<PAGE>   1
                                    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, 1997

                                       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 10,056,129 SHARES OF COMMON STOCK, $.0025 PAR VALUE,
OUTSTANDING AT NOVEMBER 7, 1997.




<PAGE>   2


                                  APPLIX, INC.

                                      INDEX





                                                                       Page No.
                                                                       --------

Part I - Financial Information

Item 1.  Consolidated Financial Statements:

     Consolidated Balance Sheets as of
       September 30, 1997 (unaudited) and December 31, 1996               3


     Unaudited Consolidated Statements of Operations
       for the three months ended September 30, 1997 and 1996             4


     Unaudited Consolidated Statements of Operations
       for the nine months ended September 30, 1997 and 1996              5


     Unaudited Consolidated Statements of Cash Flows
       for the nine months ended September 30, 1997 and 1996              6


     Notes to Consolidated Financial Statements                          7-8


Item 2.  Management's Discussion and Analysis of Financial
     Condition and Results of Operations                                 9-13


Part II - Other Information

Item 6.  Exhibits and Reports on Form 8-K                                 14


Signature                                                                 15


                                      -2-
<PAGE>   3


PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                                  APPLIX, INC.

                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30,   DECEMBER 31, 
                                                                       1997           1996 
                                                                    (UNAUDITED)
                                                                   -------------   ------------
<S>                                                                  <C>            <C>     
                   ASSETS
                   ------
Current assets:
  Cash and cash equivalents                                          $  8,841       $ 19,882
  Short-term investments                                               10,471            -
  Accounts receivable, less allowance for doubtful accounts
    of $522 and $518 at September 30, 1997 and
    December 31, 1996, respectively                                    10,738         12,704
  Other current assets                                                  2,878          2,706
  Deferred tax asset                                                    2,946          2,946
                                                                     --------       --------
    Total current assets                                               35,874         38,238

Property and equipment, at cost                                        10,972         10,057
Less accumulated amortization and depreciation                         (6,764)        (5,401)
                                                                     --------       --------
  Net property and equipment                                            4,208          4,656
Capitalized software costs, net of accumulated
  amortization of $1,179 and $549 at September 30, 1997
  and December 31, 1996, respectively                                     482            482
Other assets                                                              971          1,138
                                                                     --------       --------

    Total assets                                                     $ 41,535       $ 44,514
                                                                     ========       ========

          LIABILITIES AND STOCKHOLDERS' EQUITY
          ------------------------------------

Current liabilities:
  Accounts payable                                                   $  1,975       $  3,012
  Accrued liabilities                                                   4,474          6,098
  Deferred revenue                                                      7,911          8,004
                                                                     --------       --------
    Total current liabilities                                          14,360         17,114

Stockholders' equity:
  Preferred stock, $0.01 par value; 1,000,000 shares authorized
  Common stock, $.0025 par value; 30,000,000 shares
    authorized; 10,319,357 and 10,182,562 shares issued at
    September 30, 1997 and December 31, 1996, respectively                 26             25
  Capital in excess of par value                                       40,861         40,053
  Accumulated deficit                                                 (12,563)       (11,519)
  Treasury stock, 278,698 shares, at cost                                (933)          (933)
  Foreign currency translation adjustment                                (216)          (226)
                                                                     --------       --------
    Total stockholders' equity                                         27,175         27,400
                                                                     --------       --------

    Total liabilities and stockholders' equity                       $ 41,535       $ 44,514
                                                                     ========       ========
</TABLE>

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


                                      -3-

<PAGE>   4

                                  APPLIX, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                                       -----------------------------
                                                       SEPTEMBER 30,   SEPTEMBER 30,
                                                            1997           1996
                                                       -------------   -------------
                                                                       
<S>                                                       <C>            <C>    
License revenue                                           $ 8,409        $ 9,740
Service revenue                                             3,791          3,615
                                                                       
                                                          -------        -------
    Total revenues                                         12,200         13,355
                                                                       
Cost of license revenue                                       799            650
Cost of service revenue                                     1,666          1,390
                                                                       
                                                          -------        -------
    Gross margin                                            9,735         11,315
                                                                       
Operating expenses:                                                    
    Selling and marketing                                   6,745          5,702
    Research and development                                2,100          1,703
    General and administrative                                884            816
                                                          -------        -------
                                                                       
    Total operating expenses                                9,729          8,221
                                                          -------        -------
                                                                       
Operating income                                                6          3,094
Interest income, net                                          243            358
                                                          -------        -------
                                                                       
Net income before income taxes                                249          3,452
                                                                       
Provision for income taxes                                     93          1,208
                                                          -------        -------
                                                                       
Net  income                                               $   156        $ 2,244
                                                          =======        =======
                                                                       
Net income per common and common equivalent share                      
(see Note C)                                              $  0.01        $  0.21
                                                          =======        =======
                                                                       
Weighted average common and common equivalent shares                   
outstanding                                                11,319         10,635
                                                          =======        =======
</TABLE>
                                                                     
        The accompanying notes are an integral part of the consolidated
                             financial statements.

                                      -4-
<PAGE>   5


                                  APPLIX, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                  NINE MONTHS ENDED
                                                           -----------------------------
                                                           SEPTEMBER 30,   SEPTEMBER 30,
                                                               1997            1996
                                                           -------------   -------------

<S>                                                           <C>            <C>    
License revenue                                               $24,286        $26,097
Service revenue                                                10,715         10,161
                                                              -------        -------

    Total revenues                                             35,001         36,258

Cost of license revenue                                         2,404          1,714
Cost of service revenue                                         4,916          3,623
                                                              -------        -------

    Gross margin                                               27,681         30,921

Operating expenses:
    Selling and marketing                                      20,686         15,491
    Research and development                                    6,645          4,709
    General and administrative                                  2,730          2,487
                                                              -------        -------

    Total operating expenses                                   30,061         22,687
                                                              -------        -------

Operating (loss) income                                        (2,380)         8,234
Interest income, net                                              717            985
                                                              -------        -------

Net (loss) income before income taxes                          (1,663)         9,219

Provision for (benefit from) income taxes                        (619)         3,226
                                                              -------        -------

Net (loss) income                                             $(1,044)       $ 5,993
                                                              =======        =======


Net (loss) income per common and common equivalent share
(see Note C)                                                  $ (0.10)       $  0.56
                                                              =======        =======


Weighted average common and common equivalent shares
outstanding                                                     9,966         10,707
                                                              =======        =======
</TABLE>
        The accompanying notes are an integral part of the consolidated
                             financial statements.


                                      -5-
<PAGE>   6

                                  APPLIX, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   NINE MONTHS ENDED
                                                            -------------------------------
                                                            SEPTEMBER 30,     SEPTEMBER 30,
                                                                  1997             1996
                                                            -------------     -------------

<S>                                                            <C>               <C>
Operating activities:
Net (loss) income                                              $ (1,044)         $ 5,993
Adjustments to reconcile net (loss) income to net cash                       
(used in) provided by operating activities:                                  
    Depreciation                                                  1,363              771
    Amortization of capitalized software costs                      630              461
    Amortization of goodwill                                        339              119
    Provision for doubtful accounts                                   4               (8)
    Changes in operating assets and liabilities:                             
    Accounts receivable                                           1,962           (1,633)
    Other assets                                                   (344)          (1,202)
    Accounts payable                                             (1,037)            (380)
    Accrued liabilities                                          (1,885)             494
    Deferred revenue                                                (93)          (1,943)
                                                               --------          -------
                                                                             
    Cash (used in) provided by operating activities                (105)           2,672
                                                                             
Investing activities:                                                        
    Purchase of property and equipment                             (915)          (2,243)
    Capitalized software costs                                     (630)            (580)
    Purchase of short-term investments                          (10,471)             -
    Investment in foreign subsidiary                                -               (389)
                                                               --------          -------
                                                                             
    Cash used in investing activities                           (12,016)          (3,212)
                                                                             
Financing activities:                                                        
    Capital lease borrowings                                        329              -
    Principal payments under capital lease obligations              (68)             (47)
    Proceeds from exercise of incentive stock options               809            1,398
                                                               --------          -------
                                                                             
    Cash provided by financing activities                         1,070            1,351
                                                                             
    Effect of exchange rate changes on cash                          10             (141)
                                                               --------          -------
                                                                             
    Net (decrease) increase in cash and cash equivalents        (11,041)             670
                                                                             
Cash and cash equivalents at beginning of period                 19,882           25,380
                                                               --------          -------
                                                                             
Cash and cash equivalents at end of period                     $  8,841          $26,050
                                                               ========          =======
                                                                             
Supplemental disclosure of cash flow information:                            
                                                                             
Cash paid during the period for taxes                          $    104          $ 1,886
                                                               ========          =======
</TABLE>

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

                                      -6-
<PAGE>   7

                                  APPLIX, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.  NATURE OF BUSINESS:

     Applix is a leading provider of software for managing customer interaction,
real time decision support and office productivity across globally networked,
extended enterprise environments. The Company provides cross-platform
client/server, network-centric, webtop and thin-client computing solutions
throughout its core offerings. The solutions offered within customer interaction
software (CIS) is Applix Enterprise. The Company offers the following array of
solutions within decision support software (DSS): Applix TM1, real time
multi-dimensional analysis software for financial decision support systems;
Applixware, an open suite of desktop and development tools for accessing,
analyzing and communicating information in real time, Applix Office for
UNIX(R) and Windows NT and Anyware Office for Java-based desktops; and Applix
Anyware, an application development and deployment solution that leverages Java
to customize and deploy Applix's full suite of applications.

B.  BASIS OF PRESENTATION:
        
     The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting only of those of a normal
recurring nature, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows at the dates and for the periods
indicated. While the Company believes that the disclosures presented are
adequate to make the information not misleading, these financial statements
should be read in conjunction with the audited consolidated financial statements
and related notes included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
        
     The results of the three month and nine month periods ended September 30,
1997 are not necessarily indicative of the results to be expected for the full
fiscal year.

C.  COMPUTATION OF NET INCOME PER COMMON SHARE
        
     Net income per common share is computed based upon the weighted average
number of common and common equivalent shares outstanding. Common equivalent
shares are included in the per share calculations where the effect of their
inclusion would be dilutive. Common equivalent shares result from the assumed
exercise of outstanding common stock options at the average market price during
the period (the treasury stock method). Fully diluted net income per common
share is substantially the same as primary earnings per share.

D.  SHORT-TERM INVESTMENTS

     All short-term investments are classified as available-for-sale, and are in
liquid high grade commercial paper. Those investments that are part of the
Company's cash management portfolio with original maturities of three months or
less are reported as cash equivalents.

E.  RECENTLY ISSUED ACCOUNTING STANDARD

     In February, 1997, The Financial Accounting Standards Board issued
Statement on Financial Accounting Standards No. 128, Earnings per Share (SFAS
128). This statement attempts to simplify

                                      -7-
<PAGE>   8

                                  APPLIX, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

E. RECENTLY ISSUED ACCOUNTING STANDARD (CONTINUED)


current standards used in the United States for computing earnings per share and
make them more comparable with international standards. SFAS 128 replaces APB
Opinion 15 and related interpretations (APB 15). APB 15 requires the dual
presentation of primary and fully diluted earnings per share. Primary EPS shows
the amount of income attributed to each share of common stock if every common
stock equivalent were converted into common stock. Fully-diluted EPS considers
common stock equivalents and all other securities that could be converted into
common stock.
        
     SFAS 128 simplifies the computation of EPS by replacing the presentation of
primary EPS and fully-diluted EPS with a presentation of basic EPS and diluted
EPS, respectively. Basic EPS includes no dilution and is computed by dividing
income available to common stockholders by all the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully-diluted EPS. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and earlier
application is not permitted. SFAS 128 requires restatement of all prior period
earnings per share data. The Company will adopt SFAS 128 in 1997, but management
believes it will not have a material impact on the EPS.
        
     In June 1997, the Financial Accounting Standard Board also issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
This Statement requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. The Statement will become effective for fiscal years
beginning after December 15, 1997. The Company will adopt the new standard
beginning in the first quarter of the fiscal year ending December 31, 1998.
        
     In June 1997, the Financial Accounting Standard Board also issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131). SFAS No. 131 specifies new
guidelines for determining a company's operating segments and related
requirements for disclosure. The Company is in the process of evaluating the
impact of the new standard on the presentation of the financial statements and
the disclosures therein. The Statement will become effective for fiscal years
beginning after December 13, 1997. The Company will adopt the new standard for
the fiscal year ending December 31, 1998.

                                      -8-
<PAGE>   9

                                  APPLIX, INC.

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

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1996

     For each quarter from the second quarter of 1993 through the fourth quarter
of 1996, the Company's revenues increased over the prior quarter. In support of
that growth, the Company's infrastructure and employee base grew accordingly.
For the first two quarters of 1997 the Company experienced disappointing
revenues, which did not continue the growth that the Company had been
experiencing. Such revenues, combined with the Company's existing expense
levels, resulted in a net loss for the first two quarters of 1997. In response
to these results, the Company in the quarter ended June 30, 1997 effected a
reorganization and reduced its European headcount by approximately 10 people and
its domestic headcount by 10 people. The cost of these reductions was
approximately $250,000 and was included in the operating expenses for the second
quarter. During the quarter ended September 30, 1997 the Company increased
revenue over the prior two quarters and recorded a small profit.
        
     License revenue decreased 14% to $8,409,000 for the quarter ended September
30, 1997 from $9,740,000 for the quarter ended September 30, 1996. Domestic
license revenue decreased 12% to $4,638,000 from $5,245,000 as compared to the
same period in 1996. International license revenue decreased 16% to $3,771,000
from $4,495,000 for the same period in 1996. Revenue from the financial services
sector decreased 50% to $2,967,000 from $5,924,000 for the quarter ended
September 30, 1996. Revenue from the government sector decreased 2% to
$2,018,000 from $2,069,000 for the quarter ended September 30, 1996. Revenue
from the government sector has fluctuated significantly in the past, and the
Company expects fluctuations to continue. The Company's future operating results
will be dependent on the continued acceptance and success of the customer
interaction software (CIS) which consists of Applix Enterprise, and decision
support software (DSS) which consists of Applix TM1, Applixware and Applix
Anyware.
         
     Service revenue increased 5% to $3,791,000 (or 31% of total revenues) from
$3,615,000 (or 27% of total revenues) for the same period in 1996. This increase
was due to an increase in maintenance revenue from the Company's growing
customer base.
        
     Of the total revenue for the quarter ended September 30, 1997, 64% was
derived from the DSS product line, and 36% was derived from the CIS product
line. For the quarter ended September 30, 1996, 83% of the revenue was derived
from the DSS product line, and 17% from the CIS product line.
        
     Gross margin decreased to 80% for the quarter ended September 30, 1997 from
85% for the quarter ended September 30, 1996. License revenue gross margin
decreased to 90% from 93% for the same period in 1996 primarily due to an
increase in royalty costs. A portion of the royalty increase was attributable to
the increased sales of the Applix Enterprise and Applix TM1 product lines, which
have a higher royalty expense than the Applixware product line. Service revenue
gross margin decreased to 56% for the quarter ended September 30, 1997 from 62%
for the quarter ended September 30, 1996, due to the cost of outside consultants
used for the CIS product line.
        
     Selling and marketing expenses, which include domestic sales and marketing
expenses and the cost of the Company's international operations, increased 18%
to $6,745,000 for the quarter ended September 30, 1997 from $5,702,000 for the
quarter ended September 30, 1996. The expense increase was primarily due to
marketing programs, cost of personnel and the additional operating expenses from
the acquisition of Sinper Corporation in October 1996. These expenses increased
as a percentage of total revenues to 55% for quarter ended September 30, 1997
from 43% for quarter ended September 30, 1996. The Company is refocusing its
investment in marketing activities on the emerging segments of the CIS and DSS
product lines. The Company expects to maintain current levels of spending for
the 


                                      -9-
<PAGE>   10

remainder of 1997. However, the current spending level as a percentage of
revenue may not be indicative of spending levels for future years due to this
marketing investment.
        
     Research and development expenses, which consist primarily of employee
salaries, benefits and related expenses, increased 23% to $2,100,000 for the
quarter ended September 30, 1997 from $1,703,000 for the quarter ended September
30, 1996, and increased as a percentage of total revenues to 17% for the quarter
ended September 30, 1997 from 13% for the quarter ended September 30, 1996. The
increase in these expenses was primarily due to increased cost of personnel and
the additional operating expenses from the acquisition of Sinper Corporation in
October 1996. Total research and development expenditures, including capitalized
software costs, were $2,279,000, including $179,000 in capitalized software
development costs, or 19% of total revenues for the quarter ended September 30,
1997 compared to $1,888,000, including $185,000 in capitalized software
development costs, or 14% of total revenues for the quarter ended September 30,
1996.
        
     General and administrative expenses, which include the costs of the
finance, human resources and administrative functions, increased 8% to $884,000
for the quarter ended September 30, 1997 from $816,000 for the same period in
1996, and increased as a percentage of total revenues between these periods to
7% from 6%. The increase in these expenses was primarily due to the hiring of
additional personnel.
        
     Interest income decreased to $243,000 from $358,000 due to lower cash
balances available for investments primarily as a result of the purchase of
Sinper Corporation in October 1996. Cash, cash equivalents and short-term
investments were $19,312,000 as of September 30, 1997 which is consistent with
cash and cash equivalents as of December 31, 1997.
        
     The Company recorded a provision for income taxes for the quarter ended
September 30, 1997 of $93,000 based on the Company's estimated annual effective
tax rate of 37%, compared to a provision of $1,208,000 or 35% of net income for
the same period in 1996.


RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1996

     License revenue decreased 7% to $24,286,000 for the nine months ended
September 30, 1997 from $26,097,000 for the nine months ended September 30,
1996. Domestic license revenue decreased 2% to $14,146,000 from $14,465,000 for
the same period in 1996. International license revenue decreased 13% to
$10,140,000 from $11,632,000 for the same period in 1996. Revenue from the
financial services sector decreased 35% to $10,287,000 from $15,834,000 for the
nine months ended September 30, 1996. Revenue from the government sector
decreased 5% to $7,137,000 from $7,494,000 for the nine months ended September
30, 1996.

     Service revenue increased 5% to $10,715,000 (or 31% of total revenues) from
$10,161,000 (or 28% of total revenues) for the same period in 1996. This
increase was primarily due to increased maintenance revenue from the Company's
growing customer base.
           
     Of the total revenue for the nine months ended September 30, 1997, 71% was
derived from the DSS product line, and 29% was derived from the CIS product
line. For the nine months ended September 30, 1996, 87% of the revenue was
derived from the DSS product line, and 13% from the CIS product line.
           
     Gross margin decreased to 79% for the nine months ended September 30, 1997
from 85% for the nine months ended September 30, 1996. License gross margin
decreased to 90% from 93% for the same period in 1996 due to the reduction in
license revenue, and the increase in capitalized software amortization, royalty
and documentation costs. Service gross margin decreased to 54% for the nine
months ended September 30, 1997 from 64% for the nine months ended September 30,
1996, due to the increase in the cost of outside consultants used for the CIS
product line.
           

                                      -10-

<PAGE>   11

     Selling and marketing expenses increased 34% to $20,686,000 for the nine
months ended September 30, 1997 from $15,491,000 for the nine months ended
September 30, 1996. The expense increase was primarily due to marketing
programs, staffing levels and the additional operating expenses from the
acquisition of Sinper Corporation in October 1996. These expenses increased as a
percentage of total revenues to 59% from 43% for the same period in 1996.
           
     Research and development expenses increased 41% to $6,645,000 for the nine
months ended September 30, 1997 from $4,709,000 for the nine months ended
September 30, 1996, and increased as a percentage of total revenues to 19% for
the nine months ended September 30, 1997 from 13% for the nine months ended
September 30, 1996. The increase in these expenses was primarily due to
increased cost of personnel, staffing levels and the additional operating
expenses from the acquisition of Sinper Corporation in October 1996. Total
research and development expenditures, including capitalized software costs,
were $7,275,000, including $630,000 in capitalized software costs, or 21% of
total revenue for the nine months ended September 30, 1997 and $5,289,000,
including $580,000 in capitalized software development costs, or 15% of total
revenues for the nine months ended September 30, 1996.
           
     General and administrative expenses increased 10% to $2,730,000 for the
nine months ended September 30, 1997 from $2,487,000 for the same period in
1996, and increased as a percentage of total revenues between these periods to
8% from 7%. The increase in these expenses was primarily due to the hiring of
additional personnel.
           
     Interest income decreased to $717,000 from $985,000 due to lower cash
balances available for investments primarily as a result of the purchase of
Sinper Corporation in October 1996.
           
     The Company recorded a provision for income tax benefit for the nine months
ended September 30, 1997 of $619,000 based on the Company's estimated annual
effective tax rate of 37%, compared to a provision of $3,226,000 or 35% of net
income for the same period in 1996.

LIQUIDITY AND CAPITAL RESOURCES

     The Company used funds from operations of $105,000 for the nine months
ended September 30, 1997. An additional $1,545,000 was used in investing
activities for the purchase of equipment and in capitalized software costs. The
proceeds generated from the exercise of incentive stock options and employee
stock purchase plans was $809,000. As of September 30, 1997, the Company had
cash, cash equivalents and short-term investments of $19,312,000 and working
capital of $21,514,000.
           
     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 1997.
           
     To date, inflation has not had a material adverse effect on the Company's
operating results.

FACTORS AFFECTING FUTURE OPERATING RESULTS

         
     This Form 10-Q contains a number of forward-looking statements. Any
statements contained herein (including without limitation statements to the
effect that the Company or its management "believes", "expects", "anticipates",
"plans", and similar expressions) that are not statements of historical fact
should be considered forward-looking statements. There are a number of important
factors that could cause the Company's actual results to differ materially from
those indicated by such forward-looking statements. These factors include,
without limitation, those set forth below.
           
     During the past several years, the Company has derived the substantial
majority of its revenue from its Applixware product family; however, Applixware
sales have been declining in recent quarters. The Company introduced the Applix
Enterprise (CIS) product line, based on technology acquired in its acquisition
of Target Systems Corporation in late 1995, and introduced the Applix TM1 (DSS)
product line, acquired through its acquisition of Sinper Corporation, in late
1996. In addition, the Company has developed and introduced the Applix Anyware
(DSS) product line. The future success of the Company


                                      -11-
<PAGE>   12

is substantially dependent upon these product lines, and there can be no
assurance that these product lines will achieve the sales levels anticipated by
the Company. Moreover, it is possible that the introduction of certain of these
new product lines may have an adverse affect on the sales of the Company's
existing products. In addition, the existence of a number of different product
lines presents management, sales and marketing, and product development
challenges that the Company has not had to address in the past, and there can be
no assurance that the Company will be successful in addressing these challenges.

     The Company's DSS product line is marketed as real time decision support
software. Accordingly, the Company's future success is substantially dependent
upon the growth of the demand for real time decision support software in a
number of industry sectors and the Company's ability to identify this demand,
develop solutions for the industry-specific needs and successfully market its
products to customers requiring such solutions. In addition, the Company's
success within any particular market for real time decision support applications
is dependent in large part upon its ability to establish strategic marketing
relationships with leading vendors within that market. Presently, a significant
portion of the DSS business is conducted through indirect sales channels with
value added resellers' and original equipment manufacturers' (ie. Hyperion and
IQ Software). Since the Company is dependent upon their efforts and commitment
to selling DSS products in the market place, any decline in this could effect
the sales volume derived from these third parties.

     Substantially all of the Applixware licenses sold by the Company are for
use on UNIX operating systems. As a result, the Company's financial performance
is significantly dependent upon the continued market acceptance of this
operating system and continued sales of UNIX-based workstations, particularly by
Sun Microsystems. With newer operating systems that permit 32-bit processing on
the desktop, such as Microsoft Windows/NT and Windows 95, the Company is now
competing directly with vendors of PC software applications such as Microsoft,
Lotus and Corel. This represents a more competitive environment than the Company
has faced in its UNIX market and will likely result in lower prices and lower
gross margins for the Company's products. Since the acquisition of Sinper
Corporation, the Company now has products which compete with more established
companies in the market place such as Arbor Software and Oracle Corporation.

     The Company is still dependent to a degree on revenue from domestic and
international customers in the securities trading industry, which has been the
first industry to embrace real time decision support solutions. License revenue
from the financial services sector comprised 24% of the Company's total license
revenue during the three months ended September 30, 1997 and 30% for the nine
months ended September 30, 1997, and the Company believes that the substantial
majority of its financial services sector revenue was derived from companies
engaged in the trading of securities. The securities trading industry is
volatile as a result of its dependence upon unpredictable factors such as
economic conditions and securities market conditions. The Company's financial
performance will be subject to, and may be adversely affected by, factors
affecting the economic performance and capital expenditure levels of the
securities trading industry.

     Future revenue growth will also depend significantly on sales from the
Applix Enterprise (CIS) product line. This market is growing rapidly, but the
Company faces intense competition from companies in this market, such as Remedy,
Vantive, Clarify and Onyx.

     The Company's quarterly operating results have varied and may continue to
vary significantly depending on factors such as the timing of significant
orders, the timing of new product introductions and upgrades by the Company and
its competitors, and the mix of distribution channels through which the products
are sold. Revenues are particularly difficult to predict because of the sales
cycle of the Company's products, which varies substantially from customer to
customer and industry to industry. The majority of the Company's license revenue
in a quarter is derived from orders received in that quarter. Accordingly,
delays in orders are likely to result in the associated revenue not being
realized by the Company in that period. Moreover, the Company's expense levels
are based in part on expectations of future revenue levels, and a shortfall in
the expected revenue could therefore result in a disproportionate decrease in
the Company's net income.


                                      -12-
<PAGE>   13

     Most of the Company's international sales through subsidiaries are
denominated in foreign currencies. Accordingly, a decrease in the value of
foreign currencies relative to the U.S. dollar could result in a significant
decrease in U.S. dollar revenue received by the Company for its international
sales. Due to the number of currencies involved in the Company's international
sales and the volatility of foreign currency exchange rates, the Company cannot
predict the effect of exchange rate fluctuations on future operating results. To
date, foreign currency fluctuations have not had a material adverse effect on
the Company's operating results. The Company has engaged in hedging transactions
to cover its currency translation exposure on intercompany balances for the
purpose of mitigating the effect of foreign currency fluctuations. The
international portion of the Company's business is also subject to a number of
inherent risks, including difficulties in building and managing foreign
operations and foreign reseller networks, difficulties or delays in translating
products into foreign languages, import/export duties and quotas, and unexpected
regulatory, economic or political changes in foreign markets.

     License revenue from sales (directly or indirectly) to branches or agencies
of the U.S. Government represented approximately 17%, 23% and 27% of total
license revenue during the nine months ended September 30, 1997, 1996 and 1995,
respectively. The Company typically derives its government contract revenue from
a relatively small number of subcontract awards which tend to be significant in
amount for a company of Applix's size. Consequently, any failure to obtain a
particular subcontract award, or any delay on the part of the government agency
in making the award or ordering products under an awarded contract, could have a
material adverse effect on the financial performance of the Company within a
given period, and the Company's government contract revenue is therefore likely
to continue to fluctuate significantly from period to period.


                                      -13-
<PAGE>   14

PART II.  OTHER INFORMATION
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(A)  EXHIBITS

The exhibit filed as a part of this Form 10-Q is the following:

EXHIBIT 27.1:  Financial Data Schedule


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<PAGE>   15
                                   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/ Patrick J. Scannell, Jr.
                                            ------------------------------------
                                            Patrick J. Scannell, Jr.
                                            Executive Vice President
                                            Chief Financial Officer and
                                            Treasurer

Date:   November 10, 1997


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