##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 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
Number)
 289 Turnpike Road, Westborough, Massachusetts 01581
(Address of principal executive offices)
 (508) 870-0300
(Registrants telephone number)
 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 þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
 Large accelerated filer o Accelerated filer o Non-accelerated filer þ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Securities Exchange Act of 1934). Yes o No þ
 As of November 1, 2006, the Registrant had 15,621,071 outstanding shares of common stock.




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##### 



APPLIX, INC.
 Form 10-Q
 For the Quarterly Period Ended September 30, 2006
  
 Table of Contents
 PageNo.Part I  Financial InformationItem 1. Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    22Part II  Other InformationItem 1A. Risk Factors
    
    
    22Item 6. Exhibits
    
    
    27Signature
    
    
    28Ex-31.1 Certification of CEOEx-31.2 Certification of CFOEx-32.1 Certification of CEO pursuant to Section 906Ex-32.2 Certification of CFO pursuant to Section 906
    2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Applix, Inc.
 
 Condensed Consolidated Balance Sheets
(In thousands, except share and par value amounts)
 September 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    23,106
    
    
    $
    20,740Short-term investments
    
    
    4,082
    
    
    
    4,198Accounts receivable, less allowance for doubtful accounts of $239 and $231, respectively
    
    
    10,334
    
    
    
    8,066Other current assets
    
    
    1,721
    
    
    
    1,295Deferred tax assets
    
    
    229
    
    
    
    164Total current assets
    
    
    39,472
    
    
    
    34,463Restricted cash
    
    
    400
    
    
    
    500Property and equipment, net
    
    
    1,330
    
    
    
    953Other assets
    
    
    648
    
    
    
    712Intangible assets, net of accumulated amortization of $1,599 and $1,188, respectively
    
    
    5,731
    
    
    
    312Goodwill
    
    
    13,367
    
    
    
    1,158TOTAL ASSETS
    
    $
    60,948
    
    
    $
    38,098LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,533
    
    
    $
    1,504Accrued expenses
    
    
    7,888
    
    
    
    5,460Accrued restructuring expenses, current portion
    
    
    48
    
    
    
    44Current portion of debt
    
    
    2,167
    
    
    
    Deferred revenues
    
    
    11,110
    
    
    
    9,143Total current liabilities
    
    
    23,746
    
    
    
    16,151Accrued restructuring expenses, long-term portion
    
    
    167
    
    
    
    186Long-term debt
    
    
    4,333
    
    
    
    Other long-term liabilities
    
    
    1,915
    
    
    
    133Total liabilities
    
    
    30,161
    
    
    
    16,470Commitments and contingencies (Note 9)Stockholders equity:Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding
Common stock, $0.0025 par value; 30,000,000 shares authorized; 15,604,406 and 14,923,894
shares issued and outstanding, respectively
    
    
    39
    
    
    
    37Additional paid-in capital
    
    
    62,548
    
    
    
    57,178Accumulated deficit
    
    
    (30,364
    )
    
    
    (33,935
    )Accumulated other comprehensive loss
    
    
    (1,436
    )
    
    
    (1,652
    )Total stockholders equity
    
    
    30,787
    
    
    
    21,628TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    60,948
    
    
    $
    38,098
  3




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##### Table of Contents



Applix, Inc.
 
 Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Software license
    
    $
    7,857
    
    
    $
    4,373
    
    
    $
    20,476
    
    
    $
    12,846Professional services and maintenance
    
    
    5,968
    
    
    
    4,441
    
    
    
    15,662
    
    
    
    13,048Total revenues
    
    
    13,825
    
    
    
    8,814
    
    
    
    36,138
    
    
    
    25,894Cost of revenues:Software license
    
    
    71
    
    
    
    5
    
    
    
    246
    
    
    
    61Professional services and maintenance
    
    
    1,231
    
    
    
    993
    
    
    
    3,396
    
    
    
    2,939Amortization of an acquired intangible asset
    
    
    108
    
    
    
    
    
    
    
    108
    
    
    
    Total cost of revenues
    
    
    1,410
    
    
    
    998
    
    
    
    3,750
    
    
    
    3,000Gross margin
    
    
    12,415
    
    
    
    7,816
    
    
    
    32,388
    
    
    
    22,894Operating expenses:Sales and marketing
    
    
    6,577
    
    
    
    3,695
    
    
    
    16,857
    
    
    
    11,005Product development
    
    
    1,976
    
    
    
    1,308
    
    
    
    5,283
    
    
    
    3,753General and administrative
    
    
    2,306
    
    
    
    1,101
    
    
    
    6,235
    
    
    
    3,868Amortization of acquired intangible assets
    
    
    179
    
    
    
    63
    
    
    
    304
    
    
    
    188Total operating expenses
    
    
    11,038
    
    
    
    6,167
    
    
    
    28,679
    
    
    
    18,814Operating income
    
    
    1,377
    
    
    
    1,649
    
    
    
    3,709
    
    
    
    4,080Non-operating income (expense):Interest income
    
    
    237
    
    
    
    159
    
    
    
    742
    
    
    
    376Interest expense
    
    
    (178
    )
    
    
    (14
    )
    
    
    (230
    )
    
    
    (42
    )Other expense, net
    
    
    (59
    )
    
    
    (61
    )
    
    
    (37
    )
    
    
    (156
    )Income before income taxes
    
    
    1,377
    
    
    
    1,733
    
    
    
    4,184
    
    
    
    4,258Provision (benefit) for income taxes
    
    
    204
    
    
    
    (240
    )
    
    
    539
    
    
    
    (74
    )Income from continuing operations
    
    
    1,173
    
    
    
    1,973
    
    
    
    3,645
    
    
    
    4,332Discontinued operations:Loss from discontinued operations
    
    
    (26
    )
    
    
    (20
    )
    
    
    (74
    )
    
    
    (70
    )Net income
    
    $
    1,147
    
    
    $
    1,953
    
    
    $
    3,571
    
    
    $
    4,262Net income (loss) per share, basic and diluted:Continuing operations, basic
    
    $
    0.08
    
    
    $
    0.13
    
    
    $
    0.24
    
    
    $
    0.30Continuing operations, diluted
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    0.22
    
    
    $
    0.26Discontinued operations, basic and diluted
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )Net income per share, basic
    
    $
    0.07
    
    
    $
    0.13
    
    
    $
    0.23
    
    
    $
    0.29Net income per share, diluted
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    0.21
    
    
    $
    0.26Weighted average number of shares outstanding:Basic
    
    
    15,563
    
    
    
    14,744
    
    
    
    15,256
    
    
    
    14,610Diluted
    
    
    17,073
    
    
    
    16,534
    
    
    
    16,748
    
    
    
    16,370
  4




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Applix, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 Nine Months EndedSeptember 30,2006
    
    
    2005(in thousands)Cash flows from operating activities:Net income
    
    $
    3,571
    
    
    $
    4,262Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation
    
    
    413
    
    
    
    228Amortization
    
    
    412
    
    
    
    188Stock-based compensation expense
    
    
    1,639
    
    
    
    45Deferred income taxes
    
    
    95
    
    
    
    Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (449
    )
    
    
    1,586Increase in prepaid and other current assets
    
    
    (173
    )
    
    
    (71
    )Decrease (increase) in other assets
    
    
    151
    
    
    
    (5
    )Increase in accounts payable
    
    
    378
    
    
    
    197Increase
(decrease) in accrued expenses
    
    
    594
    
    
    
    (458
    )Decrease in accrued restructuring expenses
    
    
    (35
    )
    
    
    (125
    )Decrease in other liabilities
    
    
    (28
    )
    
    
    (80
    )Increase in deferred revenues
    
    
    431
    
    
    
    154Cash provided by operating activities
    
    
    6,999
    
    
    
    5,921Cash flows from investing activities:Acquisition, net of cash acquired
    
    
    (12,246
    )
    
    
    Property and equipment expenditures
    
    
    (510
    )
    
    
    (339
    )Decrease (increase) in restricted cash
    
    
    100
    
    
    
    (100
    )Maturities of short-term investments
    
    
    7,730
    
    
    
    3,950Purchases of short-term investments
    
    
    (7,615
    )
    
    
    (8,650
    )Cash used in investing activities
    
    
    (12,541
    )
    
    
    (5,139
    )Cash flows from financing activities:Proceeds from issuance of common stock under stock plans
    
    
    1,191
    
    
    
    1,425Proceeds from long-term debt, net of issuance costs
    
    
    6,451
    
    
    
    Proceeds from notes receivable
    
    
    
    
    
    
    892Cash provided by financing activities
    
    
    7,642
    
    
    
    2,317Effect of exchange rate changes on cash
    
    
    266
    
    
    
    (323
    )Increase in cash and cash equivalents
    
    
    2,366
    
    
    
    2,776Cash and cash equivalents at beginning of period
    
    
    20,740
    
    
    
    15,924Cash and cash equivalents at end of period
    
    $
    23,106
    
    
    $
    18,700Supplemental disclosure of cash flow informationCash paid for income taxes
    
    $
    332
    
    
    $
    325Cash paid for interest
    
    $
    185
    
    
    $
    8Supplemental disclosure of non-cash financing activityIn June 2006, the Company issued 330,252 shares of common stock valued at
approximately $2.5 million in connection with the acquisition of Temtec
International B.V. (Note 3).
  5




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APPLIX, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. The Company
  2. Summary of Significant Accounting Policies
 Basis of Presentation
  Use of Estimates
  Goodwill
  New Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 6




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3. Acquisition
  Cash
    
    $
    11,455Common stock (330,252 shares)
    
    
    2,538Direct acquisition costs
    
    
    1,273Total
    
    $
    15,266
      AtJune 15,2006Cash and cash equivalents
    
    $
    317Accounts receivable
    
    
    1,440Prepaid and other current assets
    
    
    243Deferred tax assets
    
    
    191Property and equipment
    
    
    175Accounts payable
    
    
    (536
    )Accrued expenses
    
    
    (1,026
    )Deferred revenue
    
    
    (1,196
    )Assumed Temtec payroll-related liability
    
    
    (545
    )Deferred tax liabilities
    
    
    (1,836
    )Amortizable intangible assets:Existing technology
    
    
    1,850Customer relationships
    
    
    3,980Total amortizable intangible assets
    
    
    5,830Goodwill
    
    
    12,209Total purchase price
    
    $
    15,266
 7




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(In thousands)Remainder of 2006
    
    $
    1922007
    
    
    7682008
    
    
    7682009
    
    
    7682010
    
    
    7682011
    
    
    568
 
  8




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##### Table of Contents



Three months
    
    
    Three months
    
    
    Nine months
    
    
    Nine monthsended
    
    
    ended
    
    
    ended
    
    
    ended(In thousands, except per share amounts)
    
    September 30, 2006
    
    
    September 30, 2005
    
    
    September 30, 2006
    
    
    September 30, 2005Revenues
    
    $
    13,825
    
    
    $
    10,357
    
    
    $
    38,821
    
    
    $
    30,240Net income
    
    $
    1,147
    
    
    $
    1,524
    
    
    $
    2,875
    
    
    $
    3,097Net income per share, basic
    
    $
    0.07
    
    
    $
    0.10
    
    
    $
    0.19
    
    
    $
    0.21Net income per share, diluted
    
    $
    0.07
    
    
    $
    0.09
    
    
    $
    0.17
    
    
    $
    0.19
 4. Long-term Debt and Credit Facility
   (In thousands)2006
    
    $
    5412007
    
    
    2,1672008
    
    
    2,1672009
    
    
    1,625Total
    
    $
    6,500
 5. Stock-based Compensation
 Share-Based Payment Accounting for Stock Issued to Employees,
  i.e. Accounting for Stock-Based Compensation,
 9




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2006
    
    
    2006Cost of revenues
    
    $
    17
    
    
    $
    52Sales and marketing
    
    
    225
    
    
    
    594Product development
    
    
    166
    
    
    
    428General and administrative
    
    
    186
    
    
    
    565Total
    
    $
    594
    
    
    $
    1,639
         10




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##### Table of Contents



AverageNumber
    
    Exercise PriceOptions outstanding at January 1, 2006
    
    
    3,467,812
    
    
    $
    3.46Options granted
    
    
    784,000
    
    
    $
    6.39Options exercised
    
    
    (130,784
    )
    
    $
    2.65Options cancelled
    
    
    (65,713
    )
    
    $
    7.95Options outstanding at March 31, 2006
    
    
    4,055,315
    
    
    $
    3.98Options granted
    
    
    110,000
    
    
    $
    7.59Options exercised
    
    
    (83,890
    )
    
    $
    2.30Options cancelled
    
    
    (15,463
    )
    
    $
    5.08Options outstanding at June 30, 2006
    
    
    4,065,962
    
    
    $
    4.11Options granted
    
    
    29,000
    
    
    $
    7.78Options exercised
    
    
    (52,565
    )
    
    $
    3.50Options cancelled
    
    
    (13,439
    )
    
    $
    4.86Options outstanding at September 30, 2006
    
    
    4,028,958
    
    
    $
    4.14Options exercisable at September 30, 2006
    
    
    2,233,296
    
    
    $
    3.14
    Stock Option
    
    PurchasePlans
    
    PlanExpected life (years)
    
    
    4.6
    
    
    
    .5Expected stock price volatility
    
    
    54.9
    %
    
    
    60.9
    %Risk free interest rate
    
    
    4.91
    %
    
    
    5.18
    %
 Expected Term,
   11




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Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2005
    
    
    September 30, 2005Net income as reported
    
    $
    1,953
    
    
    $
    4,262Add: Total stock-based employee compensation expense included in reported net income
    
    
    15
    
    
    
    45Deduct: Total stock-based employee compensation expense not included in reported
net income, determined under fair value based method for all awards
    
    
    (419
    )
    
    
    (1,235
    )Pro forma net income
    
    $
    1,549
    
    
    $
    3,072Net income per share:Basic  as reported
    
    $
    0.13
    
    
    $
    0.29Diluted  as reported
    
    $
    0.12
    
    
    $
    0.26Basic  pro forma
    
    $
    0.11
    
    
    $
    0.21Diluted  pro forma
    
    $
    0.10
    
    
    $
    0.19Weighted average number of shares outstanding:Basic
    
    
    14,744
    
    
    
    14,610Diluted
    
    
    16,044
    
    
    
    15,832
  2005Expected life (years)
    
    
    4Expected stock price volatility
    
    
    86.1
    %Risk free interest rate
    
    
    4.02
    %
 6. Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands, except per share data)Numerator:Income from continuing operations
    
    $
    1,173
    
    
    $
    1,973
    
    
    $
    3,645
    
    
    $
    4,332Loss from discontinued operations
    
    
    (26
    )
    
    
    (20
    )
    
    
    (74
    )
    
    
    (70
    )Net income
    
    $
    1,147
    
    
    $
    1,953
    
    
    $
    3,571
    
    
    $
    4,262Denominator:Denominator for basic net income per share 
Weighted shares outstanding
    
    
    15,563
    
    
    
    14,744
    
    
    
    15,256
    
    
    
    14,610Dilutive effect of assumed exercise of stock options
    
    
    1,510
    
    
    
    1,790
    
    
    
    1,492
    
    
    
    1,760Denominator for diluted net income (loss) per share
    
    
    17,073
    
    
    
    16,534
    
    
    
    16,748
    
    
    
    16,370Basic net income (loss) per shareContinuing operations
    
    $
    0.08
    
    
    $
    0.13
    
    
    $
    0.24
    
    
    $
    0.30Discontinued operations
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )Total net income per share
    
    $
    0.07
    
    
    $
    0.13
    
    
    $
    0.23
    
    
    $
    0.29Diluted net income (loss) per shareContinuing operations
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    0.22
    
    
    $
    0.26Discontinued operations
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )Total net income per share
    
    $
    0.07
    
    
    $
    0.12
    
    
    $
    0.21
    
    
    $
    0.26
  12




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7. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)
    
    
    (In thousands)Net income
    
    $
    1,147
    
    
    $
    1,953
    
    
    $
    3,571
    
    
    $
    4,262Other comprehensive income (loss) items:Foreign currency translation adjustments
    
    
    (5
    )
    
    
    (52
    )
    
    
    216
    
    
    
    (303
    )Unrealized loss on short-term investments
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    (1
    )Other comprehensive income (loss)
    
    
    (3
    )
    
    
    (51
    )
    
    
    216
    
    
    
    (304
    )Total comprehensive income
    
    $
    1,144
    
    
    $
    1,902
    
    
    $
    3,787
    
    
    $
    3,958
 8. Income Taxes
   9. Commitments and Contingencies
 Contingencies
    13




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10. Restructuring Expenses
   ForeignBalance at
    
    
    
    
    
    
    
    
    
    
    Currency
    
    
    Balance atDecember 31,
    
    
    Restructuring
    
    
    
    
    
    
    Translation
    
    
    September 30,2005
    
    
    Expenses
    
    
    Payments
    
    
    Adjustments
    
    
    2006Facility exit costs
    
    $
    230,000
    
    
    
    
    
    
    $
    (35,000
    )
    
    $
    20,000
    
    
    $
    215,000Total
    
    $
    230,000
    
    
    
    
    
    
    $
    (35,000
    )
    
    $
    20,000
    
    
    $
    215,000
 11. Discontinued Operations
  12. Related Party Transaction
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW OF THE COMPANYS OPERATIONS
    CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 14




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##### Table of Contents




    
    Stock-based Compensation
    
    Revenue Recognition
    
    Allowance for Doubtful Accounts
    
    Goodwill and Other Intangible Assets and Related Impairment
    
    Restructuring
    
    Income Taxes
  15




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##### Table of Contents



RESULTS OF OPERATIONS
 Three and Nine Months Ended September 30, 2006 and 2005
 Revenues
 (In thousands, except percentages)Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percentof
    
    
    
    
    
    
    of
    
    
    
    
    
    
    of
    
    
    
    
    
    
    of2006
    
    
    Revenue
    
    
    2005
    
    
    Revenue
    
    
    2006
    
    
    Revenue
    
    
    2005
    
    
    RevenueSoftware License Revenues
    
    $
    7,857
    
    
    
    57
    %
    
    $
    4,373
    
    
    
    50
    %
    
    $
    20,476
    
    
    
    57
    %
    
    $
    12,846
    
    
    
    50
    %Professional Services Revenues
    
    
    633
    
    
    
    4
    %
    
    
    513
    
    
    
    6
    %
    
    
    1,656
    
    
    
    4
    %
    
    
    1,523
    
    
    
    6
    %Maintenance Revenues
    
    
    5,335
    
    
    
    39
    %
    
    
    3,928
    
    
    
    44
    %
    
    
    14,006
    
    
    
    39
    %
    
    
    11,525
    
    
    
    44
    %Total Professional Services and
Maintenance Revenues
    
    
    5,968
    
    
    
    43
    %
    
    
    4,441
    
    
    
    50
    %
    
    
    15,662
    
    
    
    43
    %
    
    
    13,048
    
    
    
    50
    %Total Revenues
    
    $
    13,825
    
    
    
    100
    %
    
    $
    8,814
    
    
    
    100
    %
    
    $
    36,138
    
    
    
    100
    %
    
    $
    25,894
    
    
    
    100
    %
  Software License Revenues
    Professional Services and Maintenance
  16




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##### Table of Contents



Cost of Revenues
 (In thousands, except percentages)Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    2005Cost of Software License Revenues
    
    $
    71
    
    
    
    
    
    
    $
    5
    
    
    
    
    
    
    $
    246
    
    
    
    
    
    
    $
    61Cost of Professional Services
Revenues and Maintenance Revenues:Cost of Professional Services
Revenues
    
    
    557
    
    
    
    
    
    
    
    424
    
    
    
    
    
    
    
    1,442
    
    
    
    
    
    
    
    1,213Cost of Maintenance Revenues
    
    
    674
    
    
    
    
    
    
    
    569
    
    
    
    
    
    
    
    1,954
    
    
    
    
    
    
    
    1,726Total
    
    
    1,231
    
    
    
    
    
    
    
    993
    
    
    
    
    
    
    
    3,396
    
    
    
    
    
    
    
    2,939Amortization of an Acquired
Intangible Asset
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    Total Cost of Revenues
    
    $
    1,410
    
    
    
    
    
    
    $
    998
    
    
    
    
    
    
    $
    3,750
    
    
    
    
    
    
    $
    3,000Gross Margin:
    
    
    
    
    
    
    (A
    )
    
    
    
    
    
    
    (A
    )
    
    
    
    
    
    
    (A
    )
    
    
    
    
    
    
    (A
    )Software License
    
    $
    7,786
    
    
    
    99
    %
    
    $
    4,368
    
    
    
    100
    %
    
    $
    20,230
    
    
    
    99
    %
    
    $
    12,785
    
    
    
    100
    %Professional Services and Maintenance:Professional Services
    
    
    76
    
    
    
    12
    %
    
    
    89
    
    
    
    17
    %
    
    
    214
    
    
    
    13
    %
    
    
    310
    
    
    
    20
    %Maintenance
    
    
    4,661
    
    
    
    87
    %
    
    
    3,359
    
    
    
    86
    %
    
    
    12,052
    
    
    
    86
    %
    
    
    9,799
    
    
    
    85
    %Total
    
    
    4,737
    
    
    
    79
    %
    
    
    3,448
    
    
    
    78
    %
    
    
    12,266
    
    
    
    78
    %
    
    
    10,109
    
    
    
    77
    %Total Gross Margin
    
    $
    12,415
    
    
    
    90
    %
    
    $
    7,816
    
    
    
    89
    %
    
    $
    32,388
    
    
    
    90
    %
    
    $
    22,894
    
    
    
    88
    %
 
 (A)
    
    Gross margins calculated as a percentage of related revenues. Cost of Software License Revenues
  Cost of Professional Services and Maintenance Revenues
  Amortization of an Acquired Intangible Asset
 17




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Operating Expenses
 (In thousands, except percentages)Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Percent of

    
    
    
    
    
    Percent of

    
    
    
    
    
    Percent of

    
    
    
    
    
    Percent of2006
    
    
    Revenues

    
    2005
    
    
    Revenues

    
    2006
    
    
    Revenues

    
    2005
    
    
    RevenuesSales and marketing
    
    $
    6,577
    
    
    
    48
    %
    
    $
    3,695
    
    
    
    42
    %
    
    $
    16,857
    
    
    
    47
    %
    
    $
    11,005
    
    
    
    43
    %Product development
    
    
    1,976
    
    
    
    14
    %
    
    
    1,308
    
    
    
    15
    %
    
    
    5,283
    
    
    
    15
    %
    
    
    3,753
    
    
    
    14
    %General and administrative
    
    
    2,306
    
    
    
    17
    %
    
    
    1,101
    
    
    
    12
    %
    
    
    6,235
    
    
    
    17
    %
    
    
    3,868
    
    
    
    15
    %Amortization of acquired
intangible assets
    
    
    179
    
    
    
    1
    %
    
    
    63
    
    
    
    1
    %
    
    
    304
    
    
    
    1
    %
    
    
    188
    
    
    
    1
    %Total operating expenses
    
    $
    11,038
    
    
    
    80
    %
    
    $
    6,167
    
    
    
    70
    %
    
    $
    28,679
    
    
    
    79
    %
    
    $
    18,814
    
    
    
    73
    %
 Sales and Marketing Expenses
  Product Development Expenses
  General and Administrative Expenses
  18




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##### Table of Contents



Amortization of Acquired Intangible Assets
   Non-operating Income (Expense)
 (In thousands, except percentages)Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of2006
    
    
    Revenues
    
    
    2005
    
    
    Revenues
    
    
    2006
    
    
    Revenues
    
    
    2005
    
    
    RevenuesInterest income
    
    $
    237
    
    
    
    2
    %
    
    $
    159
    
    
    
    2
    %
    
    $
    742
    
    
    
    2
    %
    
    $
    376
    
    
    
    2
    %Interest expense
    
    
    (178
    )
    
    
    (1
    %)
    
    
    (14
    )
    
    
    
    %
    
    
    (230
    )
    
    
    (1
    %)
    
    
    (42
    )
    
    
    
    %Other (expense) income, net
    
    
    (59
    )
    
    
    (1
    %)
    
    
    (61
    )
    
    
    (1
    %)
    
    
    (37
    )
    
    
    
    %
    
    
    (156
    )
    
    
    (1
    %)Total
    
    $
    
    
    
    
    
    %
    
    $
    84
    
    
    
    1
    %
    
    $
    475
    
    
    
    1
    %
    
    $
    178
    
    
    
    1
    %
 Interest Income
  Interest Expense
  Other Expense, Net
 19




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##### Table of Contents



Provision for Income Taxes
  Discontinued Operations
  LIQUIDITY AND CAPITAL RESOURCES
       20




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##### Table of Contents



Less Than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsNon-cancelable operating leases
    
    $
    4,655,000
    
    
    $
    1,304,000
    
    
    $
    2,264,000
    
    
    $
    1,087,000
    
    
    $
    Non-cancelable capital leases
    
    
    44,000
    
    
    
    21,000
    
    
    
    23,000
    
    
    
    
    
    
    
    Long-term debt
    
    
    6,500,000
    
    
    
    2,166,667
    
    
    
    4,333,333
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    11,199,000
    
    
    $
    3,491,667
    
    
    $
    6,620,333
    
    
    $
    1,087,000
    
    
    $
    
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   21




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   
 PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS.
  
    
    demand for and market acceptance of our products and services;
    
    the size and timing of customer orders, particularly large orders;
    
    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;
 22




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##### Table of Contents




    
    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 the accounting for stock-based compensation; and
    
    new government legislation or regulation.
  * WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE TEMTEC INTO OUR BUSINESS AND OPERATIONS.
  
    
    retain key Temtec personnel;
    
    integrate, both from an engineering and a sales and marketing perspective, Temtecs
products and services into our suite of product and service offerings;
    
    coordinate research and development efforts;
    
    train and integrate sales forces;
    
    integrate our business processes and systems; and
    
    eliminate redundant costs and consolidate redundant facilities.
  WE MAY NOT SUSTAIN PROFITABILITY OR BE ABLE TO FULFILL ANY FUTURE CAPITAL NEEDS.
   23




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##### Table of Contents



IF WE DO NOT INTRODUCE NEW PRODUCTS AND SERVICES IN A TIMELY MANNER, OUR PRODUCTS AND SERVICES WILL
BECOME OBSOLETE, AND OUR OPERATING RESULTS WILL SUFFER.
    ATTEMPTS TO EXPAND BY MEANS OF BUSINESS COMBINATIONS AND ACQUISITIONS MAY NOT BE SUCCESSFUL
AND MAY DISRUPT OUR OPERATIONS OR HARM OUR REVENUES.
  
    
    difficulty in assimilating the operations, technology and personnel of acquired
companies;
    
    disruption in our business because of the allocation of resources to consummate these
transactions and the diversion of managements attention from our core business;
    
    difficulty in retaining key technical and managerial personnel from acquired companies;
    
    dilution of our stockholders, if we issue equity to fund these transactions;
    
    assumption of increased expenses and liabilities;
    
    our relationships with existing employees, customers and business partners may be
weakened or terminated as a result of these transactions; and
    
    additional ongoing expenses associated with write-downs of goodwill and other purchased
intangible assets.
 WE RELY HEAVILY ON KEY PERSONNEL.
  WE MAY NOT BE ABLE TO MEET THE OPERATIONAL AND FINANCIAL CHALLENGES THAT WE ENCOUNTER IN OUR
INTERNATIONAL OPERATIONS.
  24




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##### Table of Contents




    
    we may have difficulty managing and administering a globally-dispersed business;
    
    fluctuations in exchange rates may negatively affect our operating results;
    
    we may not be able to repatriate the earnings of our foreign operations;
    
    we have to comply with a wide variety of foreign laws;
    
    we may not be able to adequately protect our trademarks overseas due to the uncertainty
of laws and enforcement in certain countries relating to the protection of intellectual
property rights;
    
    reductions in business activity during the summer months in Europe and certain other
parts of the world could negatively impact the operating results of our foreign operations;
    
    export controls could prevent us from shipping our products into and from some markets;
    
    multiple and possibly overlapping tax structures could significantly reduce the
financial performance of our foreign operations;
    
    changes in import/export duties and quotas could affect the competitive pricing of our
products and services and reduce our market share in some countries; and
    
    economic or political instability in some international markets could result in the
forfeiture of some foreign assets and the loss of sums spent developing and marketing those
assets.
 BECAUSE THE BUSINESS PERFORMANCE MANAGEMENT AND BUSINESS INTELLIGENCE MARKETS ARE HIGHLY
COMPETITIVE, WE MAY NOT BE ABLE TO SUCCEED.
   BECAUSE WE DEPEND IN PART ON THIRD-PARTY SYSTEMS INTEGRATORS TO PROMOTE, SELL AND IMPLEMENT OUR
PRODUCTS, OUR OPERATING RESULTS WILL LIKELY SUFFER IF WE DO NOT DEVELOP AND MAINTAIN THESE
RELATIONSHIPS.
  BECAUSE THE SALES CYCLE FOR OUR PRODUCTS CAN BE LENGTHY, IT IS DIFFICULT FOR US TO PREDICT WHEN OR
WHETHER A SALE WILL BE MADE.
  25




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##### Table of Contents



OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO PROTECT OUR TRADEMARKS FROM MISUSE BY THIRD
PARTIES.
  OUR PRODUCTS MAY CONTAIN DEFECTS THAT MAY BE COSTLY TO CORRECT, DELAY MARKET ACCEPTANCE OF OUR
PRODUCTS AND EXPOSE US TO LITIGATION.
   26




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##### Table of Contents



ITEM 6. EXHIBITS
 (a) Exhibits
 ExhibitNumber
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 27




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##### Table of Contents



SIGNATURE
  APPLIX, INC.Date: November 14, 2006
    /s/ Milton A. AlpernMilton A. AlpernChief Financial Officer and Treasurer (Duly
Authorized Officer and Principal Financial and
Accounting Officer) 28




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 29