<PAGE>


                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549



             [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2001
                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
             FOR THE TRANSITION PERIOD FROM __________ TO __________

                         COMMISSION FILE NUMBER 0-25040


                                  APPLIX, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



               MASSACHUSETTS                             04-2781676
      (STATE OR OTHER JURISDICTION OF                 (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)                IDENTIFICATION NUMBER)


                112 TURNPIKE ROAD, WESTBORO, 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 X   NO
                                         ---     ---

         INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:

         REGISTRANT HAD 12,037,599 SHARES OF COMMON STOCK, $.0025 PAR VALUE,
OUTSTANDING AT 11/12/01.


<PAGE>



                                  APPLIX, INC.

                                      INDEX

                                                                       PAGE NO.
                                                                       --------

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements:

     Unaudited Condensed Consolidated Balance Sheets as of
          September 30, 2001 and December 31, 2000                         3

     Unaudited Condensed Consolidated Statements of Operations
          For the three months ended September 30, 2001 and 2000           4

     Unaudited Condensed Consolidated Statements of Operations
          For the nine months ended September 30, 2001 and 2000            5

     Unaudited Condensed Consolidated Statements of Cash Flows
          For the nine months ended September 30, 2001 and 2000            6

     Notes to Unaudited Condensed Consolidated Financial Statements        7-10

Item 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations                         11-22

Item 3.  Quantitative and Qualitative Disclosures about Market Risk       22

PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K                                 23

Signature                                                                 24





                                      -2-


<PAGE>

PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS



                                  APPLIX, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
           (UNAUDITED; IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                         SEPTEMBER 30,    DECEMBER 31,
                                                                             2001             2000
                                                                         -------------    ------------
<S>                                                                        <C>              <C>
ASSETS

Current assets:
     Cash and cash equivalents                                             $  7,958         $ 12,546
     Accounts receivable, less allowance for doubtful accounts
          of $1,510 and $1,397, respectively                                  8,232           12,026
     Other current assets                                                     2,352            2,381
                                                                           --------         --------
          Total current assets                                               18,542           26,953

Restricted cash                                                               1,050             --
Property and equipment, at cost                                              15,655           15,475
Less accumulated amortization and depreciation                              (13,153)         (12,379)
                                                                           --------         --------
     Net property and equipment                                               2,502            3,096
Capitalized software costs, net of accumulated
       amortization of $1,429 and $886, respectively                            948              910
Goodwill, net of accumulated amortization of
       $1,161 and $915 respectively                                           2,055              370
Other assets                                                                  1,998            1,745
                                                                           --------         --------
          Total assets                                                     $ 27,095         $ 33,074
                                                                           ========         ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                      $  2,082         $  2,406
     Accrued liabilities                                                      6,601            7,145
     Deferred revenue                                                         6,035            4,222
     Net liabilities of discountinued operation                                 752            1,067
                                                                           --------         --------
          Total current liabilities                                          15,470           14,840

Stockholders' equity:
      Preferred stock, $.01 par value; 1,000,000 shares authorized,
           none issued and outstanding                                         --               --
     Common stock, $.0025 par value; 30,000,000 shares
          authorized; 12,185,097 and 11,893,893 shares issued
          and outstanding, respectively                                          30               30
     Capital in excess of par value                                          49,186           48,249
     Accumulated deficit                                                    (34,854)         (27,268)
     Accumulated other comprehensive loss                                      (540)            (580)
     Notes receivable from stockholders                                      (1,120)          (1,120)
     Treasury stock, 306,198 shares, at cost                                 (1,077)          (1,077)
                                                                           --------         --------
          Total stockholders' equity                                         11,625           18,234
                                                                           --------         --------
          Total liabilities and stockholders' equity                       $ 27,095         $ 33,074
                                                                           ========         ========
</TABLE>


   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.


                                      -3-
<PAGE>



                                  APPLIX, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED
                                                 -------------------------------
                                                 SEPTEMBER 30,     SEPTEMBER 30,
                                                     2001              2000
                                                 -------------     -------------

<S>                                                <C>               <C>
License revenue                                    $  4,240          $  7,007
Service revenue                                       4,618             3,960
                                                   --------          --------
          Total revenue                               8,858            10,967

Cost of license revenue                                 619               490
Cost of service revenue                               2,887             3,267
                                                   --------          --------
          Gross margin                                5,352             7,210

Operating expenses:
          Selling and marketing                       4,726             6,676
          Research and development                    1,698             1,893
          General and administrative                  1,176             1,141
          Restructuring expense                         438              --
                                                   --------          --------
          Total operating expenses                    8,038             9,710
                                                   --------          --------

Operating loss                                       (2,686)           (2,500)

Interest income                                          58               285
                                                   --------          --------
Net loss from continuing operations before
     income taxes                                    (2,628)           (2,215)

Provision (benefit) for income taxes                     50            (1,091)
                                                   --------          --------
Net loss from continuing operations                ($ 2,678)         ($ 1,124)

Loss from discontinued operation                       --            ($ 1,101)
Gain on disposal of discontinued operation              363              --
                                                   --------          --------
Net loss                                           ($ 2,315)         ($ 2,225)
                                                   ========          ========

Basic and diluted income (loss) per share:
     Continuing operations                         ($  0.22)         ($  0.10)
     Discontinued operations                           0.03             (0.10)
                                                   --------          --------
          Total loss per share                     ($  0.19)         ($  0.20)
                                                   ========          ========

Weighted average number of basic and
     diluted shares outstanding                      11,934            11,352
</TABLE>


   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.



                                      -4-
<PAGE>


                                  APPLIX, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                       NINE MONTHS ENDED
                                                 -------------------------------
                                                 SEPTEMBER 30,     SEPTEMBER 30,
                                                     2001              2000
                                                 -------------     -------------

<S>                                                <C>               <C>
License revenue                                    $ 14,591          $ 17,045
Service revenue                                      16,038            12,137
                                                   --------          --------
          Total revenue                              30,629            29,182

Cost of license revenue                               1,663             1,471
Cost of service revenue                              10,028            10,120
                                                   --------          --------
          Gross margin                               18,938            17,591

Operating expenses:
          Selling and marketing                      17,731            18,865
          Research and development                    5,513             5,653
          General and administrative                  3,557             3,195
          Restructuring expense                         950              --
                                                   --------          --------
          Total operating expenses                   27,751            27,713
                                                   --------          --------

Operating loss                                       (8,813)          (10,122)

Interest income                                         315               946
                                                   --------          --------
Net loss from continuing operations before
     income taxes                                    (8,498)           (9,176)
Provision (benefit) for income taxes                    169            (3,454)
                                                   --------          --------
Net loss from continuing operations                ($ 8,667)         ($ 5,722)

Loss from discontinued operation                   $   --            ($   568)
Gain on disposal of discontinued operation            1,081              --
                                                   --------          --------
Net loss                                           ($ 7,586)         ($ 6,290)
                                                   ========          ========

Basic and diluted income (loss) per share:
     Continuing operations                         ($  0.73)         ($  0.51)
     Discontinued operations                           0.09             (0.05)
                                                   --------          --------
          Total loss per share                     ($  0.64)         ($  0.56)
                                                   ========          ========

Weighted average number of basic and
     diluted shares outstanding                      11,808            11,261

</TABLE>

    The accompanying notes are an integral part of the condensed consolidated
                             financial statements.




                                      -5-
<PAGE>


                                  APPLIX, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                    NINE MONTHS ENDED
                                                                         ------------------------------------------
                                                                         SEPTEMBER 30, 2001      SEPTEMBER 30, 2000
                                                                         ------------------      ------------------

<S>                                                                           <C>                     <C>
OPERATING ACTIVITIES:
Net loss                                                                      $ (7,586)               $ (6,290)
Adjustments to reconcile net loss to net cash
  provided by (used for) operating activities:
          Depreciation and amortization                                          1,688                   2,351
          Amortization of deferred compensation                                   --                       540
          Changes in operating assets and liabilities:
                Decrease in accounts receivable                                  4,015                   1,254
                (Increase) decrease in other current assets                        (77)                    804
                (Decrease) increase in accounts payable                           (595)                    777
                Decrease in accrued liabilities                                 (2,747)                 (4,769)
                Increase (decrease) in deferred revenue                          1,713                  (1,948)
                                                                              --------                --------

          Cash used for operating activities                                    (3,589)                 (7,281)

INVESTING ACTIVITIES:
          Purchase of property and equipment                                      (314)                 (2,228)
          Capitalized software costs                                              (582)                 (1,510)
          Net cash paid in connection with the purchase of
                 Dynamic Decisions Pty                                            (967)                   --
          Proceeds from the sale of discontinued operation                       1,300                    --
          Cash paid upon sale of subsidiary                                       (100)                   --
          Purchase of short-term investments                                      --                   (21,922)
          Maturities of short-term investments                                    --                    37,077
                                                                              --------                --------

  Cash provided by investing activities                                           (663)                 11,417

FINANCING ACTIVITIES:
          Proceeds from exercise of incentive stock options and
             and employee stock purchase plans                                     710                   1,147
          Restricted cash used for letter of credit                             (1,050)                   --
          Payment of long term debt                                               --                      (270)
                                                                              --------                --------

          Cash provided by financing activities                                   (340)                    877

          Effect of exchange rate changes on cash                                    4                     (77)
                                                                              --------                --------

          Net (decrease) increase in cash and cash equivalents                  (4,588)                  4,936

Cash and cash equivalents at beginning of period                                12,546                  10,321
                                                                              --------                --------

Cash and cash equivalents at end of period                                    $  7,958                $ 15,257
                                                                              ========                ========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Stock issued for acquisition of Dynamic Decisions Pty                         $    227                $   --
Note payable issued for acquisition of Dynamic Decisions Pty                  $    558                $   --
Cash paid for income taxes                                                    $     15                $    110
Sale of common stock in exchange for a note receivable                        $   --                  $  1,120
</TABLE>



    The accompanying notes are an integral part of the condensed consolidated
                             financial statements.




                                      -6-
<PAGE>



                                  APPLIX, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

A.   NATURE OF BUSINESS

     Applix, Inc. ("Applix" or the "Company") develops, markets and supports a
suite of Internet-based software applications. The Company has one principal
business segment, its customer analytics and business planning software segment,
which is reported as continuing operations. The Company provides customer
relationship management and business planning software that enables customers to
automate their front office business operations, including customer relationship
management and business planning. On March 30, 2001, the Company sold its
VistaSource business unit, previously reported as the Linux Division. This unit
has been reported as a discontinued operation since December 31, 2000 (note F).


B.   BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Certain prior period amounts have been
reclassified to conform to the current presentation. Operating results for the
three and nine month periods ended September 30, 2001 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2001.

     The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

     For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.


C.   COMPUTATION OF NET LOSS PER COMMON SHARE

     Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Dilutive net loss per share 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.

    Potential common shares were excluded from the calculation of net loss
per share for the periods ended September 30, 2001 and September 30, 2000 since
their inclusion would be antidilutive.




                                      -7-
<PAGE>





                                  APPLIX, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)

D.   COMPREHENSIVE INCOME (LOSS)

     Other comprehensive income (loss) includes foreign currency translation
adjustments.

<TABLE>
<CAPTION>
                                           -------------------------           -------------------------
                                              Three Months Ended                   Nine Months Ended
                                                 September 30                         September 30
                                           -------------------------           -------------------------
(in thousands)                              2001              2000              2001              2000
                                           -------           -------           -------           -------

<S>                                        <C>               <C>               <C>               <C>
Net loss                                   ($2,315)          ($2,225)          ($7,586)          ($6,290)
Other comprehensive income (loss)               40               (31)               40               (77)
                                           -------           -------           -------           -------
Total comprehensive loss                   ($2,275)          ($2,256)          ($7,546)          ($6,367)
                                           =======           =======           =======           =======
</TABLE>



E.   EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
The Company adopted SFAS No. 133 on January 1, 2001 without significant impact
to its results of operations or financial position.

     In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 eliminates the
pooling-of-interests method of accounting for business combinations except for
qualifying business combinations that were initiated prior to July 1, 2001. SFAS
141 further clarifies the criteria to recognize intangible assets separately
from goodwill. The requirements of SFAS 141 are effective for any business
combination accounted for by the purchase method that is completed after June
30, 2001. Under SFAS 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have an indefinite life will continue to be amortized over their
useful lives. The amortization provisions of SFAS 142 apply to goodwill and
intangible assets acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, companies are required to
adopt SFAS 142 in their fiscal year beginning after December 15, 2001. Because
of the different transition dates for goodwill and intangible assets acquired on
or before June 30, 2001 and those acquired after that date, pre-existing
goodwill and intangibles will be amortized during this transition period until
adoption whereas new goodwill and indefinite lived intangible assets acquired
after June 30, 2001 will not. The Company is currently in the process of
evaluating the impact of SFAS 142 will have on its financial position and
results of operations.

     In October 2001, the FASB issued SFA No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). FAS 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and provides a single accounting model for long-lived
assets to be disposed of. The Company is required to adopt FAS 144 for the
fiscal year beginning after December 15, 2001 and is currently in the process of
evaluating the impact OF SFAS 144 will have on its financial position and
results of operations.




                                      -8-
<PAGE>



                                  APPLIX, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)

F.   DISCONTINUED OPERATION

     In December 2000, the Board of Directors committed to a plan to dispose of
the operations of its VistaSource business. On March 30, 2001, the Company
completed the sale of the VistaSource business unit to Real Time International,
Inc. ("Real-Time"), a subsidiary of Parallax Capital Partners, LLC, for $1.3
million and a 19% equity interest in Real-Time. The results of operations
including revenue, operating expenses, other income and expense, and income
taxes of the VistaSource business unit for 2001 and 2000 have been reclassified
in the accompanying statements of operations as a discontinued operation. The
Company's balance sheets at September 30, 2001 and December 31, 2000 reflect the
net liabilities of the VistaSource business as net liabilities of discontinued
operation within current liabilities.

     At December 31, 2000, the estimated net losses associated with the
disposition of the VistaSource business were approximately $3.6 million. These
losses included approximately $0.4 million in losses from operations for the
period from January 1, 2000 through the measurement date of December 17, 2000,
$2.2 million relating to the removal of the net assets of the VistaSource
business, $1.1 million in estimated losses from operations from the measurement
date through the estimated date of disposal and $1.3 million in provisions for
employee severance and benefits, transaction costs, bank fees and other
contractual commitments. These losses were partially offset by proceeds of $1.3
million received from the divestiture.

    The VistaSource business generated a loss from its operations of
approximately $0.9 million in the first quarter of 2001 (through the date of
disposal) compared to the estimated $1.1 million 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 $2.5 million.


Summary operating results from the discontinued operation of the first nine
months ended September 30, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                             NINE MONTHS ENDED        NINE MONTHS ENDED
(in thousands)               SEPTEMBER 30, 2001       SEPTEMBER 30, 2000
                             ------------------       ------------------
<S>                               <C>                     <C>
Revenue                           $ 1,666                 $ 7,752
Cost of Sales                         249                   1,962
                                  -------                 -------
Gross Margin                        1,417                   5,790
Operating Expenses                  2,287                   6,380
                                  -------                 -------
Operating Income                  ($  870)                ($  590)
                                  =======                 =======
</TABLE>


     On March 30, 2001 the Company closed the sale of the VistaSource business
and received the purchase price of $1,300,000. For the nine months ended
September 30, 2001, the Company has recognized a gain of approximately $1.1
million, for discontinued operations due to a favorable liquidation of the net
assets and liabilities of the VistaSource business compared to previous
estimates. The reserve balance for the estimated costs associated with the
disposition as of September 30, 2001 was approximately $ 0.8 million, consisting
primarily of estimated brokerage fees, legal and accounting fees, and severance
costs.



                                      -9-
<PAGE>



                                  APPLIX, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (unaudited)



G.   ACQUISITIONS

     On March 31, 2001, the Company acquired all of the outstanding capital
stock of Dynamic Decisions Pty Limited ("Dynamic Decisions") for total cost of
approximately $6 million consisting of $5.7 million in cash and 100,000 shares
of the Company's Common Stock. The acquisition was accounted for under the
purchase method of accounting and the excess of the purchase price over the fair
value of the assets acquired has been preliminarily allocated to goodwill
($1,943,000) which is being amortized on a straight line basis over six years.
The Company is in the process of completing a valuation of the intangible
assets. The cash portion of $5.7 million is payable in installments over a
maximum of 30 months beginning on July 1, 2001. Of this amount, $4,065,000 is
contingent upon the continued employment of two key executives of Dynamic
Decisions, which is included in the purchase price and will be accounted for as
compensation expense. As of September 30, 2001, the Company has paid $991,000 in
connection with the acquisition of Dynamic Decisions. The results of operations
of Dynamic Decisions are included in the financial statements presented from the
date of acquisition.

     Unaudited pro forma revenue, net loss, and loss per share shown below for
the nine months ended September 30, 2001 and 2000 assumes the acquisition of
Dynamic Decisions occurred on January 1 of each respective period.

<TABLE>
<CAPTION>
                                                  ------------------------
                                                     NINE MONTHS ENDED
(in thousands, except for per share amounts)      SEPTEMBER 30 (UNAUDITED)
                                                  ------------------------
                                                    2001            2000
                                                  --------        --------
<S>                                               <C>             <C>
Revenue                                           $ 31,186        $ 31,082
Net loss                                          ($ 7,244)       ($ 5,365)
Total basic and diluted loss per share            ($  0.71)       ($  0.43)
</TABLE>

H.   RESTRUCTURING EXPENSE

     In the second quarter of 2001, the Company adopted a plan of restructuring
aimed at reducing current operating costs company-wide. In connection with this
plan, 28 non-management employees, primarily sales, marketing, and
administrative positions, and 2 executive level employees were terminated. The
Company's restructuring plan also included the closure of the Company's sales
office in France. As a result of the restructuring plan, the Company recorded a
restructuring charge of $512,000 for the three months ended June 30, 2001. The
restructuring charge consisted of $449,000 for severance costs and $63,000 for
the loss on disposal of the Company's French subsidiary, which was sold on June
30, 2001. In connection with the sale, the Company paid $100,000 to the
purchaser, which is included in the restructuring charge. At September 30, 2001,
$162,000 remained as a liability on the balance sheet and is expected to be be
paid out by 2002.

     In the third quarter of 2001, the Company adopted a plan of restructuring
to further reduce current operating costs company-wide. In connection with this
plan, the Company recorded an additional restructuring charge of $438,000 for a
further reduction of the company's headcount, and 26 non-management employees,
primarily sales, marketing, and administrative positions were terminated. At
September 30, 2001, the entire amount is accrued as a liability. This amount is
expected to be paid out by 2002.

I. RESTRICTED CASH

     On August 1, 2001, the Company established a $1,050,000 irrevocable standby
letter of credit in conjunction with the Company's office lease. The irrevocable
standby letter of credit has been collateralized by a restricted cash balance of
$1,050,000. The funds can be drawn down over the term of the lease, provided the
Company has not defaulted on the office lease.

                                      -10-
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS


OVERVIEW

     The Company was incorporated in 1983 to develop and market software
applications for the workstation market.

     In October 1995, the Company acquired Target Systems Corporation, which
developed and marketed customer interaction software. In October 1996, the
Company acquired Sinper Corporation, doing business under the name TM1, which
developed and marketed software used for on-line analytical processing (OLAP).
These two acquisitions enabled Applix to expand its product offerings to include
front office business applications. The Company focuses on front office business
applications which include Applix iEnterprise, the Company's offering in the
customer relationship management (CRM) market, and Applix iTM1, the Company's
real time multi-dimensional analysis software for business intelligence
applications.

     The Company acquired Cosource.com in December 1999 to expand its
VistaSource division into Internet accessibility and into a collaborative open
source software web environment, in a transaction accounted for under the
purchase method of accounting. In December 2000, the board of directors decided
to dispose of VistaSource. As a result of this decision, VistaSource was
classified as a discontinued operation as of December 31, 2000, and the Company
recorded an estimated loss of $3.6 million which included approximately $367,000
in losses from operations for the period from January 1, 2000 through the
measurement date of December 17, 2000, $2.2 million relating to the removal of
the net assets of the VistaSource business, $1.1 million in estimated losses
from operations from the measurement date through the estimated date of disposal
and $1.3 million in provisions for employee severance and benefits, transaction
costs, bank fees and other contractual commitments. These losses were partially
offset by proceeds of $1.3 million received from the acquirer on March 31, 2001.

     On March 30, 2001, the company completed the sale of its sale of its
VistaSource division for $1.3 million. As a result of 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 Company has recognized a gain on the disposal of $363,000 and
$1,081,000 for the three and nine month periods ended September 31, 2001.

     On March 30, 2001, the Company acquired Dynamic Decisions Pty Limited of
Australia in an effort to expand its customer analytics and business planning
software presense in southeast Asia. Applix is building upon Dynamic Decisions'
strong customer base and to capabilities to offer high quality customer
analytics and business planning software and support services to the Company's
customers. The total cost of the acquisition was approximately $6 million
consisting of $5.7 million in cash and 100,000 shares of the Company's Common
Stock. As of September 30, 2001, approximately $1,000,000 of the purchase had
been paid and the remaining $4.7 million is payable over the next twenty four
months. The acquisition was accounted for under the purchase method of
accounting and the excess of the purchase price over the fair value of the
assets acquired has been preliminarily allocated to goodwill ($1,943,000) which
is being amortized on a straight line basis over six years.

     The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included in this
Quarterly Report, with the Financial Statements, and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Annual Report on Form 10-K for the year-ended December 31, 2000 filed
with the Securities and Exchange Commission on April 2, 2001.




                                      -11-
<PAGE>

RESULTS OF CONTINUING OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2000

     Total revenue from continuing operations decreased 19% to $8,858,000 for
the quarter ended September 30, 2001 from $10,967,000 for the quarter ended
September 30, 2000.

    License revenue from continuing operations decreased 39% to $4,240,000 for
the quarter ended September 30, 2001 from $7,007,000 for the quarter ended
September 30, 2000. The decrease was primarily due to the decline in the global
economy and the continued slowdown in information technology spending. The
Company expects license revenue to increase as a percentage of total revenue in
the future due to change in the revenue mix specifically in the channel segment.

     Service revenue from continuing operations increased in the quarter to
$4,618,000, or 52% of total revenue, compared to $3,960,000, or 36% of total
revenue in the same quarter last year. The increase was primarily due to
improved renewal rates for maintenance from existing customers. The Company
expects maintenance revenue to continue to increase due to continuing
improvement in customer satisfaction and maintenance renewals from existing
customers. The Company expects consulting revenue to decrease as a percentage of
sales as the Company focuses on license revenue.

     Domestic license revenue from continuing operations decreased 50% to
$1,602,000 for the quarter ended September 30, 2001 from $3,214,000 for the same
period in the prior year. The decrease was primarily due to the decline in the
domestic economy and the continued slowdown in information technology spending.
Domestic service revenue from continuing operations increased 8% to $1,508,000
from $1,391,000 in the same quarter last year primarily due to improved customer
satisfaction and renewal rates for maintenance from existing domestic customers.

     International license revenue from continuing operations decreased 30% to
$2,638,000 for the quarter ended September 30, 2001 from $3,793,000 for the same
period in 2000. The decrease was primarily due to a greater than expected
seasonal weakness in Europe and a continued decline in information technology
spending world-wide. International service revenues increased by 21% to
$3,110,000 in the second quarter of 2001 from $2,569,000 in the same quarter
last year primarily due to improved customer satisfaction and renewal rates for
maintenance from existing international customers.


                                      -12-
<PAGE>



     Gross margin from continuing operations decreased to 60% for the three
months ended September 30, 2001 from 66% for the same period in 2000. License
revenue gross margins from continuing operations decreased to 85% for the
quarter ended September 30, 2001 from 93% for the quarter ended September 30,
2000. Service gross margins from continuing operations improved to 37% for the
third quarter of 2001 from 18% in the same period last year.

     Selling and marketing expenses from continuing operations, which include
domestic sales and marketing expenses and the cost of the Company's
international operations, decreased 29% to $4,726,000 for the quarter ended
September 30, 2001 from $6,676,000 for the quarter ended September 30, 2000.
Selling and marketing expenses decreased as a percentage of total revenue to 53%
for the quarter ended September 30, 2001 from 61% for the quarter ended
September 30, 2000. The decrease in costs reflects the Company's efforts to
bring expenses in line with revenues while continuing to support sales and
development strategies. In addition, certain incentive based compensation costs
were reduced as a result of the lower sales in the current year.

     Research and development expenses from continuing operations, which consist
primarily of employee salaries, benefits and related expenses, decreased 10% to
$1,698,000 for the quarter ended September 30, 2001 from $1,893,000 for the
quarter ended September 30, 2000, and were 19% of total revenue for the quarter
ended September 30, 2001, versus 17% of total revenue for the quarter ended
September 30, 2000. The decrease in total spending is attributable to efforts to
manage costs company-wide and included reductions in the use of outside research
and development consultants. Total research and development expenses from
continuing operations, including capitalized software costs, decreased to
$1,825,000, including $127,000 in capitalized software development costs, or 21%
of total revenues for the quarter ended September 30, 2001 from $2,370,000,
including $447,000 in capitalized software development costs, or 22% of total
revenue for the quarter ended September 30, 2000. The Company expects research
and development investments to increase in absolute dollars and to remain
constant as a percentage of sales due to improved cost containment.

     General and administrative expenses from continuing operations, which
include the costs of the finance, human resources and administrative functions,
increased 3% to $1,176,000 for the quarter ended September 30, 2001 from
$1,141,000 for the same period in 2000. General and administrative expenses
increased to 13% of total revenue for the quarter ended September 30, 2001
compared to 10% of total revenue for the same period in 2000. The Company
expects general and administrative expenses to decrease in absolute dollars and
as a percentage of sales primarily due to the restructuring and continuing
management efforts made in the last two quarters.

     In the third quarter of 2001, the Company adopted a plan of restructuring
to further reduce current operating costs company-wide. In connection with this
plan, the Company recorded an additional restructuring charge of $438,000 which
related to additional reduction of the Company's headcount, and 26
non-management employees, primarily sales, marketing, and administrative
positions were terminated. At September 30, 2001, the entire amount is accrued
as a liability. This amount is expected to be paid out by 2002.



                                      -13-
<PAGE>


     Interest income in the third quarter of 2001 decreased to $58,000 from
$285,000 in the third quarter of 2000 which is directly attributable to fewer
funds invested and lower interest rates during the three months ended September
30, 2001 versus the same period last year.

    The Company recorded a provision for income taxes for the quarter ended
September 30, 2001 of $50,000 based on the Company's foreign income tax
obligations, compared to a benefit of $1,091,000 for the quarter ended September
30, 2000.


NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2000

     Total revenue from continuing operations increased 5% to $30,629,000 for
the nine months ended September 30, 2001 from $29,182,000 for the nine months
ended September 30, 2000.

    License revenue from continuing operations decreased 14% to $14,591,000 for
the nine months ended September 30, 2001 from $17,045,000 for the nine months
ended September 30, 2000. The decrease was primarily due to the decline in the
global economy and the continued slowdown in information technology spending.

    Service revenue from continuing operations increased to $16,038,000, or 52%
of total revenue for the nine months ended September 30, 2001, compared to
$12,137,000, or 42% of total revenue in the same quarter last year representing
a 32% increase in service revenue.

     Domestic license revenue from continuing operations decreased 6% to
$5,961,000 for the nine months ended September 30, 2001 from $6,356,000 for the
same period in the prior year. Domestic service revenue from continuing
operations increased 24% to $5,609,000 from $4,525,000 in the same period last
year.

     International license revenue from continuing operations decreased 19% to
$8,630,000 for the nine months ended September 30, 2001 compared to $10,689,000
for the same period in 2000. International service revenues increased by 37% to
$10,429,000 in the first nine months of 2001 from $7,612,000 in the period last
year due to continuing improvement in maintenance renewals from existing
customers in the international market space.

     Gross margin from continuing operations increased to 62% for the nine
months ended September 30, 2001 from 60% for the same period in 2000. License
revenue gross margins from continuing operations decreased to 89% for the nine
months ended September 30, 2001 from 91% for the nine months ended September 30,
2000. Service gross margins from continuing operations improved to 37% for the
nine months of 2001 from 17% in the same period last year due to lower
third-party contractor cost and improved employee utilization levels.

     Selling and marketing expenses from continuing operations decreased 6% to
$17,731,000 for the nine months ended September 30, 2001 from $18,865,000 for
the nine months ended September 30, 2000. The decrease was primarily due to the
Company's efforts to reduce costs world-wide. Selling and marketing expenses
decreased as a percentage of total revenue to 58% for the nine months ended
September 30, 2001 from 65% for the nine months ended September 30, 2000.



                                      -14-
<PAGE>

     Research and development expenses from continuing operations decreased 2%
to $5,513,000 for the nine months ended September 30, 2001 from $5,653,000 for
the nine months ended September 30, 2000 and were 18% of total revenue for the
nine months ended September 30, 2001 versus 19% of total revenue for the nine
months ended September 30, 2000. Total research and development expenses from
continuing operations, including capitalized software costs, increased to
$6,095,000 primarily due to continuing work on foreign translations of our iCRM
and iPlanning products, including $582,000 in capitalized software development
costs, or 20% of total revenues for the nine months ended September 30, 2001
from $6,425,000, including $772,000 in capitalized software development costs,
or 22% of total revenue for the nine months ended September 30, 2000.

     General and administrative expenses from continuing operations increased
11% to $3,557,000 for the nine months ended September 30, 2001 from $3,195,000
for the same period in 2000. This was primarily due to increased travel and
legal fees in the first nine months of 2001 compared to the same period in 2000.
General and administrative expenses remained at 11% of total revenue for the
nine months ended September 30, 2001 and September 30, 2000.

     In the second quarter of 2001, the Company adopted a plan of restructuring
aimed at reducing current operating costs company-wide. In connection with this
plan, 28 non-management employees, primarily sales, marketing, and
administrative positions, and 2 executive level employees were terminated. The
Company's restructuring plan also included the closure of the Company's sales
office in France. As a result of the restructuring plan, the Company recorded a
restructuring charge of $512,000 for the three months ended June 30, 2001. The
restructuring charge consisted of $449,000 for severance costs and $63,000 for
the loss on disposal of the Company's French subsidiary, which was sold on June
30, 2001. In connection with the sale, the Company paid $100,000 to the
purchaser, which is included in the restructuring charge. At September 30, 2001,
$162,000 remained as a liability on the balance sheet and is expected to be be
paid out by 2002.

     In the third quarter of 2001, the Company adopted a plan of restructuring
to further reduce current operating costs company-wide. In connection with this
plan, the Company recorded an additional restructuring charge of $438,000 for a
further reduction of the company's headcount. In connection with this plan, 26
non-management employees, primarily sales, marketing, and administrative
positions were terminated. At September 30, 2001, the entire amount is accrued
as a liability. This amount is expected to be paid out by 2002.

     Interest income for the nine months ended September 30, 2001 decreased to
$315,000 from $946,000 for the same period in 2000 due to fewer funds invested
and lower interest rates during the nine months ended September 30, 2001 versus
the same period last year.

    The Company recorded a provision for income taxes for the nine months ended
September 30, 2001 of $169,000 based on the Company's foreign income tax
obligations compared to a benefit of $3,454,000 for the nine months ended
September 30, 2000.


LIQUIDITY AND CAPITAL RESOURCES

     In the third quarter of 2001, the Company's cash position improved
slightly from the prior quarter, from $8,996,000 to $9,008,000, due in part to
continued improvement in the Company's customer receivable collections.

     As of September 30, 2001, the Company had cash and cash equivalents of
$9,008,000 as compared to $12,546,000 as of December 31, 2000. Cash used in the
Company's operations was $3,578,000 for months ended September 30, 2001 compared
to $7,281,000 cash used by operations for the nine months ended September 30,
2000 respectively. The net loss of $7,586,000 was partially offset by the
decrease in operating assets and liabilities of $2,308,000 and by depreciation
and amortization of $1,700,000 for the nine months ended September 30, 2001.

    Cash used in investing activities totaled $674,000 for the nine months ended
September 30, 2001 compared to cash provided by investing activities of
$11,417,000 for the nine months ended September 30, 2000. The decrease in cash
provided by investing activities primarily resulted from the Company's reduced
short-term investment activities in 2001 compared to the same period in 2000.
This was partially offset by the proceeds received from the sale of the
discontinued operation of $1,300,000, net cash payments in connection with the
acquisition of Dynamic Decisions of $967,000, capital expenditures of $325,000,
capitalized software development costs of $582,000, and a payment of $100,000 in
connection with the sale of the Company's French subsidiary .

     Cash provided from finance activities totaled $710,000 for the nine months
ended September 30, 2001 which consisted of proceeds received from the exercise
of incentive stock options and the


                                      -15-
<PAGE>

Company's employee stock purchase plan compared to total cash provided of
$877,000 for the same period in 2000.

     In connection with the acquisition of Dynamic Decisions, the Company
expects to pay out $4.6 million over the next twenty four months.

     The Company is negotiating a $2.5 million domestic revolving working
capital line of credit and a $2.5 million export-import of the U.S. guaranteed
revolving line of credit. The Company expects to close on these credit
facilities by the end of 2001.

     In connection with the new office lease agreement for the Company's new
corporate headquarters, the Company established a $1,050,000 irrevocable standby
letter of credit on August 1, 2001. The letter of credit has been fully
collateralized by a restricted cash balance of $1,050,000 required by the
issuing bank. The amount of the letter of credit and restricted cash can be
drawn down over the term of the lease, provided the Company has not defaulted on
the office lease agreement. The Company anticipates that it will partially
utilize the credit facilities described above to obtain a new, replacement
letter of credit, which will not require cash as collateral.

    The Company believes that the funds currently available will be sufficient
to fund the Company's operations at least through the next twelve months. The
Company has no commitments or specific plans for any significant capital
expenditures in the next twelve months. To date, inflation has not had a
material adverse effect on the Company's operating results.






                                      -16-
<PAGE>
                                  RISK FACTORS

     This quarterly report on Form 10-Q contains forward-looking statements. For
this purpose, any statements contained herein relating to future events or
developments may be considered to be forward-looking statements. Although not a
complete list of words that might identify forward-looking statements, we use
the words "believes," "anticipates," "plans," "expects," "intends," and similar
expressions to identify forward-looking statements. There are a number of
important factors that could cause our actual results to differ materially from
those indicated by these forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere in this Form 10-Q.

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

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

     - demand for and market acceptance of our products and services;

     - the size and timing of customer orders, particularly large orders, some
of which represent more than 10% of total revenue during a particular quarter;

     - introduction of products and services or enhancements by us and our
competitors;

     - competitive factors that affect our pricing;

     - the mix of products and services we sell;

     - the hiring and retention of key personnel;

     - our expansion into international markets;

     - the timing and magnitude of our capital expenditures, including costs
relating to the expansion of our operations;

     - changes in generally accepted accounting policies, especially those
related to the recognition of software revenue; and

     - new government legislation or regulation.

     We typically receive a majority of our orders in the last month of each
fiscal quarter because our customers often delay purchases of products until the
end of the quarter and our sales organization and our individual sales
representatives strive to meet quarterly sales targets. As a result, any delay
in anticipated sales is likely to result in the deferral of the associated
revenue beyond the end of a particular quarter, which would have a significant
effect on our operating results for that quarter. In addition, most of our

                                      -17-

<PAGE>


operating expenses do not vary directly with net sales and are difficult to
adjust on 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. In
future quarters, our operating results may be below the expectations of public
market analysts and investors. In this event, the price of our common stock may
fall significantly.


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

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

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

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

FUTURE CAPITAL NEEDS.

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

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

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

     - difficulty in assimilating the operations, technology and personnel of
acquired companies;

     - disruption in our business because of the allocation of resources to
consummate these transactions and the diversion of management's attention from
our core business;

     - difficulty in retaining key technical and managerial personnel from
acquired companies;

     - dilution of our stockholders, if we issue equity to fund these
transactions;

     - assumption of operating losses, increased expenses and liabilities;

                                      -18-

<PAGE>


     - 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 amortization of goodwill and
other purchased intangible assets.

 IF WE ARE UNABLE TO RETAIN OUR RESEARCH AND DEVELOPMENT, SUPPORT, SALES AND
MARKETING STAFF, WE WILL NOT HAVE SUFFICIENT RESOURCES TO COMPETE AND GROW OUR
REVENUES.

     Our future success and ability to sustain our revenue growth depends upon
the continued service of our executive officers and other key engineering,
sales, marketing and support personnel. Competition for qualified personnel in
our industry is extremely intense and characterized by rapidly increasing
salaries, which may increase our operating expenses or hinder our ability to
recruit qualified candidates.

WE RELY HEAVILY ON KEY PERSONNEL.

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

WE MAY NOT BE ABLE TO MEET THE OPERATIONAL AND FINANCIAL CHALLENGES THAT WE
ENCOUNTER AS OUR INTERNATIONAL OPERATIONS EXPAND.

     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;

                                      -19-

<PAGE>


     - we have to comply with a wide variety of foreign laws with which we are
not familiar;

     - we may not be able to adequately protect our trademarks overseas due to
the uncertainty of laws and enforcement in certain countries relating to the
protection of intellectual property rights;

     - reductions in business activity during the summer months in Europe and
certain other parts of the world could negatively impact the operating results
of our foreign operations;

     - export controls could prevent us from shipping our products into and from
some markets;

     - multiple and possibly overlapping tax structures could significantly
reduce the financial performance of our foreign operations;

     - changes in import/export duties and quotas could affect the competitive
pricing of our products and services and reduce our market share in some
countries; and

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

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

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

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

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

                                      -20-
<PAGE>



     We rely in part on systems integrators to promote, sell and implement our
solution. 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 eight months. During this
time we may incur substantial sales and marketing expenses and expend
significant management efforts. We do not recoup these investments if the
prospective customer does not ultimately license our product.

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

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

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

     Despite testing by us 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.

                                      -21-

<PAGE>


     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.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company exports products to diverse geographic areas. Most of the
Company's international sales through subsidiaries are denominated in foreign
currencies. To date, foreign currency fluctuations have not had a material
effect on the Company's operating results. The Company has engaged in hedging
transactions to cover its currency exposure on intercompany balances for the
purpose of mitigating the effect of foreign currency fluctuations.

         At September 30, 2001, the Company held $4,362,000 in cash equivalents
consisting of commercial paper and money market funds. Cash equivalents are
classified as available for sale and valued at amortized cost, which
approximates fair market value. A hypothetical 10 percent 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
since December 31, 2000.





                                      -22-
<PAGE>


PART II.  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)  EXHIBITS



     10.15+      Change-in-Control Agreement between the Registrant
                 and Walt Hilger, dated September 27, 2001
     10.16+      Consulting, Agreement between the Registrant and David C.
                 Mahoney, dated September 10, 2001

     +  Management contract or compensatory plan


(B)      REPORTS ON FORM 8-K

The Registrant filed no reports on Form 8-K during the quarter ended September
30, 2001.











                                      -23-
<PAGE>



                                    SIGNATURE


         Pursuant to the requirements of Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                            APPLIX, INC.



                                            By: /s/ Walt Hilger
                                                -----------------------------
                                                Walt Hilger
                                                Chief Financial Officer
                                                (duly authorized officer and
                                                principal financial officer)



Date:  November 14, 2001







                                      -24-
<PAGE>


                               INDEX TO EXHIBITS

EXHIBIT NO.      DESCRIPTION
-----------      -----------

   10.15+        Change-in-Control Agreement between the Registrant
                 and Walt Hilger, dated September 27, 2001

   10.16+        Consulting Agreement between the Registrant and David C.
                 Mahoney, dated September 10, 2001


--------------

+  Management contract or compensatory plan