculation of diluted net income (loss) per share. The
Company had an additional 1,662,705, 3,069,042 and 2,818,247 of
anti-dilutive common stock equivalents outstanding for the years
ended December 31, 2003, 2002 and 2001, respectively, which
would not have been included in the calculation of diluted net
income (loss) per share even if the Company had reported net
income, as the stock option exercise price exceeded the average
market price for the respective periods.

Foreign
Currency Translation

The Company considers the functional currency of
its foreign subsidiaries to be the local currency, and
accordingly, the financial statements of the foreign
subsidiaries are translated into U.S. dollars using exchange

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

rates in effect at the period end for assets and
liabilities and average exchange rates during each reporting
period for the results of operations. Adjustments resulting from
translation of foreign subsidiary financial statements are
reported on the balance sheet in accumulated other comprehensive
income (loss) within stockholders equity. The Company has
determined that its intercompany payables and receivables
balances with its foreign subsidiaries are short-term in nature
and as a result, the Company re-measures these balances at each
period end and records any related foreign currency gains and
losses in its consolidated statements of operations. The
short-term intercompany balances with its foreign subsidiaries
are denominated in the British pound, Euro, Australian dollar,
and Swiss franc. For the year ended December 31, 2003 and
2002 foreign exchange gains recorded in the consolidated
statements of operations totaled $945,000 and $285,000,
respectively, primarily as a result of the strengthening Euro,
British pound and Australian dollar against the U.S. dollar. For
the year ended December 31, 2001, foreign exchange gains
and losses recorded in the consolidated statements of operations
were not material.

The Company previously entered into foreign
currency forward contracts that economically hedge gains and
losses generated by the re-measurement of certain assets and
liabilities denominated in a foreign currency. These foreign
currency forward contracts were entered into in the ordinary
course of business, and accordingly, were not speculative in
nature. The Company typically hedges intercompany and receivable
balances for periods of 90 days or less. The changes in the
fair value of these undesignated hedges are recognized in the
statements of operations immediately as an offset to the changes
in fair value of the asset or liability being hedged.

The Company entered into one hedging contract in
2002 and did not have any open hedging contracts as of
December 31, 2003. For the years ended December 31, 2002
and 2001, realized and unrealized gains and losses on these
contracts were not material.

Comprehensive
Income (Loss)

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

Advertising
Expense

Advertising costs are expensed as incurred.
Advertising expense was $34,000, $85,000, and $485,000 in 2003,
2002 and 2001, respectively.

Stock-Based
Compensation

The Company periodically grants stock options for
a fixed number of shares to employees and directors with an
exercise price equal to the fair market value of the shares at
the date of the grant. The Company accounts for stock option
grants to employees and directors using the intrinsic value
method and intends to continue to do so. Under the intrinsic
value method, compensation associated with stock awards to
employees and directors is determined as the difference, if any,
between the current fair value of the underlying common stock on
the date compensation is measured and the price the employee or
director must pay to exercise the award. The measurement date
for employee awards is generally the date of grant.

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

If compensation expense had been recorded based
on the fair value of stock awards at the date of grant, the
Companys net loss would have been adjusted to the pro
forma amounts presented below (in thousands, except for share
and per share amounts):

|                                                                                                                               |  |                         |        |      |  |      |        |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                                                                                               |  |                        
|                                                                                                                               |  | Year Ended December 31,
|                                                                                                                               |  |                        
|                                                                                                                               |  | 2003                    |        | 2002 |  | 2001
|                                                                                                                               |  |                         |        |      |  |     
|Net loss, as reported                                                                                                          |  | $                       | (10    | )    |  | $    | (5,774 | ) |  | $ | (12,323 | )
|Add: Stock-based employee compensation expense
    included in reported net loss, net of related tax effects                   |  |                         | 120    |      |  |      |       |   |  |   |        |  
|Deduct: Total stock-based employee compensation
    expense determined under fair value method, net of related tax
    effects |  |                         | (2,370 | )    |  |      | (2,258 | ) |  |   | (3,426  | )
|                                                                                                                               |  |                         |        |      |  |      |        |   |  |   |         |  
|Pro forma net loss                                                                                                             |  | $                       | (2,260 | )    |  | $    | (8,032 | ) |  | $ | (15,749 | )
|                                                                                                                               |  |                         |        |      |  |      |        |   |  |   |         |  
|Net loss per share:                                                                                                            |  |                         |        |      |  |      |        |   |  |   |         |  
|Basic and diluted  as reported                                                                                                |  | $                       | (0.00  | )    |  | $    | (0.47  | ) |  | $ | (1.04   | )
|Basic and diluted  pro forma                                                                                                  |  | $                       | (0.18  | )    |  | $    | (0.66  | ) |  | $ | (1.33   | )
|                                                                                                                              
|Weighted average number of shares outstanding:                                                                                 |  |                         |        |      |  |      |        |   |  |   |         |  
|Basic                                                                                                                          |  |                         | 12,601 |      |  |      | 12,223 |   |  |   | 11,861  |  
|Diluted                                                                                                                        |  |                         | 12,601 |      |  |      | 12,223 |   |  |   | 11,861  |  

Effect of
Recent Accounting Pronouncements

In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46,
Consolidation of Variable Interest Entities
(FIN 46), which was amended by FIN 46R issued in
December 2003. This interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, addresses consolidation by business
enterprises of variable interest entities (VIEs) either:
(1) that do not have sufficient equity investment at risk
to permit the entity to finance its activities without
additional subordinated financial support, or (2) for which
the equity investors lack an essential characteristic of a
controlling financial interest. This Interpretation applies
immediately to VIEs created after January 31, 2003. It also
applies in the first fiscal year or interim period ending after
March 15, 2004, to VIEs created before February 1,
2003 in which an enterprise holds a variable interest.
FIN 46 requires disclosure of VIEs in financial statements
issued after January 31, 2003, if it is reasonably possible
that as of the transition date: (1) the company will be the
primary beneficiary of an existing VIE that will require
consolidation or, (2) the company will hold a significant
variable interest in, or have significant involvement with, an
existing VIE. The Company is currently in the process of
completing its review of the requirements of FIN 46.
However, the Company has not yet identified any entities that
require disclosure or entities that would require consolidation
under FIN 46.

In April 2003, the FASB issued FAS No. 149,
Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and
for hedging activities under FAS No. 133, Accounting
for Derivative Instruments and Hedging Activities. In
general, this Statement is effective for contracts entered into
or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption
of FAS No. 149 did not have a material impact on our
financial position or results of operations.

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

3.     DISCONTINUED
OPERATIONS

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

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

The results of operations including revenue,
operating expenses, other income and expense, and income taxes
of the VistaSource business unit was reclassified as a
discontinued operation. For the year ended December 31,
2001, the Companys VistaSource business generated revenues
of $1,666,000 and incurred a net loss of $870,000. The
Companys results of operations for the years ended
December 31, 2003 and 2002 included $177,000 and $204,000,
respectively, in expenses primarily relating to certain defense
costs incurred from a claim filed against VistaSource (See
Note 18) and legal and accounting costs associated with
winding down the VistaSource business, and the write-down of a
receivable owed to the Company by VistaSource in 2002.

4.     ACCRUED
EXPENSES

Accrued expenses at December 31, 2003 and
2002 consisted of the following (in thousands):

|                            |  |      |       |      |  |   |       | 
|--------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                            |  | 2003 |       | 2002
|                            |  |      |       |     
|Income taxes                |  | $    | 748   |      |  | $ | 437   | 
|Sales and value added taxes |  |      | 2,351 |      |  |   | 2,568 | 
|Compensation and benefits   |  |      | 2,171 |      |  |   | 4,141 | 
|Other                       |  |      | 1,387 |      |  |   | 2,346 | 
|                            |  |      |       |      |  |   |       | 
|Total                       |  | $    | 6,657 |      |  | $ | 9,492 | 
|                            |  |      |       |      |  |   |       | 

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.     INCOME
TAXES

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

|                                                                                                                       |                               |       |                            |      |      |      |        |      |        |      |         |     |         |     | 
|---------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ----- | -------------------------- | ---- | ---- | ---- | ------ | ---- | ------ | ---- | ------- | --- | ------- | --- | 
|                                                                                                                       |                               | 2003  |                            | 2002 |      | 2001
|                                                                                                                       |                               |       |                            |      |      |     
|Domestic                                                                                                               |                               | $     | (1,182                     | )    |      | $    | (6,183 | )    |        | $    | (12,515 | )  
|Foreign                                                                                                                |                               |       | 1,934                      |      |      |      | 835    |      |        |      | (331    | )  
|                                                                                                                       |                               |       |                            |      |      |      |        |      |        |      |         |    
|                                                                                                                       |                               | Total |                            | $    | (752 | )    |        | $    | (5,348 | )    |         | $   | (12,846 | )  
|                                                                                                                       |                               |       |                            |      |      |      |        |      |        |      |         |    
|The components of the income tax provision
    (benefit) from continuing operations are as follows (in
    thousands): |                               |       |                            |      |      |      |        |      |        |      |         |    
|Current:                                                                                                               |                               |       |                            |      |      |      |        |      |        |      |         |    
|                                                                                                                       | Federal and state             |       |                            | (128 | )    |      |        | 68   |        |      | $       | 77  |        
|                                                                                                                       | Foreign                       |       |                            | 892  |      |      |        | 285  |        |      |         | 481 |        
|                                                                                                                       |                               |       |                            |      |      |      |        |      |        |      |         |    
|                                                                                                                       |                               |       | Total Current              |      |      | 764  |        |      |        | 353  |         |     |         | 558 | 
|                                                                                                                       |                               |       |                            |      |      |      |        |      |        |      |         |    
|Deferred:                                                                                                              |                               |       |                            |      |      |      |        |      |        |      |         |    
|                                                                                                                       | Federal and state             |       |                            |     |      |      |        |     |        |      |         |    |        
|                                                                                                                       | Foreign                       |       |                            |     |      |      |        | (131 | )      |      |         |    |        
|                                                                                                                       | Change in valuation allowance |       |                            |     |      |      |        |     |        |      |         |    |        
|                                                                                                                       |                               |       |                            |      |      |      |        |      |        |      |         |    
|                                                                                                                       |                               |       | Total Deferred             |      |      |     |        |      |        | (131 | )       |     |         |    | 
|                                                                                                                       |                               |       |                            |      |      |      |        |      |        |      |         |    
|                                                                                                                       |                               |       | Total income tax provision |      | $    | 764  |        |      | $      | 222  |         |     | $       | 558 | 
|                                                                                                                       |                               |       |                            |      |      |      |        |      |        |      |         |    

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

|                                 |  |      |         |      |  |   |         |  
|-------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                 |  | 2003 |         | 2002
|                                 |  |      |         |     
|Net operating loss carryforwards |  | $    | 10,080  |      |  | $ | 12,041  |  
|Deferred revenue                 |  |      |        |      |  |   | 60      |  
|Accounts receivable              |  |      | 5       |      |  |   | 550     |  
|Accrued expenses                 |  |      | 1,491   |      |  |   | 448     |  
|Vacation and benefits            |  |      | 171     |      |  |   | 166     |  
|Software/fixed assets            |  |      | 137     |      |  |   | 501     |  
|Tax credit carryforwards         |  |      | 2,506   |      |  |   | 2,118   |  
|Deferred tax liability           |  |      | (207    | )    |  |   | (319    | )
|Valuation allowance              |  |      | (14,183 | )    |  |   | (15,565 | )
|                                 |  |      |         |      |  |   |         |  
|NET DEFERRED TAX ASSET           |  | $    |        |      |  | $ |        |  
|                                 |  |      |         |      |  |   |         |  

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                        |  |      |       |      |  |      |        |   |  |   |        |  
|--------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                        |  | 2003 |       | 2002 |  | 2001
|                                        |  |      |       |      |  |     
|U.S. federal statutory rate             |  | $    | (402  | )    |  | $    | (1,818 | ) |  | $ | (4,368 | )
|State and foreign tax provision, net    |  |      | (803  | )    |  |      | (368   | ) |  |   | (619   | )
|Research and experimentation tax credit |  |      |      |      |  |      | (366   | ) |  |   |       |  
|Permanent items                         |  |      | 24    |      |  |      | 16     |   |  |   | 185    |  
|Other                                   |  |      |      |      |  |      |       |   |  |   | 43     |  
|Unbenefitted losses                     |  |      | 1,945 |      |  |      | 2,758  |   |  |   | 5,317  |  
|                                        |  |      |       |      |  |      |        |   |  |   |        |  
|TAX PROVISION                           |  | $    | 764   |      |  | $    | 222    |   |  | $ | 558    |  
|                                        |  |      |       |      |  |      |        |   |  |   |        |  

The Company had net operating loss carryforwards
of approximately $29,100,000 and $29,273,000 at
December 31, 2003 and 2002, respectively. The Company also
had federal research tax credits of approximately $1,603,000 and
$1,500,000 at December 31, 2003 and 2002, respectively.
These net operating loss carryforwards and credits expire in
various amounts through 2022.

A valuation allowance is established if it is
more likely than not that all or a portion of the deferred tax
asset will not be realized. As a result of the Companys
review of its available evidence supporting the deferred tax
asset, the Company established a valuation allowance for the
full amount of the deferred tax asset due to the uncertainty of
realization. The valuation allowance increased during 2003,
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, 2003 would be allocated as follows (in
thousands):

|                                        |  |   |        | 
|--------------------------------------- |  | - | ------ | 
|Reported in the statement of operations |  | $ | 14,183 | 
|Reported in capital in excess of par    |  |   |       | 
|                                        |  |   |        | 
|                                        |  | $ | 14,183 | 
|                                        |  |   |        | 

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

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

6.     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, 2003, none of the preferred
stock was issued and outstanding.

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Common Stock
Purchase Rights

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

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

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

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

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

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##### Table of Contents



APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Date and (ii) in connection with the
issuance or sale of common stock following the Distribution Date
but prior to the Final 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

The Company has a number of stock award plans,
which provide for the grant or issuance of options, restricted
common stock, and unrestricted common stock. These plans are
administered by the compensation committee of the board of
directors, and allow for grants to employees, non-employee
directors of the Company, or to non-employees. Option grants can
be in the form of either incentive stock options or
non-qualified options. Exercise prices are set at the date of
grant and are required to be at fair value, in the case of
incentive stock options, or at the discretion of the
compensation committee, in the case of non-qualified stock
option. Awards to non-employee directors must be at no less than
the fair value of the common stock on the date of grant.

Awards to employees require approval by the Board
of Directors compensation committee. Awards generally vest in
equal installments over four to five year periods. There are
generally no performance conditions attached to employee awards,
other than continued employment by the Company.

In 2003, the Board of Directors adopted, and the
stockholders approved, the 2003 Director Equity Plan (the
2003 Director Plan). The 2003 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 (Non-Employee Directors) of
the Company or any subsidiary of the Company are eligible to be
granted awards under the Plan. A total of 300,000 shares of the
Companys common stock may be issued under the 2003
Director Plan. Any shares subject to options granted pursuant to
the 2003 Director Plan which terminate or expire unexercised
will be available for future grants under the 2003 Director
Plan. The 2003 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 2003 Director Plan, the stock
options must be granted with an exercise price of no less than
the fair market value of the stock on the date of grant.

Pursuant to the 2003 Director Plan, each
Non-Employee Director receives an automatic grant of common
stock and an option for the purchase of common stock on January
1 of each year, beginning January 1, 2004 (except that a
grant of common stock with respect to 2003 which occurred on the
date that the 2003 Director Plan was approved by the
stockholders in June 2003). Each Non-Employee Director receives
an amount of common shares as determined in accordance with the
2003 Director Plan including whether the Director serves on a
Board committee. Except for Election Grants, both the grant of
shares and options are contingent upon attendance by the
Non-Employee Director at least 75% of the meetings of the Board
of Directors and any committees on which he or she served in the
preceding year. Each new Non-Employee Director receives an
option to purchase 10,000 shares of common stock upon such
directors initial election to the Board of Directors (an
Election Grant). Each option will become exercisable
(or vest), with respect 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
2003 Director Plan.

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                          |  |               |            |                     |  |                  |            |   |  |   |      | 
|--------------------------------------------------------- |  | ------------- | ---------- | ------------------- |  | ---------------- | ---------- | - |  | - | ---- | 
|                                                          |  |               |            |                    
|                                                          |  |               |            | Options Outstanding
|                                                          |  |               |            |                    
|                                                          |  | Available for |            |                     |  | Weighted Average
|                                                          |  | Grant         |            | Number              |  | Exercise Price  
|                                                          |  |               |            |                     |  |                 
|Balance at December 31, 2000                              |  |               | 656,918    |                     |  |                  | 3,103,182  |   |  | $ | 6.97 | 
|Additional authorized                                     |  |               | 1,000,000  |                     |  |                  |           |   |  |   |     | 
|Stock issued                                              |  |               | (35,000    | )                   |  |                  |           |   |  |   |     | 
|Expiration of options under 1984 Plan and Sinper
    Plan |  |               | (7,328     | )                   |  |                  |           |   |  |   |     | 
|Options granted                                           |  |               | (1,880,301 | )                   |  |                  | 1,880,301  |   |  | $ | 1.90 | 
|Options exercised                                         |  |               |           |                     |  |                  | (66,241    | ) |  | $ | 3.06 | 
|Options cancelled                                         |  |               | 1,255,642  |                     |  |                  | (1,255,642 | ) |  | $ | 6.74 | 
|                                                          |  |               |            |                     |  |                  |            |   |  |   |      | 
|Balance at December 31, 2001                              |  |               | 989,931    |                     |  |                  | 3,661,600  |   |  | $ | 4.52 | 
|                                                          |  |               |            |                     |  |                  |            |   |  |   |      | 
|Additional authorized                                     |  |               | 150,000    |                     |  |                  |           |   |  |   |     | 
|Expiration of options under 1984 Plan and Sinper
    Plan |  |               | (534       | )                   |  |                  |           |   |  |   |     | 
|Options granted                                           |  |               | (711,000   | )                   |  |                  | 711,000    |   |  | $ | 1.53 | 
|Options exercised                                         |  |               |           |                     |  |                  | (14,214    | ) |  | $ | 1.42 | 
|Options cancelled                                         |  |               | 1,184,404  |                     |  |                  | (1,184,404 | ) |  | $ | 3.94 | 
|                                                          |  |               |            |                     |  |                  |            |   |  |   |      | 
|Balance at December 31, 2002                              |  |               | 1,612,801  |                     |  |                  | 3,173,982  |   |  | $ | 4.08 | 
|                                                          |  |               |            |                     |  |                  |            |   |  |   |      | 
|Additional authorized                                     |  |               | 300,000    |                     |  |                  |           |   |  |   |     | 
|Stock issued                                              |  |               | (44,558    | )                   |  |                  |           |   |  |   |     | 
|Expiration of options under 1984 Plan and Sinper
    Plan |  |               | (12,580    | )                   |  |                  |           |   |  |   |     | 
|Options granted                                           |  |               | (1,620,900 | )                   |  |                  | 1,620,900  |   |  | $ | 1.80 | 
|Options exercised                                         |  |               |           |                     |  |                  | (269,424   | ) |  | $ | 1.46 | 
|Options cancelled                                         |  |               | 834,418    |                     |  |                  | (834,418   | ) |  | $ | 3.31 | 
|Shares repurchased (treasury stock, at cost)              |  |               | 51,429     |                     |  |                  |           |   |  | $ |     | 
|                                                          |  |               |            |                     |  |                  |            |   |  |   |      | 
|Balance at December 31, 2003                              |  |               | 1,120,610  |                     |  |                  | 3,691,040  |   |  | $ | 3.44 | 
|                                                          |  |               |            |                     |  |                  |            |   |  |   |      | 

Information regarding options outstanding and
exercisable as December 31, 2003, under the various stock
plans is as follows:

|                |  |                     |           |                     |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 
|--------------- |  | ------------------- | --------- | ------------------- |  | ---------------- | ---- | ----------- |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |  |                     |           |                    
|                |  | Options Outstanding |           | Options Exercisable
|                |  |                     |           |                    
|                |  |                     |           | Weighted Average    |  |                  |      |            
|Range of        |  | Number              |           | Remaining           |  | Weighted Average |      | Number      |  | Weighted Average
|Exercise Prices |  | Outstanding         |           | Contractual Life    |  | Exercise Prices  |      | Exercisable |  | Exercise Prices 
|                |  |                     |           |                     |  |                  |      |             |  |                 
|$.61-$.99       |  |                     | 48,175    |                     |  |                  | 4.75 |             |  | $                | 0.77  |  |  |  | 30,175    |  |  | $ | 0.75  | 
|$1.00-$1.65     |  |                     | 1,312,814 |                     |  |                  | 5.76 |             |  | $                | 1.51  |  |  |  | 287,148   |  |  | $ | 1.46  | 
|$1.66-$2.95     |  |                     | 1,199,771 |                     |  |                  | 5.55 |             |  | $                | 2.12  |  |  |  | 424,623   |  |  | $ | 2.16  | 
|$2.96-$4.88     |  |                     | 453,585   |                     |  |                  | 1.23 |             |  | $                | 3.57  |  |  |  | 431,960   |  |  | $ | 3.57  | 
|$4.89-$9.81     |  |                     | 365,495   |                     |  |                  | 2.92 |             |  | $                | 6.01  |  |  |  | 326,940   |  |  | $ | 5.99  | 
|$9.82-$18.06    |  |                     | 311,200   |                     |  |                  | 2.93 |             |  | $                | 13.90 |  |  |  | 277,920   |  |  | $ | 13.89 | 
|                |  |                     |           |                     |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 
|                |  |                     | 3,691,040 |                     |  |                  | 4.60 |             |  | $                | 3.44  |  |  |  | 1,778,766 |  |  | $ | 4.90  | 
|                |  |                     |           |                     |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 2003, 4,811,650 shares of
common stock were reserved for future issuance under the stock
plans, which include stock options outstanding and stock options
available for future grant.

At December 31, 2002 and 2001 there were
1,576,167 and 1,512,808 exercisable options, respectively with
weighted average exercise prices of $5.21, and $5.49,
respectively.



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

Pro forma information regarding net loss and loss
per share is presented in Note 2. The fair value of the
Companys stock-based awards to employees was estimated
using the Black-Scholes options valuation 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:

|                                |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                |  | 2003 |      | 2002 |  | 2001
|                                |  |      |      |      |  |     
|Expected life (years)           |  |      | 4    |      |  |      | 4    |   |  |  | 5    |  
|Expected stock price volatility |  |      | 83.5 | %    |  |      | 97.1 | % |  |  | 96.0 | %
|Risk free interest rate         |  |      | 2.61 | %    |  |      | 3.82 | % |  |  | 4.72 | %

Using the above assumption the weighted average
grant date fair values for options granted were $ 1.03, $1.09,
and $1.42, in 2003, 2002, and 2001, respectively.




| |                             
| | ----------------------------
| | 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 either (i) the offering
commencement date or (ii) the offering termination date
(six months after commencement date), whichever is lower. On
February 26, 2001, the Board of Directors adopted, and on
May 4, 2001, the stockholders approved the Companys
Employee Stock Purchase Plan (2001 Plan), which authorized the
issuance of up to 800,000 shares of common stock and has
generally the same terms as the 1995 Plan. During 2003, 235,591
shares were issued under the 2001 Plan and in 2002, 313,366
shares were issued under the 2001 Plan. During 2001, 124,958
shares were issued under the 2001 Plan and 100,004 shares were
issued under the 1995 Plan. At December 31, 2003, 126,085
shares were available for issuance under the 2001 Plan.



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

In September 2000, the Company sold 256,002
shares of common stock to certain company executives. The
purchase of such shares were funded by loans from the Company to
the executives evidenced by full-recourse promissory notes due
and payable on July 31, 2005. Interest on the promissory
notes is calculated on the unpaid principal balance at a rate of
6% per year, compounded annually until paid in full. In the
event that the executive sells any shares prior to July 31,
2005, the net proceeds from such sale shall become immediately
due and payable without notice or demand. In the event the
executive leaves the Company, voluntarily or for cause, the loan
shall become immediately due and payable. Repayment terms were
extended to the original maturity date for several employees who
subsequently left the Company. The aggregate principal amount of
the notes totaled $1,120,000 at December 31, 2002. These
loans, which were shown as a deduction to Stockholders
Equity, are secured by the common stock purchased. Certain of
these loans are

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and have been past due for some time, and
subsequent to December 31, 2002, in connection with a
severance arrangement the Company forgave one of the loans. As a
result of the foregoing, consistent with EITF 00-23, Issues
Related to the Accounting for Stock Compensation under APB
Opinion No. 25 and FASB Interpretation 44, for accounting
purposes only the Company has characterized all of the notes as
non-recourse. In this regard, the accounting for these notes has
been treated as a repurchase of stock and the issuance of
options. During the year ended December 31, 2002, the
Company recorded a charge of $964,000 for the difference between
the amounts due on the loans, including accrued interest of
$128,000, and the fair value of the underlying stock at
December 31, 2002. The Company may incur compensation
charges if the fair value of the underlying stock appreciates
over the original purchase price, plus interest. These loans
continue to be full recourse, and the Company intends to enforce
collection of those amounts that are outstanding. As of
December 31, 2003 and 2002, there were no amounts reflected
on the Companys Consolidated Balance Sheets as owed on
these notes for accounting purposes only.

7.     EMPLOYEE
BENEFIT PLAN

The Company 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. The Company
may make discretionary contributions to the plan as determined
by the Board of Directors. Employee contributions vest
immediately. Employer contributions vest fully after two years
of employment. The Companys matching contribution to the
plan was $113,000, $178,000, and $205,000 for the years ended
December 31, 2003, 2002 and 2001, respectively.

8.     MAJOR CUSTOMER
AND GEOGRAPHIC SEGMENT INFORMATIONS

The Company and its subsidiaries are principally
engaged in the design, development, marketing and support of the
Companys business performance management and business
intelligence software products (See Note 1). The Company
generates substantially all of its revenues from the licensing
of the Companys software products and related professional
services and maintenance services. Financial information
provided to the Companys chief operating decision maker is
accompanied by disaggregated information about revenues and
expenses by geographic region for purposes of making operating
decisions and assessing each geographic regions financial
performance. As a result of the VistaSource disposition, the
Company had only one operating segment at December 31, 2003,
2002, and 2001.

A summary of the Companys operations by
geographic locations for the years ended December 31, 2003,
2002 and 2001 is as follows (in thousands):

|                                   |                                          |      |   |        |  |      |   |        |  |  |   |        | 
|---------------------------------- | ---------------------------------------- | ---- | - | ------ |  | ---- | - | ------ |  |  | - | ------ | 
|Geographic Segment Information     |                                          | 2003 |   | 2002   |  | 2001
|                                   |                                          |      |   |        |  |     
|Revenue from continuing operations |                                          |      |   |        |  |      |   |        |  |  |   |       
|                                   | United States                            |      | $ | 8,991  |  |      | $ | 15,078 |  |  | $ | 14,156 | 
|                                   | Europe                                   |      |   | 13,062 |  |      |   | 17,055 |  |  |   | 20,865 | 
|                                   | Pacific Rim                              |      |   | 5,302  |  |      |   | 4,463  |  |  |   | 4,384  | 
|                                   |                                          |      |   |        |  |      |   |        |  |  |   |       
|                                   | Total revenue from continuing operations |      | $ | 27,355 |  |      | $ | 36,596 |  |  | $ | 39,405 | 
|                                   |                                          |      |   |        |  |      |   |        |  |  |   |       
|Long-lived Assets                  |                                          |      |   |        |  |      |   |        |  |  |   |       
|                                   | United States                            |      | $ | 1,213  |  |      | $ | 1,632  |  |  | $ | 1,956  | 
|                                   | Europe                                   |      |   | 792    |  |      |   | 455    |  |  |   | 778    | 
|                                   | Pacific Rim                              |      |   | 968    |  |      |   | 975    |  |  |   | 912    | 
|                                   |                                          |      |   |        |  |      |   |        |  |  |   |       
|                                   | Total long-lived assets                  |      | $ | 2,973  |  |      | $ | 3,062  |  |  | $ | 3,646  | 
|                                   |                                          |      |   |        |  |      |   |        |  |  |   |       

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

9.     ACQUISITION

On March 31, 2001, the Company acquired all
of the outstanding capital stock of Dynamic Decisions Pty
Limited, its primary Australian reseller, to improve its market
presence and increase the Companys sales in the Pac Rim
region, for total cost of $5,867,000 consisting of maximum cash
consideration of $5,150,000, transaction costs of $490,000 and
100,000 shares of the Companys common stock, which had a
fair market value at the date of acquisition of $227,000. The
acquisition was accounted for under the purchase method of
accounting, and the purchase price was allocated based on the
estimated fair value of the assets acquired and liabilities
assumed. An intangible asset, acquired customer relationships of
$1,500,000, was recorded based on the fair value of the asset at
the time of acquisition and is being amortized on a
straight-line basis over its estimated useful life of six years.
The excess of the purchase price over the fair value of the net
assets acquired of $934,000 was recorded as goodwill. The
purchase price exceeded the fair market value of the net assets
purchased due in part to the revenues, profitability and
expected future cash flow from established customer base.

According to the terms of the share purchase
agreement, the total maximum cash consideration relating to the
purchase of Dynamic Decisions was $5,150,000 payable in 10
installments over a maximum of 30 months beginning on
July 1, 2001. Of the 10 installments, two of the
installments totaling $1,267,000 were guaranteed and paid in
2001 and accounted for as purchase price. The remaining eight
installments were contingent upon the employment of the two key
employees, who were former shareholders of Dynamic Decisions,
and therefore were being accounted for as compensation expense
within operating expenses. These eight installments were
expensed ratably on a straight-line basis over the
employees contractual employment period, which commenced
on April 1, 2001 and ended on March 31, 2003. The
amounts that are recognized as expenses and accrued were
translated into U.S. dollars from Australian dollars, resulting
in foreign currency exchange fluctuations to the Companys
financial statements. Of these contingent payments, the Company
made four cash payments totaling $2,536,000 in 2003 and four
cash payments totaling $2,153,000 in 2002.

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

|                                                  |  |           |           | 
|------------------------------------------------- |  | --------- | --------- | 
|                                                  |  | At       
|                                                  |  | March 31,
|                                                  |  | 2001     
|                                                  |  |          
|Cash, cash equivalents and short-term investments |  | $         | 25,000    | 
|Accounts receivable                               |  |           | 611,000   | 
|Prepaid and other current assets                  |  |           | 154,000   | 
|Fixed assets                                      |  |           | 16,000    | 
|Intangible customer relationships                 |  |           | 1,500,000 | 
|Goodwill                                          |  |           | 934,000   | 
|Accounts payable                                  |  |           | 433,000   | 
|Accrued expenses                                  |  |           | 60,000    | 
|Deferred maintenance                              |  |           | 300,000   | 
|Deferred tax liabilities                          |  |           | 450,000   | 

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Unaudited pro forma revenues, net loss, and net
loss per share shown below for the year ended December 2001
assumes the acquisition of Dynamic Decisions occurred on
January 1, 2001.

|                                           |  |              |         |  
|------------------------------------------ |  | ------------ | ------- | -
|                                           |  | Year Ended  
|                                           |  | December 31,
|                                           |  | 2001        
|                                           |  |             
|(In thousands, except per share amounts)   |  | (Unaudited) 
|Revenues                                   |  | $            | 31,186  |  
|Net loss                                   |  | $            | (11,972 | )
|                                           |  |              |         |  
|Total basic and diluted net loss per share |  | $            | (1.01   | )
|                                           |  |              |         |  

10.     SALE OF
SUBSIDIARY

In December 2002, the Company sold the stock of
its Dutch subsidiary, a remote sales office, and recorded a gain
from the sale of $141,000. The transaction included
substantially all of the subsidiarys assets and
liabilities and an amendment to the existing distribution
agreement between the Company and the purchaser to provide the
purchaser exclusive rights to resell the Companys CRM
products in the Netherlands. In 2003, the Company eliminated the
gain on the sale as a result of certain post-closing adjustments
and the additional accrual of transaction costs.

11.     NET GAIN FROM
SALE OF CRM BUSINESS

In the first quarter of 2003, the Company
completed the sale of the CRM Business to iET Acquisition, LLC
(iET), a wholly-owned subsidiary of Platinum Equity
Holdings, LLC for $5,750,000 in cash consideration, of which
$487,000 was paid to iET for net working capital adjustments and
$3,552,000 in net assumed liabilities. The sale excluded
approximately $2,800,000 in net accounts receivable generated
from the sale of CRM products and services.

iET paid $4,250,000 of the Purchase Price in cash
at the initial closing and paid an additional $1,500,000 in cash
on March 17, 2003 upon the completion of the closing of
certain assets of the Companys Germany subsidiary, Applix
GmbH. During the period of the initial closing and completion of
the Companys Germany subsidiary closing, Applix GmbH
continued to resell the CRM software products sold to iET, and
to provide professional services and maintenance support under a
resellers agreement between the Company and iET.

The Companys results for the twelve months
ended December 31, 2003 included CRM license revenues of
$253,000 and CRM professional services and maintenance revenues
of $999,000.

The Company has recorded a net gain before tax of
$7,910,000, which includes net cash consideration of $5,263,000
and $3,552,000 of net liabilities assumed by iET less
transaction costs of $905,000. The purchase price is subject to
certain post closing adjustments relating to the net working
capital as set forth in the Asset Purchase Agreement between the
Company and iET, dated January 21, 2003.

12.     RESTRUCTURING
EXPENSES

In 2001, 2002 and 2003, the Company adopted
several plans of restructuring aimed at reducing operating costs
company-wide, strengthening the Companys financial
position, and reallocating resources to pursue the
Companys future operating strategies.

In the second quarter of 2001, the Company
adopted a plan of restructuring aimed at reducing operating
costs company-wide. In connection with this plan,
28 non-management employees, primarily sales, marketing,
and administrative personnel, and 2 executive level employees,
were terminated. The Companys restructuring plan also
included the closure of the Companys sales office in
France. As a result of the

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

restructuring plan, the Company recorded a
restructuring charge of $512,000. The restructuring charge
consisted of $449,000 for severance costs and $63,000 for the
loss on disposal of the Companys French subsidiary, which
was sold on June 30, 2001. In connection with the sale, the
Company paid $100,000 to the purchaser, which is included in the
restructuring charge. The restructuring charge was fully paid as
of December 31, 2002.

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

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

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

In the third quarter of 2002, the Company adopted
a plan of restructuring to further reduce operating costs. The
plan included a reduction of headcount of 21 non-management and
three management employees, primarily professional services,
sales, marketing, and customer support personnel. The plan also
included the closure of one foreign office. As a result of the
restructuring plan, the Company recorded a charge of $398,000,
which is comprised of $372,000 for workforce reduction, $20,000
related termination costs, and $6,000 for office closure. During
the fourth quarter of 2002, the Company recorded an adjustment
to increase this charge by $20,000. In addition, the Company
changed its estimate of the amounts within workforce, office
closures and other contractual obligations, which did not result
in a change in the total amount of the charge. These changes
were not significant. The remaining unpaid balance of $71,000 as
of December 31, 2002 was paid in full during the first
quarter of 2003.

In the fourth quarter of 2003, the Company
adopted a plan of restructuring to further reduce operating
costs. Under this plan, the Company had ceased to use and made
the determination that it had no future use and benefit of
certain space pertaining to its Westborough headquarters
office lease. As discussed in Note 19, the Company also
commenced negotiations with its landlord to settle amounts
related to its lease in general and the abandoned space in
particular. These negotiations were completed in January 2004,
and as a result, the Company was able to estimate the cost to
exit this facility. Additionally, the Company had determined
that it would abandon support assets associated with this space,
which were removed from service shortly after the implementation
of the plan. As a result of this restructuring plan, the Company
recorded a net restructuring charge for this space of
$3,238,000, which included certain transaction costs including
professional service fees (brokerage and legal) and $50,000 in
non-cash charges relating to impaired assets.

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of the restructuring cash charges,
are detailed as follows:

|                                                        |  |              |           |  
|------------------------------------------------------- |  | ------------ | --------- | -
|                                                        |  | Balance at  
|                                                        |  | December 31,
|Cash charges                                            |  | 2003        
|                                                        |  |             
|Payment to landlord for abandoned space                 |  | $            | 3,000,000 |  
|Deferred rent obligation related to abandoned
    space |  |              | (162,000  | )
|Professional service fees                               |  |              | 400,000   |  
|                                                        |  |              |           |  
|Total restructuring                                     |  | $            | 3,238,000 |  
|                                                        |  |              |           |  

Amounts included in the 2003 restructuring were
paid in full in the first quarter of 2004.

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, which
commenced on November 1, 2001. The irrevocable standby
letter of credit is collateralized by a restricted cash deposit
of $1,050,000, which is reduced 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 was reduced
to $933,000 as of November 1, 2002 and to $817,000 as of
November 1, 2003 and will be reduced starting the first day
of the fourth lease year as follows:

|                                     |  |                  |         | 
|------------------------------------ |  | ---------------- | ------- | 
|                                     |  | Reduction Amount
|                                     |  |                 
|Fourth lease year (November 1, 2004) |  | $                | 175,001 | 
|Fifth lease year (November 1, 2005)  |  | $                | 233,330 | 
|Sixth lease year (November 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.

14.     RELATED PARTY
TRANSACTIONS

On December 29, 2003, the Company licensed
its product to a customer whose Chief Executive Officer and
President serves on the Companys Board of Directors. The
amount paid by this customer was $50,000, which also included
first years maintenance. As of December 31, 2003, no
amounts remained outstanding from the customer.

For the years ended December 31, 2003, 2002
and 2001, software license revenues and cost of software license
revenues included sales and royalty expenses incurred in
connection with a reseller agreement between the Company and
Beachware Pty Ltd (Beachware) whose owners were also
employees of the Company. During 2003, 2002 and 2001 the Company
recorded $810,000, $686,000 and $298,000, respectively, in
revenues and incurred royalty expenses of $514,000, $405,000 and
$173,000, respectively, related to Beachware product sales. As
of December 31, 2003 and 2002, royalties owed to Beachware
were $176,000, and $214,000, respectively.

In December 2003, the Company terminated the
employment of the two principal owners of Beachware, who were
former shareholders of Dynamic Decisions. The two former
employees will continue to resell the Companys product
under terms of a reseller agreement entered into with the
Company in December 2003.

15.     NON-RECOURSE
SALE OF RECEIVABLES

The Company had a Non-Recourse Accounts
Receivable Purchase Agreement (the Receivable Purchase
Agreement) with a certain bank, which allowed the Company
from time to time to sell qualifying

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. During 2003, the Company did not sell any of its accounts
receivables. The Receivable Purchase Agreement expired in
January 2004.

On or about December 31, 2002, the Company
factored certain accounts receivable to the bank pursuant to the
Receivable Purchase Agreement in the amount of $905,000. Of the
amounts transferred, the Company recognized as a sale those
account receivable balances for which there was no future
obligation to the customer in the amount of $668,000. The
Company concluded that these accounts were legally isolated, and
accordingly, these amounts were excluded from the Companys
accounts receivable balance at December 31, 2002. The loss
from the sale of the financial assets and retained interest for
cash collection were not material to the Companys results
of operations or financial position. At December 31, 2002,
$237,000 of the $905,000 transferred did not qualify as a sale
and was treated as a financing transaction and included in
accounts receivable with the proceeds from the transfer
reflected as a borrowing.

16.     EXECUTIVE
TERMINATION COSTS

On February 27, 2003, the Company entered
into a Severance Agreement with an executive of the Company.
Pursuant to this agreement, the Company has agreed to pay the
executive 15 months of salary and provide the executive
certain medical benefits during the 15-month period after his
termination. In addition, the Company forgave all outstanding
principal and interest due under a Secured Promissory Note dated
July 30, 2000 in the principal amount of $225,000, executed
pursuant to the Companys Executive Stock Loan Purchase
Program. Pursuant to the Severance Agreement, the executive
transferred to the Company 51,429 shares of the Companys
common stock, which were held by the Company in treasury as of
December 31, 2003, which was stock the executive had
purchased using the funds loaned to the executive pursuant to
such Secured Promissory Note. During the first quarter of 2003,
the Company recorded $356,000 in costs related to the
termination of employment of the executive. The severance
amounts are to be paid in 15 equal installments, and the
remaining unpaid balance as of December 31, 2003 was
$108,000.

In the second quarter of 2003, the Company
entered into Severance Agreements with two executives. Pursuant
to their agreements, the Company has agreed to pay the
executives their salary and provide the executives certain
benefits including medical during their severance period. During
the second quarter of 2003, the Company recorded $206,000 in
costs related to the termination of the executives, and $103,000
in stock-based compensation related to modifications to stock
awards to one of the executives. The severance amounts were paid
in equal installments. In the third quarter, the Company
recorded an adjustment of $37,000 for changes in the estimated
severance amounts for one of these executives. There is no
remaining unpaid balance as of December 21, 2003.

17.     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.

18.     COMMITMENTS
AND CONTINGENCIES

Contingencies

From time to time, the Company is a party to
routine litigation and proceedings in the ordinary course of
business. The Company is not aware of any pending litigation to
which the Company is or may be a party that

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Company believes could materially adversely
affect its consolidated results of operations or financial
condition.

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
(which was formerly known as VistaSource). The claim alleges a
breach of contract pertaining to software sold and implemented
by the divested business unit on behalf of the Company. The
customer is seeking repayment for the cost of the software and
related services of approximately $800,000. The claim was
dismissed by the German court on June 10, 2003 and the
decision is final.

On June 16, 2003, the Company announced that
is was the subject of an investigation by the Securities and
Exchange Commission related to the restatement of the
Companys financial statements for fiscal years 2001 and
2002. The Company is cooperating fully with the SEC in this
matter.

Indemnifications

The Company frequently has agreed to
indemnification provisions in software license agreements with
customers and in its real estate leases in the ordinary course
of its business.

With respect to software license agreements,
these indemnifications generally include provisions indemnifying
the customer against losses, expenses, and liabilities from
damages that may be awarded against the customer in the event
the Companys software is found to infringe upon a patent
or copyright of a third party. The software license agreements
generally limit the scope of and remedies for such
indemnification obligations in a variety of industry-standard
respects, including but not limited to certain geography-based
scope limitations, the right to replace or modify an infringing
product, and the right to terminate the license and refund a
portion of the original license fee within a defined period of
time from the original licensing date if a remedy is not
commercially practical. The Company believes its internal
development processes and other policies and practices limit its
exposure related to the indemnification provisions of the
software license agreements. In addition, the Company requires
its employees to sign an agreement, which assigns the rights to
its employees development work to the Company. To date,
the Company has not had to reimburse any of its customers for
any losses related to these indemnification provisions.

With respect to real estate lease agreements,
these indemnifications typically apply to claims asserted
against the landlord relating to personal injury and property
damage at the leased premises or to certain breaches of the
Companys contractual obligations. The term of these
indemnification provisions generally survive the termination of
the agreement, although the provision has the most relevance
during the contract term and for a short period of time
thereafter. The maximum potential amount of future payments that
the Company could be required to make under these
indemnification provisions is unlimited. The Company has
purchased insurance that reduces its monetary exposure for
landlord indemnifications. The Company has never paid any
amounts to defend lawsuits or settle claims related to these
indemnification provisions. Accordingly, the Company believes
the estimated fair value of these indemnification arrangements
is minimal.

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Commitments

As of December 31, 2003, the Company had
future cash commitments (see Note 19 Subsequent Events regarding
the Companys Westborough, MA headquarters lease) for
the payments pertaining to its world-wide obligations under its
non-cancelable leases. The Companys future minimum lease
payments for its operating lease payments for its office
facilities and certain equipment are:

|                             |  |                  |        | 
|---------------------------- |  | ---------------- | ------ | 
|                             |  | Operating leases
|                             |  |                 
|                             |  | (in thousands)  
|2004                         |  | $                | 2,108  | 
|2005                         |  |                  | 1,990  | 
|2006                         |  |                  | 1,906  | 
|2007                         |  |                  | 1,970  | 
|2008                         |  |                  | 1,970  | 
|2009 and after               |  |                  | 8,029  | 
|                             |  |                  |        | 
|Total minimum lease payments |  | $                | 17,973 | 
|                             |  |                  |        | 

The Company incurred $2,312,000, $2,639,000 and
$2,360,000 in rent expense for the years ended December 31,
2003, 2002 and 2001, respectively.

19.     SUBSEQUENT
EVENTS

In January 2004, the Company had entered into a
lease amendment of its original lease with its landlord for its
Westborough, MA headquarters. The amendment required the payment
of a $3,000,000 restructuring fee to the landlord, which was
paid on January 22, 2004. Per terms of the amendments, the
original lease was amended as follows: 1) a reduction in
the amount of space leased was reduced from 49,960 square feet
to 24,376 square feet, 2) a reduction in annual rental
payments from approximately $1,400,000 to $550,000, 3) a
reduction in remaining term of the lease from
9 3/4 years to 7 years, and 4) a reduction
of the amount of the required irrevocable standby letter of
credit from $817,000 to $400,000. The payment required pursuant
to the release of excess space was expensed in 2003 as part of
the restructuring charge recorded (See Note 12).

On February 3, 2004, the Board of Directors
of Company adopted, subject to stockholder approval, the 2004
Stock Incentive Plan (2004 Plan). Under the 2004
Plan, up to 1,000,000 shares of common stock (subject to
adjustment in the event of stock splits and other similar
events) may be issued pursuant to awards granted under the 2004
Plan. The 2004 Plan is intended to replace the Companys
1994 Equity Incentive Plan, which expires by its terms on
April 10, 2004.

On February 3, 2004, the Board of Directors
of the Company adopted, subject to stockholder approval, an
amendment to the 2001 Employee Stock Purchase Plan increasing
the total number of shares reserved for issuance by an
additional 500,000 shares of common stock to an aggregate of
1,300,000 shares of common stock.

On February 27, 2004, a member of the
Companys Board of Directors along with another investor,
who is related to the Board member, purchased a total 657,894
shares of common stock for approximately $3,000,000. Both the
board member and the other investor each purchased 328,947
shares of common stock. On February 27, 2004, the Company
amended its Rights Agreement (see Note 6  Common
Stock Purchase Rights). The amendment provided that the
purchasing Board member and any person or entity deemed to be
affiliated or associated with him shall not be considered an
Acquiring Person, as defined under the Rights
Agreement, unless the board member together with Affiliate
becomes the beneficial owner of 20% or more of the shares of
common stock of the Company then outstanding.

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APPLIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On March 19, 2004, the Company entered into
two credit facilities, providing for loans and other financial
accommodations, with Silicon Valley Bank (SVB). The
first facility, a domestic working capital line of credit, has
an interest rate of prime plus 1.00% and is in the aggregate
principal amount of up to the lesser of (i) $2,000,000 and
(ii) an amount based upon a percentage the Companys
qualifying domestic accounts receivable. The second facility, an
equipment line of credit, has an interest rate of prime plus
1.50% and is in the aggregate principal amount of up to
$1,000,000. The obligations of the Company to SVB are guaranteed
the Company and certain of its domestic subsidiaries and are
secured by substantially all of the assets of the Company and
such domestic subsidiaries. The facilities will expire on
March 18, 2005.

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EXHIBIT INDEX

| |    |         |  |   |  |                                                                                                                                                                                                                                                                                                                                                               
| | -- | ------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2  | .1(1)   |  |  |  | Asset Purchase Agreement, dated January 21,
    2003, by and between iET Acquisition, LLC and the Registrant.                                                                                                                                                                                                                                                 
| | 3  | .1(2)   |  |  |  | Restated Articles of Organization.                                                                                                                                                                                                                                                                                                                            
| | 3  | .2(2)   |  |  |  | By-laws.                                                                                                                                                                                                                                                                                                                                                      
| | 4  | .1(3)   |  |  |  | Form of Rights Agreement, dated as of
    September 18, 2000, between the Registrant and American
    Stock Transfer & Trust Company, which includes as Exhibit A
    the terms of the Series A Junior Participating Preferred
    Stock, as Exhibit B the Form of Rights Certificate, and as
    Exhibit C the Summary of Rights to Purchase Preferred Stock.
| | 4  | .2(13)  |  |  |  | First Amendment to Form of Rights Agreement,
    dated February 27, 2004, between the Registrant and
    American Stock Transfer Company.                                                                                                                                                                                                                     
| | 10 | .1(4)  |  |  |  | Applix, Inc. 1994 Equity Incentive Plan, as
    amended.                                                                                                                                                                                                                                                                                                      
| | 10 | .2(2)  |  |  |  | Applix, Inc. 1984 Stock Option Plan.                                                                                                                                                                                                                                                                                                                          
| | 10 | .3(5)  |  |  |  | Applix, Inc. 2000 Director Stock Option Plan, as
    amended.                                                                                                                                                                                                                                                                                                 
| | 10 | .4(6)   |  |  |  | Applix, Inc. 2001 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                                               
| | 10 | .5(7)   |  |  |  | Single Tenant Commercial Lease by and between
    Westborough Land Realty Trust and the Registrant, dated
    January 23, 2001.                                                                                                                                                                                                                               
| | 10 | .6      |  |  |  | Letter of Intent Single Tenant Commercial Lease
    by and between Westborough Land Realty Trust and the Registrant,
    dated December 12, 2003.                                                                                                                                                                                                             
| | 10 | .7      |  |  |  | First Amendment of Single Tenant Commercial Lease
    by and Between Westborough Land Realty Trust and the Registrant
    dated December 31, 2003.                                                                                                                                                                                                            
| | 10 | .8      |  |  |  | Second Amendment of Single Tenant Commercial
    Lease by and Between Westborough Land Realty Trust and the
    Registrant dated January 22, 2004.                                                                                                                                                                                                            
| | 10 | .9*    |  |  |  | Severance Agreement, dated February 27,
    2003, between the Registrant and Alan Goldsworthy.                                                                                                                                                                                                                                                                
| | 10 | .10(6) |  |  |  | Executive Stock Option Acceleration Agreement
    between the Registrant and Craig Cervo, dated June 9, 2000.                                                                                                                                                                                                                                                 
| | 10 | .16(11) |  |  |  | Borrower Agreement by the Registrant, Applix (UK)
    Limited, Applix Australia Pty, Ltd., Veriteam, Ltd. in favor of
    the Export-Import Bank and Silicon Valley Bank.                                                                                                                                                                                     
| | 10 | .17(11) |  |  |  | Loan and Security Agreement, dated
    December 5, 2001 between the Registrant and Silicon Valley
    Bank.                                                                                                                                                                                                                                                   
| | 10 | .18(11) |  |  |  | Non-Recourse Receivables Purchase Agreement dated
    December 31, 2001, between the Registrant and Silicon
    Valley Bank.                                                                                                                                                                                                                                  
| | 10 | .19     |  |  |  | Purchase Agreement by and between Brad Fire and
    the Registrant, dated February 27, 2004.                                                                                                                                                                                                                                                                  
| | 10 | .20     |  |  |  | Purchase Agreement by and between Jeffrey A.
    Dryer and the Registrant, dated February 27, 2004.                                                                                                                                                                                                                                                           
| | 10 | .21     |  |  |  | Loan and Security Agreement, dated March 19,
    2004 between the Registrant and Silicon Valley Bank.                                                                                                                                                                                                                                                         
| | 10 | .22(12) |  |  |  | Applix, Inc. 2003 Director Equity Plan.                                                                                                                                                                                                                                                                                                                       
| | 21 | .1      |  |  |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                               
| | 23 | .1      |  |  |  | Consent of Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                             
| | 23 | .2      |  |  |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                                                                                                 
| | 31 | .1      |  |  |  | Certification Pursuant to Rule 13a-14(a) and
    15d-14(a) of the Exchange Act, as Adopted Pursuant to section
    302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).                                                                                                                                                                           
| | 31 | .2      |  |  |  | Certification Pursuant to Rule 13a-14(a) and
    15d-14(a) of the Exchange Act, as Adopted Pursuant to section
    302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).                                                                                                                                                                           
| | 32 | .1      |  |  |  | Certification Pursuant to 18 U.S.C. Section 1350
    (Chief Executive Officer).                                                                                                                                                                                                                                                                               
| | 32 | .2      |  |  |  | Certification Pursuant to 18 U.S.C. Section 1350
    (Chief Financial Officer).                                                                                                                                                                                                                                                                               

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---



| |    |                                                                                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Incorporated by reference from the
    Registrants Current Report on Form 8-K, as filed with
    the Commission on February 5, 2003.                                                                                
|
| | 2. | Incorporated by reference from the
    Registrants Registration Statement on Form S-1 (File
    no. 33-85688).                                                                                                      
|
| | 3. | Incorporated by reference to the
    Registrants Registration Statement on Form 8-A dated
    September 20, 2000.                                                                                                   
|
| | 4. | Incorporated by reference to the
    Registrants Proxy Statement on Schedule 14A, filed
    with the Commission on April 3, 2001.                                                                                   
|
| | 5. | Incorporated by reference to the
    Registrants Report on Form 10-Q for the fiscal
    quarter ended June 30, 2002, as filed with the Commission
    on August 14, 2002.                                           
|
| | 6. | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    fiscal quarter ended June 30, 2001, as filed with the
    Commission on August 13, 2001.                                 
|
| | 7. | Incorporated by reference to the
    Registrants Report on Form 10-K for the fiscal year
    ended December 31, 2000, as originally filed with the
    Commission on April 2, 2001 and amended on June 15,
    2001.
|
| | 8. | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    fiscal quarter ended September 30, 2001, as filed with the
    Commission on November 14, 2001.                          
|
| | 9. | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the
    fiscal quarter ended March 31, 2002, as filed with the
    Commission on May 15, 2002.                                   



|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. | Incorporated by reference to the
    Registrants Quarterly Report on Form 10-Q for the fiscal
    quarter ended September 30, 2000, as filed with the
    Commission on November 14, 2000.
|   
|11. | Incorporated by reference to the
    Registrants Report on Form 10-K for the fiscal year
    ended December 31, 2001, as originally filed with the
    Commission on April 1, 2002.       
|   
|12. | Incorporated by reference to the
    Registrants Definitive Proxy Statement filed with the
    Commission on April 30, 2003.                                                              
|   
|13. | Incorporated by reference to the
    Registrants Current Report on Form 8-K/A as filed
    with the Commission on March 4, 2004.                                                          



| |   |                  
| | - | -----------------
| | * | Previously Filed.



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

69