##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended June 30, 2006ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 0-25040
 APPLIX, INC.
 (Exact name of registrant as specified in its charter)
 MASSACHUSETTS
    
    04-2781676(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification
Number)
 289 Turnpike Road, Westborough, Massachusetts 01581
(Address of principal executive offices)
 (508) 870-0300
(Registrants telephone number)
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
 Large accelerated filer o Accelerated filer o Non-accelerated filer þ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Securities Exchange Act of 1934). Yes o No þ
 As of August 1, 2006, the Registrant had 15,561,851 outstanding shares of common stock.




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##### 



APPLIX, INC.
 Form 10-Q
 For the Quarterly Period Ended June 30, 2006
 Table of Contents
 PageNo.Part I  Financial InformationItem 1. Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005
    
    3Condensed Consolidated Statements of Income for the three and six months ended June 30, 2006 and 2005
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    21Item 4. Controls and Procedures
    
    21Part II  Other Information
    
    22Item 1A. Risk Factors
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    26Item 6. Exhibits
    
    26Signature
    
    27EX-31.1 Section 302 Certification of C.E.O.EX-31.2 Section 302 Certification of C.F.O.EX-32.1 Section 906 Certification of C.E.O.EX-32.2 Section 906 Certification of C.F.O.
    2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Applix, Inc.
 
 Condensed Consolidated Balance Sheets
(In thousands, except share and par value amounts)
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,467
    
    
    $
    20,740Short-term investments
    
    
    4,865
    
    
    
    4,198Accounts receivable, less allowance for doubtful accounts of $227 and $231,
respectively
    
    
    10,083
    
    
    
    8,066Other current assets
    
    
    1,610
    
    
    
    1,295Deferred tax assets
    
    
    171
    
    
    
    164Total current assets
    
    
    38,196
    
    
    
    34,463Restricted cash
    
    
    400
    
    
    
    500Property and equipment, net
    
    
    1,207
    
    
    
    953Other assets
    
    
    660
    
    
    
    712Intangible asset, net of accumulated amortization of $1,313 and $1,188, respectively
    
    
    187
    
    
    
    312Unallocated purchase price (Note 3)
    
    
    16,280
    
    
    
    Goodwill
    
    
    1,158
    
    
    
    1,158TOTAL ASSETS
    
    $
    58,088
    
    
    $
    38,098LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,208
    
    
    $
    1,504Accrued expenses
    
    
    9,108
    
    
    
    5,460Accrued restructuring expenses, current portion
    
    
    48
    
    
    
    44Current portion of debt
    
    
    1,625
    
    
    
    Deferred revenues
    
    
    11,347
    
    
    
    9,143Total current liabilities
    
    
    24,336
    
    
    
    16,151Accrued restructuring expenses, long-term portion
    
    
    176
    
    
    
    186Long-term debt
    
    
    4,875
    
    
    
    Other long-term liabilities
    
    
    85
    
    
    
    133Total liabilities
    
    
    29,472
    
    
    
    16,470Commitments and contingencies (Note 9)Stockholders equity:Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and
outstandingCommon stock, $0.0025 par value; 30,000,000 shares authorized;
15,517,076 and 14,923,894 shares issued and outstanding, respectively
    
    
    39
    
    
    
    37Additional paid-in capital
    
    
    61,521
    
    
    
    57,178Accumulated deficit
    
    
    (31,511
    )
    
    
    (33,935
    )Accumulated other comprehensive loss
    
    
    (1,433
    )
    
    
    (1,652
    )Total stockholders equity
    
    
    28,616
    
    
    
    21,628TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    58,088
    
    
    $
    38,098
  3




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Applix, Inc.
 
 Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Software license
    
    $
    8,192
    
    
    $
    5,026
    
    
    $
    12,619
    
    
    $
    8,473Professional services and maintenance
    
    
    5,128
    
    
    
    4,406
    
    
    
    9,694
    
    
    
    8,607Total revenues
    
    
    13,320
    
    
    
    9,432
    
    
    
    22,313
    
    
    
    17,080Cost of revenues:Software license
    
    
    131
    
    
    
    33
    
    
    
    175
    
    
    
    56Professional services and maintenance
    
    
    1,149
    
    
    
    988
    
    
    
    2,165
    
    
    
    1,946Total cost of revenues
    
    
    1,280
    
    
    
    1,021
    
    
    
    2,340
    
    
    
    2,002Gross margin
    
    
    12,040
    
    
    
    8,411
    
    
    
    19,973
    
    
    
    15,078Operating expenses:Sales and marketing
    
    
    5,707
    
    
    
    3,915
    
    
    
    10,280
    
    
    
    7,310Product development
    
    
    1,739
    
    
    
    1,294
    
    
    
    3,307
    
    
    
    2,445General and administrative
    
    
    2,205
    
    
    
    1,406
    
    
    
    3,929
    
    
    
    2,767Amortization of an acquired intangible asset
    
    
    62
    
    
    
    62
    
    
    
    125
    
    
    
    125Total operating expenses
    
    
    9,713
    
    
    
    6,677
    
    
    
    17,641
    
    
    
    12,647Operating income
    
    
    2,327
    
    
    
    1,734
    
    
    
    2,332
    
    
    
    2,431Non-operating income (expense):Interest and other income, net
    
    
    349
    
    
    
    114
    
    
    
    475
    
    
    
    94Income before income taxes
    
    
    2,676
    
    
    
    1,848
    
    
    
    2,807
    
    
    
    2,525Provision for income taxes
    
    
    323
    
    
    
    120
    
    
    
    335
    
    
    
    166Income from continuing operations
    
    
    2,353
    
    
    
    1,728
    
    
    
    2,472
    
    
    
    2,359Discontinued operations:Loss from discontinued operations
    
    
    (26
    )
    
    
    (30
    )
    
    
    (48
    )
    
    
    (50
    )Net income
    
    $
    2,327
    
    
    $
    1,698
    
    
    $
    2,424
    
    
    $
    2,309Net income (loss) per share, basic and diluted:Continuing operations, basic
    
    $
    0.15
    
    
    $
    0.12
    
    
    $
    0.16
    
    
    $
    0.16Continuing operations, diluted
    
    $
    0.14
    
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.14Discontinued operations, basic and diluted
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )Net income per share, basic
    
    $
    0.15
    
    
    $
    0.12
    
    
    $
    0.16
    
    
    $
    0.16Net income per share, diluted
    
    $
    0.14
    
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.14Weighted average number of shares outstanding:Basic
    
    
    15,193
    
    
    
    14,627
    
    
    
    15,105
    
    
    
    14,542Diluted
    
    
    16,702
    
    
    
    16,129
    
    
    
    16,581
    
    
    
    16,284
  4




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Applix, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 Six Months EndedJune 30,2006
    
    
    2005(in thousands)Cash flows from operating activities:Net income
    
    $
    2,424
    
    
    $
    2,309Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation
    
    
    239
    
    
    
    143Amortization
    
    
    125
    
    
    
    125Stock-based compensation expense
    
    
    1,045
    
    
    
    30Changes in operating assets and liabilities:(Increase) decrease in accounts receivable
    
    
    (172
    )
    
    
    557(Increase) decrease in prepaid and other current assets
    
    
    (66
    )
    
    
    56Decrease (increase) in other assets
    
    
    131
    
    
    
    (5
    )Increase in accounts payable
    
    
    186
    
    
    
    327Increase in accrued expenses
    
    
    723
    
    
    
    761Decrease in accrued restructuring expenses
    
    
    (23
    )
    
    
    (110
    )Decrease in other liabilities
    
    
    (58
    )
    
    
    (55
    )Increase (decrease) in deferred revenues
    
    
    650
    
    
    
    (31
    )Cash provided by operating activities
    
    
    5,204
    
    
    
    4,107Cash flows from investing activities:Acquisition, net of cash acquired
    
    
    (11,138
    )
    
    
    Property and equipment expenditures
    
    
    (348
    )
    
    
    (65
    )Decrease (increase) in restricted cash
    
    
    100
    
    
    
    (100
    )Maturities of short-term investments
    
    
    4,530
    
    
    
    1,650Purchases of short-term investments
    
    
    (5,198
    )
    
    
    (4,530
    )Cash used in investing activities
    
    
    (12,054
    )
    
    
    (3,045
    )Cash flows from financing activities:Proceeds from issuance of common stock under stock plans
    
    
    777
    
    
    
    897Proceeds from long-term debt, net of issuance costs
    
    
    6,451
    
    
    
    Proceeds from notes receivable
    
    
    
    
    
    
    892Cash provided by financing activities
    
    
    7,228
    
    
    
    1,789Effect of exchange rate changes on cash
    
    
    349
    
    
    
    (327
    )Increase in cash and cash equivalents
    
    
    727
    
    
    
    2,524Cash and cash equivalents at beginning of period
    
    
    20,740
    
    
    
    15,924Cash and cash equivalents at end of period
    
    $
    21,467
    
    
    $
    18,448Supplemental disclosure of cash flow informationCash paid for income taxes
    
    $
    266
    
    
    $
    252Supplemental disclosure of non-cash financing activityIn June 2006, the Company issued 330,252 shares of common stock valued at $2.5
million in connection with the acquisition of Temtec International B.V. (Note 3).
  5




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




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AtJune 15,2006(in thousands)Cash
    
    $
    11,455Common stock (330,252 shares)
    
    
    2,500Direct acquisition costs
    
    
    1,273Total
    
    $
    15,228
      AtJune 15,2006Cash and cash equivalents
    
    $
    317Accounts receivable
    
    
    1,440Prepaid and other current assets
    
    
    243Property and equipment
    
    
    175Accounts payable
    
    
    (536
    )Accrued expenses
    
    
    (516
    )Deferred revenue
    
    
    (1,196
    )Assumed Temtec payroll-related liability
    
    
    (545
    )Accrued severance
    
    
    (434
    )Total purchase price allocation
    
    
    (1,052
    )Unallocated purchase price
    
    
    16,280Total purchase price
    
    $
    15,228
 
  7




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##### Table of Contents



Three months
    
    
    Three months
    
    
    Six months
    
    
    Six monthsended
    
    
    ended
    
    
    ended
    
    
    endedJune 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006
    
    
    June 30, 2005(In thousands, except per share amounts)
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues
    
    $
    14,408
    
    
    $
    11,027
    
    
    $
    24,996
    
    
    $
    19,882Net income
    
    $
    1,968
    
    
    $
    1,546
    
    
    $
    1,904
    
    
    $
    1,754Net income per share, basic
    
    $
    0.13
    
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.12Net income per share, diluted
    
    $
    0.12
    
    
    $
    0.09
    
    
    $
    0.11
    
    
    $
    0.11
 4. Long-term Debt and Credit Facility
   (In thousands)2006
    
    $
    5412007
    
    
    2,1672008
    
    
    2,1672009
    
    
    1,625Total
    
    $
    6,500
 5. Stock-based Compensation
 Share-Based Payment Accounting for Stock Issued to Employees,
  i.e. Accounting for Stock-Based Compensation,
 8




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##### Table of Contents



Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30,
    
    
    June 30,2006
    
    
    2006Cost of revenues
    
    $
    19
    
    
    $
    35Sales and marketing
    
    
    201
    
    
    
    369Product development
    
    
    142
    
    
    
    262General and administrative
    
    
    188
    
    
    
    379Total
    
    $
    550
    
    
    $
    1,045
         9




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WeightedAverageNumber
    
    
    Exercise PriceOptions outstanding at January 1, 2006
    
    
    3,467,812
    
    
    $
    3.46Options granted
    
    
    784,000
    
    
    $
    6.39Options exercised
    
    
    (130,784
    )
    
    $
    2.65Options cancelled
    
    
    (65,713
    )
    
    $
    7.95Options outstanding at March 31, 2006
    
    
    4,055,315
    
    
    $
    3.98Options granted
    
    
    110,000
    
    
    $
    7.59Options exercised
    
    
    (83,890
    )
    
    $
    2.30Options cancelled
    
    
    (15,463
    )
    
    $
    5.08Options outstanding at June 30, 2006
    
    
    4,065,962
    
    
    $
    4.11Options exercisable at June 30, 2006
    
    
    2,039,693
    
    
    $
    2.93
    Stock Option
    
    
    PurchasePlans
    
    
    PlanExpected life (years)
    
    
    4.6
    
    
    
    .5Expected stock price volatility
    
    
    56.4
    %
    
    
    32.5
    %Risk free interest rate
    
    
    5.10
    %
    
    
    4.60
    %
 Expected Term,
  10




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##### Table of Contents



Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2005
    
    
    June 30, 2005Net income as reported
    
    $
    1,698
    
    
    $
    2,309Add: Total stock-based employee compensation expense included in reported net income
    
    
    15
    
    
    
    30Deduct: Total stock-based employee compensation expense not included in reported
net income, determined under fair value based method for all awards
    
    
    (407
    )
    
    
    (855
    )Pro forma net income
    
    $
    1,306
    
    
    $
    1,484Net income per share:Basic  as reported
    
    $
    0.12
    
    
    $
    0.16Diluted  as reported
    
    $
    0.11
    
    
    $
    0.14Basic  pro forma
    
    $
    0.09
    
    
    $
    0.10Diluted  pro forma
    
    $
    0.08
    
    
    $
    0.09Weighted average number of shares outstanding:Basic
    
    
    14,627
    
    
    
    14,542Diluted
    
    
    15,747
    
    
    
    15,747
  2005Expected life (years)
    
    
    4Expected stock price volatility
    
    
    89.9
    %Risk free interest rate
    
    
    3.90
    %
 6. Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands, except per share data)Numerator:Income from continuing operations
    
    $
    2,353
    
    
    $
    1,728
    
    
    $
    2,472
    
    
    $
    2,359Loss from discontinued operations
    
    
    (26
    )
    
    
    (30
    )
    
    
    (48
    )
    
    
    (50
    )Net income
    
    $
    2,327
    
    
    $
    1,698
    
    
    $
    2,424
    
    
    $
    2,309Denominator:Denominator for basic net income per share 
Weighted shares outstanding
    
    
    15,193
    
    
    
    14,627
    
    
    
    15,105
    
    
    
    14,542Dilutive effect of assumed exercise of stock options
    
    
    1,509
    
    
    
    1,502
    
    
    
    1,476
    
    
    
    1,742Denominator for diluted net income (loss) per share
    
    
    16,702
    
    
    
    16,129
    
    
    
    16,581
    
    
    
    16,284Basic net income (loss) per shareContinuing operations
    
    $
    0.15
    
    
    $
    0.12
    
    
    $
    0.16
    
    
    $
    0.16Discontinued operations
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )Total net income per share
    
    $
    0.15
    
    
    $
    0.12
    
    
    $
    0.16
    
    
    $
    0.16Diluted net income (loss) per shareContinuing operations
    
    $
    0.14
    
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.14Discontinued operations
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )Total net income per share
    
    $
    0.14
    
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.14
 11




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7. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)
    
    
    (In thousands)Net income
    
    $
    2,327
    
    
    $
    1,698
    
    
    $
    2,424
    
    
    $
    2,309Other comprehensive income (loss) items:Foreign currency translation adjustments
    
    
    46
    
    
    
    (189
    )
    
    
    217
    
    
    
    (253
    )Unrealized loss on short-term investments
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    Other comprehensive income (loss)
    
    
    48
    
    
    
    (189
    )
    
    
    219
    
    
    
    (253
    )Total comprehensive income
    
    $
    2,375
    
    
    $
    1,509
    
    
    $
    2,643
    
    
    $
    2,056
 8. Income Taxes
  9. Commitments and Contingencies
 Contingencies
    12




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10. Restructuring Expenses
   ForeignBalance at
    
    
    
    
    
    
    
    
    
    
    Currency
    
    
    Balance atDecember 31,
    
    
    Restructuring
    
    
    
    
    
    
    Translation
    
    
    June 30,2005
    
    
    Expenses
    
    
    Payments
    
    
    Adjustments
    
    
    2006Facility exit costs
    
    $
    230,000
    
    
    
    
    
    
    $
    (23,000
    )
    
    $
    17,000
    
    
    $
    224,000Total
    
    $
    230,000
    
    
    
    
    
    
    $
    (23,000
    )
    
    $
    17,000
    
    
    $
    224,000
 11. Discontinued Operations
  12. Subsequent Event
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW OF THE COMPANYS OPERATIONS
    13




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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Stock-based compensation
    
    
    Expected volatility is based on the historical volatility of the Companys common stock.
    
    The risk-free interest rate is based on the U.S. Treasury rates on the date of grant
for a term equivalent to the expected life of the options.
    
    The expected life was calculated using the method outlined in SEC Staff Accounting
Bulletin Topic 14.D.2, Expected Term, which represents the average of the contractual
life of the stock option and its graded vesting term, as the Companys historical
experience does not provide a reasonable basis for the expected term of the option.
    
    No dividends payments as the Company intends to retain its earnings to finance future
growth and therefore does not anticipate paying any cash dividends on its common stock in
the foreseeable future.
  14




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##### Table of Contents



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




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##### Table of Contents



RESULTS OF OPERATIONS
 Three and Six Months Ended June 30, 2006 and 2005
 Revenues
 (In thousands, except percentages)Three Months Ended June 30,
    
    
    Six Months Ended June 30,Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percentof
    
    
    
    
    
    
    of
    
    
    
    
    
    
    of
    
    
    
    
    
    
    of2006
    
    
    Revenue
    
    
    2005
    
    
    Revenue
    
    
    2006
    
    
    Revenue
    
    
    2005
    
    
    RevenueSoftware License Revenues
    
    $
    8,192
    
    
    
    62
    %
    
    $
    5,026
    
    
    
    53
    %
    
    $
    12,619
    
    
    
    57
    %
    
    $
    8,473
    
    
    
    50
    %Professional Services Revenues
    
    
    592
    
    
    
    4
    %
    
    
    544
    
    
    
    6
    %
    
    
    1,023
    
    
    
    4
    %
    
    
    1,010
    
    
    
    6
    %Maintenance Revenues
    
    
    4,536
    
    
    
    34
    %
    
    
    3,862
    
    
    
    41
    %
    
    
    8,671
    
    
    
    39
    %
    
    
    7,597
    
    
    
    44
    %Total
Professional Services and Maintenance Revenues
    
    
    5,128
    
    
    
    38
    %
    
    
    4,406
    
    
    
    47
    %
    
    
    9,694
    
    
    
    43
    %
    
    
    8,607
    
    
    
    50
    %Total Revenues
    
    $
    13,320
    
    
    
    100
    %
    
    $
    9,432
    
    
    
    100
    %
    
    $
    22,313
    
    
    
    100
    %
    
    $
    17,080
    
    
    
    100
    %
  Software License Revenues
    Professional Services and Maintenance
  16




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##### Table of Contents



Cost of Revenues
 (In thousands, except percentages)Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    2005Cost of Software License Revenues
    
    $
    131
    
    
    
    
    
    
    $
    33
    
    
    
    
    
    
    $
    175
    
    
    
    
    
    
    $
    56Cost of Professional Services Revenues and
Maintenance Revenues:Cost of Professional Services Revenues
    
    
    474
    
    
    
    
    
    
    
    379
    
    
    
    
    
    
    
    885
    
    
    
    
    
    
    
    789Cost of Maintenance Revenues
    
    
    675
    
    
    
    
    
    
    
    609
    
    
    
    
    
    
    
    1,280
    
    
    
    
    
    
    
    1,157Total
    
    
    1,149
    
    
    
    
    
    
    
    988
    
    
    
    
    
    
    
    2,165
    
    
    
    
    
    
    
    1,946Total Cost of Revenues
    
    $
    1,280
    
    
    
    
    
    
    $
    1,021
    
    
    
    
    
    
    $
    2,340
    
    
    
    
    
    
    $
    2,002Gross Margin:
    
    
    
    
    
    
    (A
    )
    
    
    
    
    
    
    (A
    )
    
    
    
    
    
    
    (A
    )
    
    
    
    
    
    
    (A
    )Software License
    
    $
    8,061
    
    
    
    98
    %
    
    $
    4,993
    
    
    
    99
    %
    
    $
    12,444
    
    
    
    99
    %
    
    $
    8,417
    
    
    
    99
    %Professional Services and Maintenance:Professional Services
    
    
    118
    
    
    
    20
    %
    
    
    165
    
    
    
    30
    %
    
    
    138
    
    
    
    13
    %
    
    
    221
    
    
    
    22
    %Maintenance
    
    
    3,861
    
    
    
    85
    %
    
    
    3,253
    
    
    
    84
    %
    
    
    7,391
    
    
    
    85
    %
    
    
    6,440
    
    
    
    85
    %Total
    
    
    3,979
    
    
    
    78
    %
    
    
    3,418
    
    
    
    78
    %
    
    
    7,529
    
    
    
    78
    %
    
    
    6,661
    
    
    
    77
    %Total Gross Margin
    
    $
    12,040
    
    
    
    90
    %
    
    $
    8,411
    
    
    
    89
    %
    
    $
    19,973
    
    
    
    90
    %
    
    $
    15,078
    
    
    
    88
    %
 
 (A)
    
    Gross margins calculated as a percentage of related revenues. Cost of Software License Revenues
  Cost of Professional Services and Maintenance Revenues
  17




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##### Table of Contents



Operating Expenses
 (In thousands, except percentages)Three Months Ended June 30,
    
    
    Six Months Ended June 30,Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of2006
    
    
    Revenues
    
    
    2005
    
    
    Revenues
    
    
    2006
    
    
    Revenues
    
    
    2005
    
    
    RevenuesSales and marketing
    
    $
    5,707
    
    
    
    43
    %
    
    $
    3,915
    
    
    
    42
    %
    
    $
    10,280
    
    
    
    46
    %
    
    $
    7,310
    
    
    
    43
    %Product development
    
    
    1,739
    
    
    
    13
    %
    
    
    1,294
    
    
    
    14
    %
    
    
    3,307
    
    
    
    15
    %
    
    
    2,445
    
    
    
    14
    %General and administrative
    
    
    2,205
    
    
    
    17
    %
    
    
    1,406
    
    
    
    15
    %
    
    
    3,929
    
    
    
    18
    %
    
    
    2,767
    
    
    
    16
    %Amortization of acquired
intangible asset
    
    
    62
    
    
    
    
    %
    
    
    62
    
    
    
    1
    %
    
    
    125
    
    
    
    1
    %
    
    
    125
    
    
    
    1
    %Total operating expenses
    
    $
    9,713
    
    
    
    73
    %
    
    $
    6,677
    
    
    
    71
    %
    
    $
    17,641
    
    
    
    79
    %
    
    $
    12,647
    
    
    
    74
    %
 Sales and Marketing Expenses
  Product Development Expenses
  General and Administrative Expenses
  18




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##### Table of Contents



Amortization of Acquired Intangible Asset
  Interest and Other Income, Net
   Provision for Income Taxes
  Discontinued Operations
  LIQUIDITY AND CAPITAL RESOURCES
   19




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##### Table of Contents



Less Than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsNon-cancelable operating leases
    
    $
    5,089,000
    
    
    $
    1,357,000
    
    
    $
    2,368,000
    
    
    $
    1,364,000
    
    
    $
    Non-cancelable capital leases
    
    
    51,000
    
    
    
    23,000
    
    
    
    28,000
    
    
    
    
    
    
    
    Long-term debt
    
    
    6,500,000
    
    
    
    1,625,000
    
    
    
    4,333,333
    
    
    
    541,667
    
    
    
    Total contractual cash obligations
    
    $
    11,640,000
    
    
    $
    3,005,000
    
    
    $
    6,729,333
    
    
    $
    1,905,667
    
    
    $
    
   20




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
   21




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS.
  
    
    demand for and market acceptance of our products and services;
    
    the size and timing of customer orders, particularly large orders;
    
    introduction of products and services or enhancements by us and our competitors;
    
    competitive factors that affect our pricing;
    
    the mix of products and services we sell;
    
    the hiring and retention of key personnel;
    
    our expansion into international markets;
    
    the timing and magnitude of our capital expenditures, including costs relating to the
expansion of our operations;
    
    the acquisition and retention of key partners;
    
    changes in generally accepted accounting policies, especially those related to the recognition
of software revenue and the accounting for stock-based compensation; and
    
    new government legislation or regulation.
  * WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE TEMTEC INTO OUR BUSINESS AND OPERATIONS.
  
    
    retain key Temtec personnel;
 22




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##### Table of Contents




    
    integrate, both from an engineering and a sales and marketing perspective, Temtecs products and
services into our suite of product and service offerings;
    
    coordinate research and development efforts;
    
    train and integrate sales forces;
    
    integrate our business processes and systems; and
    
    eliminate redundant costs and consolidate redundant facilities.
  WE MAY NOT SUSTAIN PROFITABILITY OR BE ABLE TO FULFILL ANY FUTURE CAPITAL NEEDS.
   IF WE DO NOT INTRODUCE NEW PRODUCTS AND SERVICES IN A TIMELY MANNER, OUR PRODUCTS AND SERVICES WILL BECOME OBSOLETE, AND OUR OPERATING RESULTS WILL SUFFER.
    ATTEMPTS TO EXPAND BY MEANS OF BUSINESS COMBINATIONS AND ACQUISITIONS MAY NOT BE SUCCESSFUL AND MAY DISRUPT OUR OPERATIONS OR HARM OUR REVENUES.
  
    
    difficulty in assimilating the operations, technology and personnel of acquired companies;
    
    disruption in our business because of the allocation of resources to consummate these
transactions and the diversion of managements attention from our core business;
 23




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##### Table of Contents




    
    difficulty in retaining key technical and managerial personnel from acquired companies;
    
    dilution of our stockholders, if we issue equity to fund these transactions;
    
    assumption of increased expenses and liabilities;
    
    our relationships with existing employees, customers and business partners may be weakened or
terminated as a result of these transactions; and
    
    additional ongoing expenses associated with write-downs of goodwill and other purchased
intangible assets.
 WE RELY HEAVILY ON KEY PERSONNEL.
  WE MAY NOT BE ABLE TO MEET THE OPERATIONAL AND FINANCIAL CHALLENGES THAT WE ENCOUNTER IN OUR INTERNATIONAL OPERATIONS.
  
    
    we may have difficulty managing and administering a globally-dispersed business;
    
    fluctuations in exchange rates may negatively affect our operating results;
    
    we may not be able to repatriate the earnings of our foreign operations;
    
    we have to comply with a wide variety of foreign laws;
    
    we may not be able to adequately protect our trademarks overseas due to the uncertainty of
laws and enforcement in certain countries relating to the protection of intellectual
property rights;
    
    reductions in business activity during the summer months in Europe and certain other parts of
the world could negatively impact the operating results of our foreign operations;
    
    export controls could prevent us from shipping our products into and from some markets;
    
    multiple and possibly overlapping tax structures could significantly reduce the financial
performance of our foreign operations;
    
    changes in import/export duties and quotas could affect the competitive pricing of our products
and services and reduce our market share in some countries; and
    
    economic or political instability in some international markets could result in the forfeiture
of some foreign assets and the loss of sums spent developing and marketing those assets.
 BECAUSE THE BUSINESS PERFORMANCE MANAGEMENT AND BUSINESS INTELLIGENCE MARKETS ARE HIGHLY COMPETITIVE, WE MAY NOT BE ABLE TO SUCCEED.
  24




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##### Table of Contents



BECAUSE WE DEPEND IN PART ON THIRD-PARTY SYSTEMS INTEGRATORS TO PROMOTE, SELL AND IMPLEMENT OUR
PRODUCTS, OUR OPERATING RESULTS WILL LIKELY SUFFER IF WE DO NOT DEVELOP AND MAINTAIN THESE
RELATIONSHIPS.
  BECAUSE THE SALES CYCLE FOR OUR PRODUCTS CAN BE LENGTHY, IT IS DIFFICULT FOR US TO PREDICT WHEN OR
WHETHER A SALE WILL BE MADE.
  OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO PROTECT OUR TRADEMARKS FROM MISUSE BY THIRD
PARTIES.
  OUR PRODUCTS MAY CONTAIN DEFECTS THAT MAY BE COSTLY TO CORRECT, DELAY MARKET ACCEPTANCE OF OUR
PRODUCTS AND EXPOSE US TO LITIGATION.
   25




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
  1)
    
    Election of two Class III Directors for a term of three years:
 FOR
    
    
    WITHHELDDavid C. Mahoney
    
    
    13,603,116
    
    
    
    178,659Peter Gyenes
    
    
    13,508,594
    
    
    
    273,181
   2)
    
    Ratify the selection of Deloitte & Touche LLP as the Companys independent registered
public accounting firm for the fiscal year ending December 31, 2006:
 FOR
    
    AGAINST
    
    ABSTAIN
    
    BROKER NON-VOTES13,634,982
    
    106,158
    
    40,635
    
    0
 
 ITEM 6. EXHIBITS
 (a) Exhibits
 ExhibitNumber
    
    Description2.1*
    
    Share Purchase Agreement of the Shares in the Capital of Temtec International B.V. by and among Applix,
Inc., the Sellers (as defined therein) and Temtec International B.V., dated June 15, 2006.10.1*
    
    Second Loan Modification Agreement by and between Applix, Inc. and Silicon Valley Bank, dated June 15, 2006.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, as filed with the Securities
and Exchange Commission on June 21, 2006.
 26




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##### Table of Contents



SIGNATURE
  APPLIX, INC.Date: August 14, 2006
    /s/ Milton A. AlpernMilton A. AlpernChief Financial Officer and Treasurer
(Duly Authorized Officer and Principal Financial and Accounting Officer) 27




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1*
    
    Share Purchase Agreement of the Shares in the Capital of Temtec International B.V. by and among Applix,
Inc., the Sellers (as defined therein) and Temtec International B.V., dated June 15, 2006.10.1*
    
    Second Loan Modification Agreement by and between Applix, Inc. and Silicon Valley Bank, dated June 15, 2006.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, as filed with the Securities
and Exchange Commission on June 21, 2006.
 28