##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(XBOX)   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002

OR

(BOX)   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
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  (XBOX)   No  (BOX)

As of May 6, 2002, there were 12,186,106 shares of the Registrants common
stock, $0.0025 par value, outstanding.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                          
|                              |                                                                                               | Condensed Consolidated Balance Sheet                
|                              |                                                                                               | Condensed Consolidated Statements of Operations     
|                              |                                                                                               | Condensed Consolidated Statements of Cash Flows     
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION   
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                    
|EX-10.1 Termination Agreement



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##### Table of Contents



APPLIX, INC.
Form 10-Q
For the Quarterly Period Ended March 31, 2002

Table of Contents

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|--------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- |  | -------- | ---- | 
|                                                                                              |                                                                                                    |  | Page No.
|                                                                                              |                                                                                                    |  |         
|Part I  Financial Information                                                                |                                                                                                    |  |          |     
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|                                                                                             
|Item 1. Condensed Consolidated Financial Statements (unaudited):                              |                                                                                                    |  |          |     
|                                                                                             
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|                                                                                             
|                                                                                              |                                                                                                    |  |          |     
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|                                                                                             
|                                                                                              | Condensed Consolidated Balance Sheets as of
March 31, 2002 and December 31, 2001                   |  |          | 3    | 
|                                                                                             
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|                                                                                             
|                                                                                              |                                                                                                    |  |          |     
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|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Operations
for the three months ended March 31, 2002 and 2001 |  |          | 4    | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                    |  |          |     
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2002 and 2001 |  |          | 5    | 
|                                                                                             
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|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                    |  |          |     
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|                                                                                             
|                                                                                              | Notes to Condensed Consolidated Financial Statements                                               |  |          | 6-13 | 
|                                                                                             
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|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |                                                                                                    |  | 13-27    |     
|                                                                                             
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|                                                                                             
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                    |  | 28       |     
|                                                                                             
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|                                                                                             
|Part II  Other Information                                                                   |                                                                                                    |  |          |     
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|                                                                                              |                                                                                                    |  |          |     
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|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                    |  | 28       |     
|                                                                                             
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|                                                                                              |                                                                                                    |  |          |     
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|                                                                                             
|Signature                                                                                     |                                                                                                    |  | 29       |     

Applix iTM1, Applix iEnterprise, Applix iCustomersight, Applix iHelpdesk
and Applix iService are trademarks of Applix, Inc. All other trademarks and
company names mentioned are the property of their respective owners. All rights
reserved.

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

-2-



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##### Table of Contents









PART I.   FINANCIAL INFORMATION
ITEM 1.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




Applix, Inc.
Condensed Consolidated Balance Sheet
( in thousands, except per share data)
(unaudited)

|                                                                                 |                                                                                                       |                  |         |           |       |              |         |         |       | 
|-------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---------------- | ------- | --------- | ----- | ------------ | ------- | ------- | ----- | 
|                                                                                 |                                                                                                       |                  |         | March 31, |       | December 31,
|                                                                                 |                                                                                                       |                  |         | 2002      |       | 2001        
|                                                                                 |                                                                                                       |                  |         |           |       |             
|Assets                                                                           |                                                                                                       |                  |         |           |       |              |         |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Current assets:                                                                  |                                                                                                       |                  |         |           |       |              |         |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cash and cash equivalents                                                                             |                  | $       | 8,320     |       |              | $       | 8,228   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accounts receivable, less allowance for doubtful
accounts of $1,462 and $1,446                        |                  |         | 7,013     |       |              |         | 7,202   |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Prepaid expenses and other current assets                                                             |                  |         | 1,834     |       |              |         | 1,672   |      
|                                                                                 |                                                                                                       |                  |         |           |       |              |         |        
|Total current assets                                                             |                                                                                                       |                  | 17,167  |           |       |              | 17,102  |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Restricted cash                                                                  |                                                                                                       |                  | 1,050   |           |       |              | 1,050   |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Property and equipment, at cost:                                                 |                                                                                                       |                  | 14,439  |           |       |              | 14,251  |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Less accumulated amortization and depreciation                                   |                                                                                                       |                  | (11,954 | )         |       |              | (11,722 | )      
|                                                                                 |                                                                                                       |                  |         |           |       |              |         |        
|                                                                                 |                                                                                                       |                  | 2,485   |           |       |              | 2,529   |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Capitalized software costs, net of accumulated amortization of
$1,796 and $1,598 |                                                                                                       |                  | 1,590   |           |       |              | 1,042   |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Goodwill, net of accumulated amortization
of $1,084                              |                                                                                                       |                  | 1,117   |           |       |              | 1,117   |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Intangible assets net of accumulated amortization of $250 and $186               |                                                                                                       |                  | 1,250   |           |       |              | 1,314   |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Other assets                                                                     |                                                                                                       |                  | 791     |           |       |              | 784     |        
|                                                                                 |                                                                                                       |                  |         |           |       |              |         |        
|Total assets                                                                     |                                                                                                       | $                | 25,450  |           |       | $            | 24,938  |        
|                                                                                 |                                                                                                       |                  |         |           |       |              |         |        
|Liabilities and stockholders equity                                             |                                                                                                       |                  |         |           |       |              |         |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Current liabilities:                                                             |                                                                                                       |                  |         |           |       |              |         |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                                                       | Accounts payable |         | $         | 1,720 |              |         | $       | 2,137 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                                                       | Accrued expenses |         |           | 6,409 |              |         |         | 6,898 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 |                                                                                                       | Deferred revenue |         |           | 7,275 |              |         |         | 5,813 | 
|                                                                                 |                                                                                                       |                  |         |           |       |              |         |        
|Total current liabilities                                                        |                                                                                                       |                  | 15,404  |           |       |              | 14,848  |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Long term liabilities                                                            |                                                                                                       |                  | 614     |           |       |              | 709     |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Commitments and contingencies (Note 10)                                          |                                                                                                       |                  |        |           |       |              |        |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Stockholders equity:                                                            |                                                                                                       |                  |         |           |       |              |         |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued                             |                  |         |          |       |              |         |        |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Common stock, $.0025 par value; 30,000,000 shares authorized;
12,468,598 and 12,320,096 shares issued |                  |         | 31        |       |              |         | 31      |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Additional paid in capital                                                                            |                  |         | 49,404    |       |              |         | 49,212  |      
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Treasury stock, 306,198 shares, at cost                                                               |                  |         | (1,077    | )     |              |         | (1,077  | )    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accumulated deficit                                                                                   |                  |         | (37,256   | )     |              |         | (37,162 | )    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Accumulated other comprehensive loss                                                                  |                  |         | (550      | )     |              |         | (503    | )    
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Notes receivable from stockholders                                                                    |                  |         | (1,120    | )     |              |         | (1,120  | )    
|                                                                                 |                                                                                                       |                  |         |           |       |              |         |        
|Total stockholders equity                                                       |                                                                                                       |                  | 9,432   |           |       |              | 9,381   |        
|                                                                                 |                                                                                                       |                  |         |           |       |              |         |        
|Total liabilities and stockholders equity                                       |                                                                                                       | $                | 25,450  |           |       | $            | 24,938  |        
|                                                                                 |                                                                                                       |                  |         |           |       |              |         |        

See accompanying notes to condensed consolidated financial statements.

-3-



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##### Table of Contents






Applix, Inc.
Condensed Consolidated Statements of Operations
( in thousands, except per share data)
(unaudited)

|                                                                |                                                       |                          |        |                    |       |           |        |       |        |  
|--------------------------------------------------------------- | ----------------------------------------------------- | ------------------------ | ------ | ------------------ | ----- | --------- | ------ | ----- | ------ | -
|                                                                |                                                       |                          |        | Three
Months Ended
|                                                                |                                                       |                          |        | March 31,          |       | March 31,
|                                                                |                                                       |                          |        | 2002               |       | 2001     
|                                                                |                                                       |                          |        |                    |       |          
|Revenues:                                                       |                                                       |                          |        |                    |       |           |        |      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Software license                                      |                          | $      | 4,379              |       |           | $      | 5,814 |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Professional services and maintenance                 |                          |        | 4,904              |       |           |        | 5,513 |       
|                                                                |                                                       |                          |        |                    |       |           |        |      
|                                                                |                                                       | Total revenues           |        |                    | 9,283 |           |        |       | 11,327 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Cost of revenues:                                               |                                                       |                          |        |                    |       |           |        |      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Software license                                      |                          |        | 774                |       |           |        | 491   |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Professional services and maintenance                 |                          |        | 2,188              |       |           |        | 3,968 |       
|                                                                |                                                       |                          |        |                    |       |           |        |      
|                                                                |                                                       | Total cost of revenues   |        |                    | 2,962 |           |        |       | 4,459  |  
|                                                               
|                                                               
|                                                               
|                                                               
|Gross margin                                                    |                                                       |                          | 6,321  |                    |       |           | 6,868  |      
|                                                               
|                                                               
|                                                               
|                                                               
|Operating expenses:                                             |                                                       |                          |        |                    |       |           |        |      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Product development                                   |                          |        | 1,081              |       |           |        | 2,108 |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Sales and marketing                                   |                          |        | 3,416              |       |           |        | 7,015 |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | General and administrative                            |                          |        | 1,372              |       |           |        | 1,144 |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Compensation
expenses related to acquisition (Note 6) |                          |        | 517                |       |           |        |      |       
|                                                                |                                                       |                          |        |                    |       |           |        |      
|                                                                |                                                       | Total operating expenses |        |                    | 6,386 |           |        |       | 10,267 |  
|                                                               
|                                                               
|                                                               
|                                                               
|Operating loss                                                  |                                                       |                          | (65    | )                  |       |           | (3,399 | )    
|                                                               
|                                                               
|                                                               
|                                                               
|Interest and other income, net                                  |                                                       |                          | 35     |                    |       |           | 133    |      
|                                                                |                                                       |                          |        |                    |       |           |        |      
|Loss from continuing operations before income taxes             |                                                       |                          | (30    | )                  |       |           | (3,266 | )    
|                                                               
|                                                               
|                                                               
|                                                               
|Provision for income taxes                                      |                                                       |                          | 64     |                    |       |           | 44     |      
|                                                                |                                                       |                          |        |                    |       |           |        |      
|Loss from continuing operations                                 |                                                       |                          | (94    | )                  |       |           | (3,310 | )    
|                                                               
|                                                               
|                                                               
|                                                               
|Discontinued operations                                         |                                                       |                          |       |                    |       |           | 718    |      
|                                                                |                                                       |                          |        |                    |       |           |        |      
|Net loss                                                        |                                                       | $                        | (94    | )                  |       | $         | (2,592 | )    
|                                                                |                                                       |                          |        |                    |       |           |        |      
|Net income (loss) per share, basic and diluted                  |                                                       |                          |        |                    |       |           |        |      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Continuing operations                                 |                          | $      | (0.01              | )     |           | $      | (0.28 | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Discontinuing operations                              |                          |        |                   |       |           |        | 0.06  |       
|                                                                |                                                       |                          |        |                    |       |           |        |      
|                                                                |                                                       | Total loss per share     |        | $                  | (0.01 | )         |        | $     | (0.22  | )
|                                                                |                                                       |                          |        |                    |       |           |        |      
|Weighted average number of basic and diluted shares outstanding |                                                       |                          | 12,115 |                    |       |           | 11,689 |      

See accompanying notes to condensed consolidated financial statements.

-4-



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##### Table of Contents






Applix, Inc.
Condensed Consolidated Statements of Cash Flows
( in thousands)
(unaudited)

|                                                     |                                                                                                    |                                              |                                                              |                                                                      |   |                   |        |        |   |        |       | 
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------------------------ | -------------------------------------------------------------------- | - | ----------------- | ------ | ------ | - | ------ | ----- | 
|                                                     |                                                                                                    |                                              |                                                              |                                                                      |   | Three
Month Ended
|                                                     |                                                                                                    |                                              |                                                              |                                                                      |   | March
31,        
|                                                     |                                                                                                    |                                              |                                                              |                                                                      |   | 2002              |        | 2001  
|                                                     |                                                                                                    |                                              |                                                              |                                                                      |   |                   |        |       
|Cash flows from operating activities:                |                                                                                                    |                                              |                                                              |                                                                      |   |                   |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net loss                                                                                           |                                              | $                                                            | (94                                                                  | ) |                   | $      | (2,592 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |                                              |                                                              |                                                                      |   |                   |        |        |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | Depreciation                                                 |                                                                      |   | 232               |        |        |   | 154    |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | Amortization                                                 |                                                                      |   | 262               |        |        |   | 241    |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | Provision for doubtful accounts                              |                                                                      |   | 16                |        |        |   | 53     |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Changes in operating assets and liabilities: |                                                              |                                                                      |   |                   |        |        |   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | (Increase) in accounts receivable                            |                                                                      |   | (270              | )      |        |   | (199   | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | (Increase) decrease in other assets                          |                                                                      |   | (176              | )      |        |   | 263    |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | Increase (decrease) in accounts payable                      |                                                                      |   | (417              | )      |        |   | 684    |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | (Decrease) in accrued liabilities                            |                                                                      |   | (690              | )      |        |   | (1,473 | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | Increase in deferred revenue                                 |                                                                      |   | 1,462             |        |        |   | 942    |      
|                                                     |                                                                                                    |                                              |                                                              |                                                                      |   |                   |        |       
|                                                     |                                                                                                    |                                              | Cash (used in) provided by operating activities              |                                                                      |   | 325               |        |        |   | (1,927 | )    
|                                                    
|Cash flows from investing activities:                |                                                                                                    |                                              |                                                              |                                                                      |   |                   |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | Property and equipment expenditures                          |                                                                      |   | (188              | )      |        |   | (40    | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | Capitalized software costs                                   |                                                                      |   | (746              | )      |        |   | (175   | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | Cash received from purchase of Dynamic Decisions Pty Limited |                                                                      |   |                  |        |        |   | 17     |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | Net proceeds from sale of discontinued operation             |                                                                      |   |                  |        |        |   | 1,300  |      
|                                                     |                                                                                                    |                                              |                                                              |                                                                      |   |                   |        |       
|                                                     |                                                                                                    |                                              |                                                              | Cash provided by (used in) investing                                 |   |                   | (934   | )      |   |        | 1,102 | 
|                                                    
|Cash flows form financing activities:                |                                                                                                    |                                              |                                                              |                                                                      |   |                   |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | Proceeds from issuance of stock under stock plans            |                                                                      |   | 192               |        |        |   | 526    |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              | Proceeds from factoring of receivables                       |                                                                      |   | 644               |        |        |   |       |      
|                                                     |                                                                                                    |                                              |                                                              |                                                                      |   |                   |        |       
|                                                     |                                                                                                    |                                              |                                                              | Cash provided by financing activities                                |   |                   | 836    |        |   |        | 526   | 
|                                                     |                                                                                                    |                                              |                                                              |                                                                      |   |                  
|                                                    
|                                                    
|                                                    
|                                                    
|Effect of exchange rate changes on cash              |                                                                                                    |                                              | (135                                                         | )                                                                    |   |                   | (64    | )     
|                                                     |                                                                                                    |                                              |                                                              |                                                                      |   |                   |        |       
|Net increase (decrease) in cash and cash equivalents |                                                                                                    |                                              | 92                                                           |                                                                      |   |                   | (363   | )     
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents at beginning of period     |                                                                                                    |                                              | 8,228                                                        |                                                                      |   |                   | 12,546 |       
|                                                     |                                                                                                    |                                              |                                                              |                                                                      |   |                   |        |       
|Cash and cash equivalents at end of period           |                                                                                                    | $                                            | 8,320                                                        |                                                                      |   | $                 | 12,183 |       
|                                                     |                                                                                                    |                                              |                                                              |                                                                      |   |                   |        |       
|Supplemental disclosure of cash flow information     |                                                                                                    |                                              |                                                              |                                                                      |   |                   |        |       
|                                                     |                                                                                                    |                                              |                                                              | Stock
issued for acquisition of Dynamic Decisions Pty Limited        |   | $                 |       |        |   | $      | 227   | 
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                              |                                                              | Note
payable issued for acquisition of Dynamic Decisions Pty Limited |   | $                 |       |        |   | $      | 1,549 | 

See accompanying notes to condensed consolidated financial statements.

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



|1. |  | The Company
|-- |  | -----------

Applix, Inc. (Applix or the Company) is a global provider of
enterprise performance management solutions that include interactive planning,
customer relationship management (CRM) and analytics and business intelligence.
These combined products represent one principal business segment,
which Applix reports as its continuing operations. The Companys
iCRM and iTM1 applications
are designed and developed to allow businesses to capture information from
across the extended enterprise and enable continual marketplace responsiveness.
These applications are adaptable, scalable, and real-time and support unique,
complex and disparate business processes, providing analysis, planning,
measurement and response to changing customer requirements and business
dynamics. On March 30, 2001, the Company sold its Vistasource business unit,
previously reported as the Linux Division. This unit has been reported as a
discontinued operation for all periods presented. The Company is currently
developing a new integrated product known as Applix Integra. Through the Companys
extensive product development efforts, Applix Integra will combine its two existing
products lines, Applix iCRM and Applix iTM1, to provide a single analytics solution for both
the back-office and front-office to its customers.



|2. |  | Summary of Significant Accounting Policies
|-- |  | ------------------------------------------

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 pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC) including 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 (GAAP) 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. Operating
results for the three month period ended March 31, 2002 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2002. 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, 2001.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and all of its wholly owned subsidiaries. All intercompany accounts
and transactions have been eliminated.

Revenue Recognition

The Company derives its revenues from licenses of its software products
and from services the Company provides to its customers. Revenue from software
licensing and services fees is recognized in accordance with Statement of
Position (SOP) 97-2, Software Revenue Recognition, and SOP 98-9, Software
Revenue Recognition with Respect to Certain Transactions. Accordingly, the
Company recognizes software license revenue when: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred; (3) the fee is fixed or
determinable; and (4) collectibility is probable.

-6-



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##### Table of Contents



The Companys software arrangements may contain multiple elements, such as
software products, services and post-contract customer support
(PCS). Revenue
earned on software arrangements involving multiple elements which qualify for
separate element treatment is allocated to each element based on the relative
fair values of those elements based on vendor specific objective evidence.
Typically, the Companys software licenses do not include significant
post-delivery obligations to be fulfilled by the Company, and payments are due
within a three-month period from date of delivery. Consequently, license fee
revenue is generally recognized when the product is shipped. Revenue from
training, consulting and implementation services is recognized as the services
are performed. Revenue for PCS under software maintenance arrangements is
recognized ratably over the term of the arrangement, generally one year.
Revenue for license renewals is recognized when all the criteria under SOP 97-2
have been met.

Capitalized Software Costs

Costs related to research, design and development of computer software are
charged to research and development expense as incurred. The Company
capitalizes eligible software costs incurred between the time that the
products technological feasibility is established and the general release of
the product to customers. Such capitalized costs are then amortized on a
product-by-product basis generally over one to two years.

The Company evaluates the net realizable value of capitalized software on
an ongoing basis, relying on a number of factors including demand for a
product, operating results, business plans, and economic projections. In
addition, the Companys evaluation considers nonfinancial data such as market
trends, product development cycles, and changes in managements market
emphasis.

Intangible Assets and Goodwill

The
Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 141
Business Combinations (SFAS 141) and SFAS No. 142 Goodwill and
Other Intangible Assets (SFAS 142) in July 2001. SFAS 141 requires
that all business combinations be accounted for using the purchase
method. SFAS 141 also specifies criteria for recognizing and
reporting intangible assets apart from goodwill. SFAS 142 requires
that goodwill not be amortized but instead tested for impairment in
accordance with the provisions of SFAS 142 at least annually and more
frequently upon the occurrence of certain events. SFAS 142 also
requires that intangible assets with an indefinite life should not be
amortized until their life is determined to be finite and all other
intangible assets must be amortized over their useful life.

The Company adopted the provisions of SFAS 141 and
SFAS 142 effective January 1, 2002. SFAS 141 and SFAS 142 requires
the Company to perform the following as of January 1, 2002: (i)
review goodwill and intangible assets for possible reclasses; (ii)
reassess the lives of intangible assets; and (iii) perform a
transitional goodwill impairment test. The Company has reviewed its
goodwill and intangible assets for possible reclasses of which there
were none and has reviewed the useful lives of its identifiable intangible
assets and determined that the originals estimated lives remain appropriate.
The Company will evaluate its goodwill for impairment under the provisions of SFAS
142 during the second quarter of 2002, but does expect a material
impact on its results of operations or financial position.

Prior to January 1, 2002, the Company amortized
goodwill associated with its acquisitions prior to July 1, 2001 over
six years using the straight-line method. Identifiable
intangibles (customer relationships) are currently being amortized over six
years using the straight-line method.

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In accordance with the adoption of SFAS 142, the
Company stopped amortizing goodwill effective January 1, 2002. The following pro forma
information for the three months ended March 31, 2001 presents net
loss and loss per share adjusted to exclude goodwill amortization of
$32,000 recognized during the period.

|                                        |   |        |  
|--------------------------------------- | - | ------ | -
|                                       
|                                       
|                                       
|                                       
|(In thousands
except per share amounts) |   |        |  
|Net Loss:                               |   |        |  
|                                       
|                                       
|                                       
|                                       
|As reported                             | $ | (2,592 | )
|                                       
|                                       
|                                       
|                                       
|Pro forma                               |   | (2,560 | )
|                                       
|                                       
|                                       
|                                       
|Loss per share
 Basic and Diluted:     |   |        |  
|                                       
|                                       
|                                       
|                                       
|As reported                             | $ | (0.22  | )
|                                       
|                                       
|                                       
|                                       
|Pro forma                               |   | (0.22  | )

Amortization expense related to an intangible
asset, the customer relationships acquired in the Dynamic Decisions
acquisition, totaled $62,500 and $0 during the three months ended
March 31, 2002 and 2001, respectively. The estimated aggregate future
amortization expense for this intangible asset remaining as of
March 31, 2002 are as follows:

|                  |  |          | 
|----------------- |  | -------- | 
|Remainder of 2002 |  | $187,500 | 
|                 
|                 
|                 
|                 
|2003              |  | 250,000  | 
|                 
|                 
|                 
|                 
|2004              |  | 250,000  | 
|                 
|                 
|                 
|                 
|2005              |  | 250,000  | 
|                 
|                 
|                 
|                 
|2006              |  | 250,000  | 
|                 
|                 
|                 
|                 
|2007              |  | 62,500   | 

Impairment of Long-Lived Assets

The
Company tests goodwill for impairment in accordance with SFAS 142,
which requires goodwill to be tested for impairment at the reporting unit
level at least annually and more frequently upon occurrence of certain events,
as defined by SFAS 142. Goodwill is tested for impairment annually in
a two-step process. First, the Company determines if the fair value
of its reporting unit exceeds the carrying amount of the
reporting unit. If the fair value does not exceed the carrying
amount, goodwill of the reporting unit is potentially impaired, and
the Company must then complete step two in order to measure the
impairment loss by comparing the implied fair value of
the goodwill, as defined by SFAS 142, to its carrying amount.

The Company adopted SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets on January 1, 2002. SFAS 144 addresses the
financial accounting and reporting for the impairment of long-lived
assets. The adoption of SFAS 144 did not have a material impact to the Company's results of operations or
financial position. The Company evaluates the net realizable value of
long-lived assets when certain events or
changes in circumstances are identified by a number of factors, including a
significant decrease in demand for a product related to an asset, history of
operating cash flow losses, operating results, business plans, and economic
projections. In addition, the Companys evaluation considers nonfinancial data
such as market trends, product development cycles, and changes in managements
market emphasis. Management believes that no such events have occurred.

The Company uses the undiscounted cash flow method to determine if
impairment has occurred. If indicators of impairment are present, and the
estimated undiscounted cash flows to be derived from the related assets are not
expected to be sufficient to recover the assets carrying amount, an impairment
loss is charged to expense in the period identified. The impairment loss is
based upon the difference between the carrying amount and the fair value, as
determined based upon either quoted a market price or discounted cash
flows
whichever is more appropriate under the circumstances. The rates that would be
utilized to discount the net cash flows to net present value would take into
account the time value of money and investment risk factors.

-8-





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Translation of Foreign Currencies

The functional currency for all of the locations in which the Company has
a foreign operation is the applicable local currency. Assets and liabilities of
all foreign subsidiaries are translated at period-end rates of exchange.
Revenues and expenses are translated at average exchange rates during the
period. The resulting translation adjustments are included in other
comprehensive income. Transaction gains and losses that arise from exchange
rate changes included in income are immaterial for all periods presented.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates. Estimates and assumptions in
these financial statements relate to, among other items, the useful lives of
fixed assets, capitalized software costs and intangible assets, valuation of
deferred tax assets, the allowance for doubtful accounts and accrued
liabilities.



|3. |  | Net Income (Loss) Per Share
|-- |  | ---------------------------

Net income (loss) is computed in accordance with
SFAS No. 128, Earnings Per Share. Basic net income
(loss) per share is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares outstanding
during the period. Dilutive net income (loss) is computed using the weighted
average number of common shares outstanding during the period, plus the
dilutive effect, if any, of potential common shares, which consists of stock
options.

For
the quarters ended March 31, 2002 and 2001, the Company excluded
dilutive potential common shares of 261,225 and 282,665,
respectively, from its calculation of net income (loss) per share. The
Company had an additional 3,442,232 and 2,972,546 of antidilutive
common stock equivalents outstanding for the quarters ended March 31, 2002 and 2001,
respectively, which would not be included in the fully dilutive
calculation of net income (loss) per share had the Company reported
net income as the stock option exercise price exceeded the average
market price for the respective periods.



|4. |  | Comprehensive Income or Loss
|-- |  | ----------------------------

Components of comprehensive income include net income (loss) and certain
transactions that have generally been reported in the consolidated statement of
stockholders equity. Other comprehensive income or loss includes foreign
currency translation adjustments.

|                         |  |                                          |      |      |  |   |        |  
|------------------------ |  | ---------------------------------------- | ---- | ---- |  | - | ------ | -
|                         |  |                                         
|                         |  | Three
Months EndedMarch 31(in thousands)
|                         |  |                                         
|                         |  | 2002                                     |      | 2001
|                         |  |                                          |      |     
|Net loss                 |  | $                                        | (94  | )    |  | $ | (2,592 | )
|                        
|                        
|                        
|                        
|Other comprehensive loss |  |                                          | (47  | )    |  |   | (63    | )
|                         |  |                                          |      |      |  |   |        |  
|Total comprehensive loss |  | $                                        | (141 | )    |  | $ | (2,655 | )
|                         |  |                                          |      |      |  |   |        |  

-9-





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|5. |  | Segment and Geographical Information
|-- |  | ------------------------------------

The Company and its subsidiaries are principally engaged in the design,
development, marketing and support of the Companys customer relationship
management and analytics and business intelligence applications.
Substantially all its revenues result from the licensing of the Companys
software products and related professional services and maintenance services.
The Company reviews its financial information, which is presented on a
consolidated basis. The financial information is accompanied by disaggregated
information about revenues and expenses by geographic region for purposes of making
operating decisions and assessing each geographic regions financial performance. The
Company considers itself to be in a single industry segment, the licensing,
implementation and support of its software products.



|6. |  | Acquisition
|-- |  | -----------

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 $5,867,000 consisting of $5,640,000 in maximum cash consideration
to be paid and 100,000 shares of the Companys common stock. The acquisition
was accounted for under the purchase method of accounting, and the purchase
price was allocated based on the estimated fair value of the assets acquired
and liabilities assumed. An intangible asset, acquired customer
relationships of
$1,500,000 was recorded based on the fair value of the asset at the time of
acquisition and is being amortized on a straight-line basis over its
estimated useful life of six years. The excess of the purchase price over the
fair value of the net assets acquired of $934,000 was recorded as
goodwill. Goodwill is no longer amortized under the provision of SFAS 142.

Per the terms of the purchase and sale agreement, total maximum cash
consideration relating to the purchase of Dynamic Decisions was $5,150,000
payable in installments over a maximum of 30 months beginning on July 1, 2001.
As of March 31, 2002, the Company has paid $1,267,000 of the maximum cash
consideration, which has been accounted for as purchase price and one
additional cash payment of $517,000, which has been accounted for as
compensation expense within operating expenses as the payment was contingent
upon the continued employment of two key executives of Dynamic Decisions. The
remaining cash payments will continue to be accounted for as compensation
expense within operating expense as they are contingent upon future employment
of the two key executives. The results of operations of Dynamic Decisions are
included in the financial statements from the date of acquisition.

Unaudited pro forma revenue, net income (loss), and net income (loss) per share shown below for
the quarter ended March 31, 2001 assumes the acquisition of Dynamic
Decisions occurred on January 1, 2001.

|                                                    |  |                    |        |  
|--------------------------------------------------- |  | ------------------ | ------ | -
|                                                    |  | Three Months Ended
|                                                    |  | March 31          
|                                                    |  | 2001              
|                                                    |  |                   
|                                                    |  | (Unaudited)       
|                                                    |  |                   
|(In thousands, except per share amounts)            |  |                    |        |  
|Revenue                                             |  | $                  | 11,885 |  
|                                                   
|                                                   
|                                                   
|                                                   
|Net income (loss)                                   |  | $                  | (2,251 | )
|                                                    |  |                    |        |  
|Total
basic and diluted net income (loss) per share |  | $                  | (0.19  | )
|                                                    |  |                    |        |  

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|7. |  | Restructuring Charges
|-- |  | ---------------------

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

In the second quarter of 2001, the Company adopted a plan of
restructuring aimed at reducing current operating costs company-wide. In connection with this plan, 28 non-management employees,
primarily sales, marketing, and administrative personnel, and 2 executive level
employees were terminated. The Companys restructuring plan also included the
closure of the Companys sales office in France. As a result of the
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. No amounts remain accrued at March 31, 2002.

In
the third quarter of 2001, the Company adopted a plan of
restructuring to further reduce current operating costs company-wide
through headcount reductions.
In connection with this plan, the Company recorded an additional restructuring
charge of $438,000 for severance related to the termination of 26
non-management employees, primarily sales, marketing, and administrative
personnel. Subsequent to the initial recording of the charge, adjustments
totaling $90,000 were recorded, reducing the charge to $348,000. No amounts remain accrued at March 31, 2002.

In the fourth quarter of 2001, the Company adopted a plan of
restructuring to further reduce current operating costs. The plan included the further reduction of headcount of one
senior level executive and 16 non-management employees, primarily professional
services, sales, and administrative personnel. The plan also included the
closure of several domestic offices and the consolidation of space within one
European office and the abandonment of leasehold improvements and support
assets associated with these locations, which were removed from service shortly
after the implementation of the plan. As a result of the restructuring plan,
the Company recorded a charge of $840,000 which included $92,000 in
non-cash charges relating to impaired assets. The components of the fourth
quarter cash charges, as well as the Companys payments made against accruals are
detailed as follows:

|                              |  |          |         |          |  |              |         |          |  |            |         |  |  |   |          |   |  |   |         | 
|----------------------------- |  | -------- | ------- | -------- |  | ------------ | ------- | -------- |  | ---------- | ------- |  |  | - | -------- | - |  | - | ------- | 
|                              |  |          |         |          |  | Balance at   |         |          |  | Balance at
|                              |  | Charges  |         | Payments |  | December 31, |         | Payments |  | March 31, 
|Cash charges                  |  | incurred |         | made     |  | 2001         |         | made     |  | 2002      
|                              |  |          |         |          |  |              |         |          |  |           
|Work force reduction          |  | $        | 363,000 |          |  | $            | (52,000 | )        |  | $          | 311,000 |  |  | $ | (232,000 | ) |  | $ | 79,000  | 
|Office closures               |  |          | 274,000 |          |  |              |        |          |  |            | 274,000 |  |  |   | (4,000   | ) |  |   | 270,000 | 
|Other contractual obligations |  |          | 111,000 |          |  |              |        |          |  |            | 111,000 |  |  |   | (4,000   | ) |  |   | 107,000 | 
|                              |  |          |         |          |  |              |         |          |  |            |         |  |  |   |          |   |  |   |         | 
|Total                         |  | $        | 748,000 |          |  | $            | (52,000 | )        |  | $          | 696,000 |  |  | $ | (240,000 | ) |  | $ | 456,000 | 
|                              |  |          |         |          |  |              |         |          |  |            |         |  |  |   |          |   |  |   |         | 

-11-



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|8. |  | 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
$1,300,000 and a 19% equity interest in Real-Time. The results of operations including revenue, operating
expenses, other income and expense, and income taxes of the VistaSource
business unit for 2001 have been reclassified in the accompanying statements of
operations as a discontinued operation. The Companys balance sheets at March
31, 2002 and December 31, 2001 reflect the net liabilities of the VistaSource
business as net liabilities of discontinued operation within current
liabilities. The
Company recorded a gain of $718,000 on the disposal of the
discontinued operations in the first quarter of 2001 due to the
actual results of operations through the date of disposal, changes in
the net assets delivered at closing and changes in estimates of
certain obligations.



|9. |  | Non-recourse Sale of Receivables
|-- |  | --------------------------------

The Company has a non-recourse accounts receivable purchase arrangement
with a certain bank, pursuant to which the Company and the bank may agree from
time to time for the Company to sell qualifying accounts receivable to the
bank, in an aggregate amount of up to $2 million outstanding, at a purchase
price equal to the balance of the accounts less a discount rate and a fee. On
or about March 31, 2002, the Company factored certain accounts receivable to
the bank pursuant to the purchase arrangement in the amount of $644,000.

In accordance with SFAS 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, the Company recognized a
sale for those account receivable balances for which there was no future
obligation to the customer in the amount of $443,000. The Company has concluded
that these accounts have been legally isolated, and accordingly, this amount
has been derecognized from the Companys accounts receivable balance at
March 31, 2002. The loss from the sale of the financial assets and retained
interest for cash collection were not material to the Companys results of
operations or financial position. The remainder of $201,000 has been recorded
as a financing transaction and recognized as a liability at March 31, 2002.

-12-



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##### Table of Contents





|10. |  | Commitments and Contingencies
|--- |  | -----------------------------

On February 8, 2002, a customer of the Companys divested business unit
filed a claim in Germany against the Companys German subsidiary, Veriteam
GmbH. The claim alleges a breach of contract pertaining to software sold and
implemented by the divested business unit on behalf of the Company. The
customer is seeking repayment for the cost of the software and related services
of approximately $800,000. The Company has answered the customers claim,
denying the claims allegations. Due to the early nature of the claim, the
Company has been unable to fully assess the likely outcome of the claim,
however, the Company intends to vigorously defend its position and believes the
claim lacks substantial merit.



|11. |  | Restricted Cash
|--- |  | ---------------

On
August 1, 2001, the Company established a $1,050,000 irrevocable standby letter of credit in connection with executing an agreement to lease certain office space. The irrevocable standby letter of credit
is collateralized by a restricted cash deposit 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. The irrevocable standby letter of credit and
underlying security deposit (restricted cash) requirement of $1,050,000 will be reduced starting the first day
of the second lease year as follows:

|                                      |  |                  |        
|------------------------------------- |  | ---------------- | -------
|                                      |  | Reduction
Amount
|                                      |  |                 
|Second lease year (December 31, 2002) |  | $                | 116,667
|Third lease year (December 31, 2003)  |  | $                | 116,667
|Fourth lease year (December 31, 2004) |  | $                | 175,001
|Fifth lease year (December 31, 2005)  |  | $                | 233,330
|Sixth lease year (December 31, 2006)  |  | $                | 283,335

At the end of the sixth year, the Company can reduce the letter of credit to $125,000
 or substitute $125,000 in cash in lieu of the letter of credit.




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

Overview of the Companys Operations

Applix, Inc. (Applix or the Company) is a global provider of
enterprise performance management solutions that include interactive planning,
customer relationship management (CRM) and analytics and business intelligence.
These combined products represent one principal business segment, which it
reports as its continuing operations. The Companys iCRM and iTM1 applications
are designed and developed to capture information from across the extended
enterprise and enable continual marketplace responsiveness. The applications
are adaptable, scalable, and real-time and support unique, complex and
disparate business processes, providing analysis, planning, measurement and
response to changing customer requirements and business dynamics.

The Companys iCRM and iTM1 applications owe their adaptability
to Applix iEnterprise and Applix iTM1 technology platforms that power them. Applix continues to
enhance these platforms and the integration between them, in order to continue
providing software that best supports companies unique, competitive business
processes.

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
$1,300,000 and a 19% equity interest in Real-Time. The results of operations
including revenue, operating expenses, other income and expense, and income
taxes of the VistaSource business unit for 2001 have been reclassified in the
accompanying statements of operations as a discontinued operation. The
Companys balance sheets at March 31, 2002 and 2001 reflect the net liabilities
of the VistaSource business as net liabilities of discontinued operation within
current liabilities.

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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 $5,867,000 consisting of $5,640,000 in maximum cash consideration
to be paid and 100,000 shares of the Companys common stock. The acquisition
was accounted for under the purchase method of accounting, and the purchase
price was allocated based on the estimated fair value of the assets acquired
and liabilities assumed. An intangible asset, acquired customer
relationships of
$1,500,000 was recorded based on the fair value of the asset at the time of
acquisition and is being amortized on a straight-line basis over its
estimated useful life of six years. The excess of the purchase price over the
fair value of the net assets acquired of $934,000 was recorded as
goodwill. Goodwill is no longer amortized under the provision of SFAS 142.

Per
the terms of the purchase and sale agreement, total maximum cash consideration
relating to the purchase of Dynamic Decisions was $5,150,000 payable in
installments over a maximum of 30 months beginning on July 1, 2001. As of
March 31, 2001, the Company has paid $1,267,000 of the maximum cash
consideration, which has been accounted for as purchase price and one
additional cash payment of $517,000, which has been accounted for as
compensation expense within operating expenses as the payment was contingent
upon the continued employment of two key executives of Dynamic Decisions. The
remaining cash payments will continue to be accounted for as compensation
expense with operating expense as they are contingent upon the future
employment of the two key executives. The results of operations of Dynamic
Decisions are included in the financial statements from the date of
acquisition.

In December 2001, the Company announced the combination of Applix iCRM and Applix iTM1 as a
new integrated product known as Applix Integra, which will provide enterprise-wide workflow
within an enabled business planning solution. Applix Integra combines the strengths
of the Companys two product lines and provides the analytics solutions for
both the back-office and front-office. Development efforts during the year are expected to result in commercial
availability of Applix Integra in 2002. The Company believes the Integra
product will make the Company a single-source vendor of an iCRM
solution and a customer analytics solutions that
relies on a formal integration between two such solution sets.

The following information should be read in
conjunction with the unaudited condensed consolidated financial
statements and notes thereto included in this Quarterly Report and
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, 2001 filed with the Securities and Exchange
Commission.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This Managements Discussion and Analysis of Financial Condition and
Results of Operations discusses the Companys consolidated condensed financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Management bases
its estimates and assumptions on expected or known trends or events, historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.

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##### Table of Contents



Management believes the following critical accounting policies, among
others, involve the more significant judgments and estimates used in the
preparation of its consolidated financial statements.

Revenue Recognition

The Company recognizes revenue in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition (SOP 97-2), and SOP 98-9,
Software Revenue Recognition with Respect to Certain Transactions. SOP 97-2
requires that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists via a valid executed customer
order and/or signed license agreement; (2) physical or electronic delivery has
occurred including availability of license keys or services rendered; (3) the
fee is fixed or determinable representing amounts that are due unconditionally
with no future obligations under customary payment terms; and (4)
collectibility is probable. In the event that the Company is unable to meet any
one or all of the above criteria on a timely basis, revenue recognized for any
reporting period could be adversely affected.

Account Receivable and Bad Debt

The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
The Company continuously monitors collections and payments from its customers
and determines the allowance for doubtful accounts based upon historical
experience and specific customer collection issues. If the financial condition
of the Companys customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. The
Company generally invoices the customer in the same local currency as to be
paid by the customer. The Company does not hedge its foreign customer
receivables due to the relatively small exposure from foreign currency rate
fluctuations.

Capitalized Software Development Costs

The Companys policy for capitalized software development costs is to
capitalize eligible, design, and development costs relating to its software
products incurred between the time that the products technological feasibility
is established and the general release of the product to customers. This policy
requires management to use professional judgment in determining what
development costs are eligible and at what point technological feasibility has
been reached. Capitalized software development costs are amortized as a cost of
software license revenue over the estimated product life, and development costs
not capitalized under the policy are classified as a development expense in the
same period as incurred. If management determines that the recoverability of
these unamortized capitalized software costs is not probable, these costs may
require adjustment to their net realizable value, which could affect the
results of the reporting period.

Accounting For Cost Based Investments

The Company has two cost based investments, which had a zero value at
March 31, 2002 and December 31, 2001. In assessing potential impairment for
cost based investments, the Company considers various factors including but not
limited to investees financial performance, anticipated funding needs,
comparable companies performance, and volatility inherent in the external
market for these investments. If these factors are not supportive of the
carrying value of the investment, the Company may record impairment charges not
previously recognized to reflect managements best estimate of recoverability.
With the divestment of its VistaSource business unit, the Company retained a
cost based investment in Real-Time International, Inc. that was deemed to have
no value at the date of the transaction. The Company also has a cost based
investment in TurboLinux, Inc., which was determined to be impaired, resulting
in recognition of a $1,250,000 impairment loss in 2001.

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##### Table of Contents



Goodwill and Other Intangible Assets and Related Impairment

During 2001, the Company completed its acquisition of Dynamic Decisions
and recorded goodwill in the amount of $934,000 associated with the excess
purchase price over the fair value of the net assets acquired and identifiable
intangible assets of $1,500,000 assigned to identified customer relationships.
The amounts assigned to the identifiable assets and liabilities acquired in
connection with the acquisition were based on estimated fair values at the date
of acquisition. The fair values were determined by the Companys management,
based in part upon information supplied by the management of the acquired
business and a valuation prepared by an independent appraiser. The valuation of
identified customer relationships has been based primarily upon future cash
flow projections discounted to present value using a risk-adjusted discount
rate.

In assessing the recoverability of the Companys goodwill and other
intangible assets, the Company must make assumptions regarding estimated future
cash flows and other factors including legal factors, market conditions and
operational performance of its acquired businesses to determine the fair value
of the respective assets. If these estimates or their related assumptions
change in the future, the Company may be required to record impairment charges
for these assets not previously recorded. In addition, the estimated lives of
goodwill and other intangible assets are based on current facts. If events
change, and the Company has overestimated the economic life of these assets,
the Company will begin to amortize the remaining unamortized carrying value of
these assets over the newly estimated life, which may result in additional
amortization expense.

Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, and is
now required to analyze its goodwill for impairment during the first six months
of fiscal 2002, and subsequently on an annual basis thereafter, unless facts or
circumstances arise earlier which indicate impairment. Any resulting impairment
loss could have a material adverse impact on financial condition and results of
operations. The Company will perform its impairment analysis of goodwill for
the adoption of SFAS 142 during the second quarter of 2002.

Restructuring

During 2001, the Company recorded significant charges in connection with
its restructuring programs. These charges include estimates pertaining to
employee separation costs and the settlements of contractual obligations
resulting from the Companys actions. Although the Company does not anticipate
significant changes, the actual costs may differ from these estimates, which
would result in adjustments to the original estimates.

Deferred Taxes

The Company accounts for income taxes in accordance with Statement of
Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes which
requires that deferred tax assets and liabilities be recognized using enacted
tax rates for the effect of temporary differences between the book and tax
bases of recorded assets and liabilities. FAS 109 also requires that deferred
tax assets be reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax asset will not be realized. The
Company evaluates quarterly the realizability of its deferred tax assets by
assessing its valuation allowance and by adjusting the amount of such
allowance, if necessary. At March 31, 2002 and December 31, 2001, the
Companys deferred tax asset was fully reserved. In the event the Company were
to determine in the future that it would be able to realize its deferred tax
assets in excess of its net recorded amount, an adjustment to the deferred tax
asset would increase income in the period such
determination was made
-16-Table of ContentsResults of Continuing Operations For The Three Months Ended March 31, 2002 and 2001The following table sets forth the consolidated statement of operations
data for the three months ended March 31, 2002 and 2001, expressed as a
percentage of total revenues:

|                                              |                                              |  |                    |       |           |  |       |       |  
|--------------------------------------------- | -------------------------------------------- |  | ------------------ | ----- | --------- |  | ----- | ----- | -
|                                              |                                              |  | Three
months ended
|                                              |                                              |  |                   
|                                              |                                              |  | March
31,          |       | March
31,
|                                              |                                              |  | 2002               |       | 2001     
|                                              |                                              |  |                    |       |          
|Software license revenue                      |                                              |  | 47.2               | %     |           |  | 51.3  | %    
|                                             
|                                             
|                                             
|                                             
|Professional services and maintenance         |                                              |  | 52.8               | %     |           |  | 48.7  | %    
|                                              |                                              |  |                    |       |           |  |       |      
|                                              | Total revenue                                |  |                    | 100.0 | %         |  |       | 100.0 | %
|                                             
|                                             
|                                             
|                                             
|Cost of software license revenue              |                                              |  | 8.3                | %     |           |  | 4.3   | %    
|                                             
|                                             
|                                             
|                                             
|Cost of professional services and maintenance |                                              |  | 23.6               | %     |           |  | 35.0  | %    
|                                              |                                              |  |                    |       |           |  |       |      
|                                              | Gross margin                                 |  |                    | 68.1  | %         |  |       | 60.7  | %
|                                             
|                                             
|                                             
|                                             
|Operating expenses                            |                                              |  |                    |       |           |  |       |      
|                                             
|                                             
|                                             
|                                             
|                                              | Product development                          |  |                    | 11.6  | %         |  |       | 18.6  | %
|                                             
|                                             
|                                             
|                                             
|                                              | Sales and marketing                          |  |                    | 36.8  | %         |  |       | 61.9  | %
|                                             
|                                             
|                                             
|                                             
|                                              | General and administrative                   |  |                    | 14.8  | %         |  |       | 10.1  | %
|                                             
|                                             
|                                             
|                                             
|                                              | Compensation expenses related to acquisition |  |                    | 5.6   | %         |  |       | 0.0   | %
|                                              |                                              |  |                    |       |           |  |       |      
|                                              | Total operating expenses                     |  |                    | 68.8  | %         |  |       | 90.6  | %
|                                              |                                              |  |                    |       |           |  |       |      
|Operating loss                                |                                              |  | (0.7               | )%    |           |  | (30.0 | )%   
|                                             
|                                             
|                                             
|                                             
|Interest income, net                          |                                              |  | 0.4                | %     |           |  | 1.2   | %    
|                                             
|                                             
|                                             
|                                             
|Provision
for income taxes                    |                                              |  | 0.7                | %     |           |  | 0.4   | %    
|                                              |                                              |  |                    |       |           |  |       |      
|Net
loss for continuing operations            |                                              |  | (1.0               | )%    |           |  | (29.2 | )%   
|                                             
|                                             
|                                             
|                                             
|Discontinued operations                       |                                              |  |                   |       |           |  | 6.3   | %    
|                                              |                                              |  |                    |       |           |  |       |      
|Net loss                                      |                                              |  | (1.0               | )%    |           |  | (22.9 | )%   
|                                              |                                              |  |                    |       |           |  |       |      

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Revenues

Revenue from continuing operations decreased 18% to $9,283,000 for the
quarter ended March 31, 2002 from $11,327,000 for the quarter ended March 31,
2001. Revenues decreased primarily due to a weakening economy,
continued slowdown in information technology spending and seasonal
weakness in Europe.

Software License

Software license revenue from continuing operations decreased 25% to
$4,379,000 for the three months ended March 31, 2002 from $5,814,000 for the
three months ended March 31, 2001 or 47% of total revenue compared to 51% of
the total revenue for the three months ended March 31, 2001. Software license
revenue decreased primarily due to the progressively weakening economy,
and the continued slowdown in information technology spending which in turn led to the
Companys customers delaying their purchasing decisions. Despite these
slowdowns during the quarter ended March 31, 2002, the Company continued to
increase its customer base with 65 new customers. This represents the highest
number of new customers added in the past four quarters.

Domestic license revenue from continuing operations increased 8% to
$2,482,000 for the quarter ended March 31, 2002 from $2,304,000 for the same
period in 2001 due to an increase in the number of licenses of the Companys
application sold to new and existing customers.

International license revenue from continuing operations decreased 46% to
$1,897,000 for the quarter ended March 31, 2002 from $3,510,000 for the same
period in 2001 primarily due to a greater than expected seasonal weakness in
Europe and continued decline in information technology spending world-wide.

The Company markets its products through its direct sales force and
indirect partners. The Company continues to focus on complementing the direct
sales force with the indirect channel partners, which consist of Original
Equipment Manufacturers (OEMs), Value Added Resellers (VARS), independent
distributors and sales agents.

Professional Services and Maintenance

Professional services and maintenance revenue from continuing operations
decreased for the three months ended March 31, 2002 to $4,904,000, or 53% of
total revenue, compared to $5,513,000, or 49% of total revenue, for the three
months ended March 31, 2001 representing a 11% decrease. For the three months
ended March 31, 2002, maintenance revenues increased 33% to $3,379,000 as
compared to $2,535,000 for the three months ended March 31, 2001, while
consulting and training revenue decreased 49% to $1,525,000 as compared to
$2,978,000 for the three months ended March 31, 2001. The
increase in maintenance revenue is primarily due to growth in the
installed base of customers receiving maintenance and a greater number
of customers electing renewal of their maintenance support contracts. The
Company expects the maintenance revenue as a component of total professional
service and maintenance revenue to continue to increase due to continuing
improvement in maintenance renewals from existing customers as they choose to
extend their maintenance support contracts. The Company expects professional
service revenue to decrease as a percentage of total professional services and
maintenance revenue due to the Companys increasing reliance on external
consultants as the Company continues to control its costs.

Domestic service revenue from continuing operations decreased 3% to
$1,910,000 for the three months ended March 31, 2002 from $1,965,000 for the
three months ended March 31, 2001.

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International service revenues decreased by 16% to $2,994,000 in the three
months ended March 31, 2002 from $3,548,000 for the three months ended March
31, 2001.

Cost of Revenues

Cost of Software License Revenue

Cost of software license revenue consists primarily of third-party
software royalties, cost of product packaging and documentation materials, and
amortization of capitalized software costs. The amortization of capitalized
software costs begins upon general release of the software to customers. Cost
of software license revenues was $774,000 for the three months ended March 31,
2002, compared to $491,000 for the three months ended March 31, 2001. As a
percentage of software license revenue, cost of software license revenue
increased to 18% in the three months ended March 31, 2002, as compared to 8%
for the three months ended March 31, 2001. Cost of software license revenue
increased in absolute dollars and as a percentage of software license revenue
primarily due to increases in amortization of capitalized software costs.

Cost of Professional Services and Maintenance Revenue

The
cost of professional services and maintenance revenue consists
primarily of personnel, facilities and system costs incurred to provide
consulting, customer support under the maintenance agreements and training.
Cost of professional services and maintenance revenue from continuing
operations decreased to $2,188,000 for the three months ended March 31, 2002
from $3,968,000 for the three months ended March 31, 2001. As a percentage of
professional services and maintenance revenue, these costs were 45% in the
first quarter of 2002 as compared to 72% in the first quarter of 2001.
Professional services and maintenance revenue gross margin as a percentage of
professional services revenue improved to 55% for the three months ended March
31, 2002 as compared to 28% for the three months ended March 31,
2001. The improvement in professional services and maintenance
revenue gross margin is due to higher consulting utilization and a
change in revenue mix from lower margin consulting revenues to higher
margin maintenance revenues. This gross margin improvement on maintenance and
services is a direct reflection of the Companys focus on margin improvement
and the results of rebalancing the Companys cost structure.

Operating Expenses

Product Development

Product development expenses include costs associated with the development
of new products, enhancements of existing products and quality assurance
activities, and consist primarily of employee salaries, benefits, consulting
costs and the cost of software development tools. The Company capitalizes
product development costs during the required capitalization period once the
Company has reached technological feasibility through general release of its
software products. The Company considers technological feasibility to be met
once it has completed a working model that has met certain performance
criteria. Product development costs not meeting the requirements for
capitalization are expensed as incurred.

Product development from continuing operations decreased 49% to $1,081,000
for the three months ended March 31, 2002 from $2,108,000 for the three months
ended March 31, 2001. This represents 12% of total revenue for the three
months ended March 31, 2002 compared to 19% of total revenue for the three

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##### Table of Contents



months ended March 31, 2001. The decrease is primarily due to decreased
employee and outside consulting costs and capitalization of product development
costs consisting primarily of salaries, benefits and related indirect overhead
costs of $746,000 in the three months ended March 31, 2002, as a result of the
Companys extensive product development efforts pertaining to the Companys new
Interga platform. The Company anticipates that it will continue to invest
substantial resources in the new product development, primarily the Applix Integra
platform and new versions of the existing products and additional modules for
its existing products. The Company anticipates that it will capitalize
development costs associated with the Integra platform until its commercial
release, which is expected to be in 2002.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries, commissions
and bonuses and the cost of the Companys international
operations earned by sales and marketing personnel, field office expenses,
travel and entertainment, and promotional and advertising expenses
and the cost of the Companys international operations. Sales and
marketing expenses from continuing operations
decreased 51% to $3,416,000 for the three months ended March 31, 2002 from
$7,015,000 for the three months ended March 31, 2001. Selling and marketing
expenses decreased as a percentage of total revenue to 37% for the three months
ended March 31, 2002 from 62% for the three months ended March 31, 2001. The
decrease was primarily due to the Companys decreased staffing levels
associated with the Companys 2001 restructuring initiatives, reduced sales
commissions and bonuses, and managements further implementation of cost
control initiatives, including reductions in advertising, travel and other
discretionary expenditures. The Company expects to continue to closely monitor
discretionary expenditures and to continue its cost control initiatives.

General and Administrative Expenses

General and administrative expenses consist
primarily of salaries and occupancy costs for administrative,
executive and finance, information technology (IT) and
human resource personnel, and bad debt expense. General and
administrative expenses from continuing operations increased 20% to
$1,372,000 for the three months ended March 31, 2002 from
$1,144,000 for the three months ended March 31, 2001. The increase was primarily due
to increases in the Company's operating costs which included rent and
related costs of its new corporate headquarters. General and administrative expenses increased as a percentage
of total revenue to 15% for the three months ended March 31, 2002
from 10% for the three months ended March 31, 2001.

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

In the second quarter of 2001, the Company adopted
a plan of restructuring aimed at reducing current operating costs
company-wide. In connection with this plan, 28 non-management
employees, primarily sales, marketing, and administrative personnel,
and 2 executive level employees, were terminated. The Companys
restructuring plan also included the closure of the Companys
sales office in France. As a result of the 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. No amounts remain accrued at March 31, 2002.

In the third quarter of 2001, the Company adopted a
plan of restructuring to further current operating costs company-wide
through headcount reductions. In connection with this plan, the
Company recorded an additional restructuring charge of $438,000 for
severance related to the termination of 26 non-management employees,
primarily sales, marketing, and administrative personnel. Subsequent
to the initial recording of the charge, adjustments totaling $90,000
were recording, reducing the charge to $348,000. No amounts remain
accrued at March 31, 2002.

In the fourth quarter of 2001, the Company adopted
a plan of restructuring to further reduce current operating costs.
The plan included the further reduction of headcount of one senior
level executive and 16 non-management employees, primarily
professional services, sales, and administrative personnel. The plan
also included the closure of several domestic offices and the
consolidation of space within one European office and the abandonment
of leasehold improvements and support assets associated with these
locations, which were removed from service shortly after the
implementation of the plan. As a result of the restructuring plan,
the Company recorded a charge of $840,000, which included $92,000 in
non-cash charges relating to impaired assets. The
components of the fourth quarter cash charges, as well as the
Companys payments made against accruals are detailed as follows:



|                              |  |                 |         |             |  |                            |         |             |  |                         |         |  |  |   |          |   |  |   |         | 
|----------------------------- |  | --------------- | ------- | ----------- |  | -------------------------- | ------- | ----------- |  | ----------------------- | ------- |  |  | - | -------- | - |  | - | ------- | 
|Cash charges                  |  | Chargesincurred |         | Paymentmade |  | Balance atDecember 31,2001 |         | Paymentmade |  | Balance
atMarch 31,2002 |        
|                              |  |                 |         |             |  |                            |         |             |  |                         |        
|Work force reduction          |  | $               | 363,000 |             |  | $                          | (52,000 | )           |  | $                       | 311,000 |  |  | $ | (232,000 | ) |  | $ | 79,000  | 
|                             
|                             
|                             
|                             
|Office closures               |  |                 | 274,000 |             |  |                            |        |             |  |                         | 274,000 |  |  |   | (4,000   | ) |  |   | 270,000 | 
|                             
|                             
|                             
|                             
|Other contractual
obligations |  |                 | 111,000 |             |  |                            |        |             |  |                         | 111,000 |  |  |   | (4,000   | ) |  |   | 107,000 | 
|                              |  |                 |         |             |  |                            |         |             |  |                         |         |  |  |   |          |   |  |   |         | 
|Total                         |  | $               | 748,000 |             |  | $                          | (52,000 | )           |  | $                       | 696,000 |  |  | $ | (240,000 | ) |  | $ | 456,000 | 
|                              |  |                 |         |             |  |                            |         |             |  |                         |         |  |  |   |          |   |  |   |         | 

Compensation Expenses Related to Acquisition

Compensation
expenses related to acquisition consists primarily of contingent
cash consideration relating to the Companys March 2001 acquisition of Dynamic
Decisions. Per the terms of the purchase and sale agreement, total maximum cash
consideration relating to the purchase of Dynamic Decisions was $5,150,000
payable in installments over a maximum of 30 months beginning on July 1, 2001.
As of March 31, 2002, the Company has paid $1,267,000 of the maximum cash
consideration, which has been accounted for as purchase price. On January 1,
2002, the Company made one contingent cash payments for $517,000 which has been
accounted for as compensation expense as the payment is contingent upon the
continued employment of two key executives of Dynamic Decisions. The remaining
cash payments will continue to be accounted for as compensation expense, as
they are contingent upon the future employment of the two key executives.

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##### Table of Contents



Interest and Other Income, Net

Interest
income decreased to $35,000 for the three months ended March 31,
2002, compared to $133,000 for the three months ended March 31, 2001. The
decrease is primarily due to fewer funds invested and lower interest rates.

Provision for Income Taxes

The Company recorded a provision from income taxes of $64,000 for the
three months ended March 31, 2002, compared to $44,000 for the three months
ended March 2001. The provision for income taxes represents the Companys
state and foreign income tax obligations.

Operating Loss and Operating Margin

Operating loss from continuing operations was $3,399,000 for the three
months ended March 31, 2001, compared to $65,000 for the three months ended
March 31, 2002. Additionally, operating loss as a percentage of total revenue
was 30% for the three months ended March 31, 2001, compared to less than 1% for
the three months ended March 31, 2002. The total revenue decrease of
$2,044,000 was significantly offset by the Companys cost control initiatives
including 2001 restructuring initiatives.

Liquidity and Capital Resources

The Company derives it liquidity and capital resources primarily from the
Companys cash flow from operating activities and from working capital. The Companys
cash and cash equivalent balance was $9,370,000 and $9,278,000 as of March 31,
2002 and December 31, 2001, respectively, which included restricted cash of $1,050,000. The
Companys days sales outstanding (DSO) in accounts receivable was 70 days as
of December 31, 2001, compared with 68 days as of March 31, 2002. The Company
sold $729,000 in accounts receivables as of December 31, 2001, compared to
$644,000 as of March 31, 2002 under its non-recourse accounts receivable
purchase agreement with a bank. The sale had an immaterial impact on the
Companys DSO by reducing approximately 3 days as of December 31, 2001 and 6
days as of March 31, 2002. The Company does not have any off-balance-sheet
arrangements with unconsolidated entities or related parties, and as such, the
Companys liquidity and capital resources are not subject to off-balance-sheet
risks from unconsolidated entities.

Cash
provided by the Companys operating activities was $325,000 for the quarter
ended March 31, 2002 compared to cash used in operating activities of
$1,927,000 for the same period in the prior year. The net loss of $94,000 for the
first quarter of 2002 was partially offset by the decrease in operating assets
and liabilities of $91,000, which was primarily due to an increase of in
deferred revenue of $1,462,000.

Cash used in investing activities totaled $934,000 for the quarter ended
March 31, 2002 compared to cash provided by investing activities of $1,102,000
for the quarter ended March 31, 2001. The increase in cash used in investing
activities primarily resulted from the increase of capitalized software cost of
$746,000 and property and equipment expenditure of $188,000.

Cash
provided by financing activities totaled $836,000 for the quarter
ended March 31, 2002, which consisted of net proceeds from factoring of
receivables to a certain bank of $644,000 and

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##### Table of Contents



proceeds from issuance of stock under stock plans of $192,000. This
compares to total cash provided by financing activities of $526,000 for the
same quarter ended March 31, 2001.

In connection with the Companys acquisition of Dynamic Decisions, the
Company expects to pay out additional contingent cash consideration of
$3,366,000 in seven quarterly installments between April 1, 2002 and January 1,
2004.

The Company has secured two revolving credit facilities,
providing for loans and other financial accommodations, with a bank totaling
approximately $5 million. During the first quarter of 2002, the Company had no
amounts outstanding under these credit facilities. Because the
Company is currently in default under certain covenants with the
bank, the Company currently has no availability to borrow under either of these
facilities. The facilities expire on December 5,
2002.

The Company has a non-recourse accounts receivable purchase arrangement
with a certain bank, pursuant to which the Company and the bank may agree from
time to time for the Company to sell qualifying accounts receivable to the
bank, in an aggregate amount of up to $2 million outstanding, at a purchase
price equal to the balance of the accounts less a discount rate and a fee. On
or about March 31, 2002, the Company factored certain accounts receivable to
the bank pursuant to the purchase arrangement in the amount of $644,000.

In accordance with SFAS 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, the Company recognized a
sale for those account receivable balances for which there was no future
obligation to the customer in the amount of $443,000. The Company has concluded
that these accounts have been legally isolated, and accordingly, this amount
has been derecognized from the Companys accounts receivable balance at
March 31, 2002. The loss from the sale of the financial assets and retained
interest for cash collection were not material to the Companys results of
operations or financial position. The remainder of $201,000 has been recorded
as a financing transaction and recognized as a liability at March 31, 2002.

As of March 31, 2002, the Company had future cash commitments for the cash
payments pertaining to its obligation under its non-cancelable leases.
The Companys future minimum lease payments for its
operating lease payments for its office facilities and certain equipment are:

|                             |  |           |            | 
|---------------------------- |  | --------- | ---------- | 
|                             |  | Operating
|                             |  | Leases   
|                             |  |          
|2002                         |  | $         | 2,550,000  | 
|                            
|                            
|                            
|                            
|2003                         |  |           | 2,407,000  | 
|                            
|                            
|                            
|                            
|2004                         |  |           | 2,139,000  | 
|                            
|                            
|                            
|                            
|2005                         |  |           | 2,014,000  | 
|                            
|                            
|                            
|                            
|2006                         |  |           | 1,796,000  | 
|                            
|                            
|                            
|                            
|2007 and thereafter          |  |           | 11,674,000 | 
|                             |  |           |            | 
|Total minimum lease payments |  | $         | 22,580,000 | 
|                             |  |           |            | 

The Company has no commitments or specific plans for any significant capital
expenditures in the next 12 months.

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The Company has incurred losses from continuing operations for the last
several years. As of March 31, 2002, the Company had an accumulated deficit of
$37.3 million. Operating losses and negative cash flows may continue because of
costs and expenses relating to brand development, marketing and other
promotional activities, continued development of the Companys information
technology infrastructure, expansion of product offerings and development of
relationships with other businesses. Managements plans include increasing
revenue and generating positive cash flows from operations. The Company made
progress during the quarter ended March 31, 2002 towards decreasing operating losses on a quarterly
sequential basis. Additionally, the Company improved its first quarter 2002
cash flow and improved its cash position at March 31, 2002. The Company
currently expects that the principal sources of funding for its operating
expenses, capital expenditures and other liquidity needs will be a combination
of its available cash balances, funds generated from operations and its
available credit facilities. The Company believes that its currently available
sources of funds will be sufficient to fund its operations for at least the
next 12 months. However, there are a number of factors that may negatively
impact the Companys available sources of funds. The amount of cash generated
from operations will be dependent upon such factors as the successful execution
of the Companys business plan, the successful introduction of Applix Integra
and worldwide economic conditions. Should the Company not meet its plans to
generate sufficient revenue or positive cash flows, it may need to raise
additional capital or reduce spending. Failure to do so could have an adverse
effect on the Companys ability to continue as a going concern.

RISK FACTORS

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                               

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| |  |  | 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
operating expenses do not vary directly with net sales and are difficult to
adjust in the short term. As a result, if net sales for a particular quarter
were below expectations, we could not proportionately reduce operating expenses
for that quarter, and, therefore, that revenue shortfall would have a
disproportionate adverse effect on our operating results for that quarter. If
our operating results are below the expectations of public market analysts and
investors, the price of our common stock may fall significantly.

OUR FUTURE SUCCESS IS DEPENDENT IN LARGE PART ON THE SUCCESS OF APPLIX INTEGRA.

We have devoted a substantial amount of resources to the development and
marketing of our new Applix Integra product. We believe that our future
financial performance will be dependent in large part on the success of Applix
Integra. Because Applix Integra has been announced only recently and has not
yet begun commercial shipments, we cannot yet assess its market acceptance or
predict with accuracy the amount of revenue it will generate.

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 cash equivalents, funds generated from operations and available credit
lines should be sufficient to fund our operations as

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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 increased expenses and liabilities;                                                                                                                     
|
| |  |  | our relationships with existing employees, customers and business
partners may be weakened or terminated as a result of these
transactions; and                       
|
| |  |  | additional ongoing expenses associated with write-downs of goodwill
and other purchased intangible assets.                                                            

WE RELY HEAVILY ON KEY PERSONNEL.

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

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

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



| |  |  | we may have difficulty managing and administering a globally-dispersed business;
| | - |  | --------------------------------------------------------------------------------
|
| |  |  | fluctuations in exchange rates may negatively affect our operating results;     
|
| |  |  | we may not be able to repatriate the earnings of our foreign operations;        

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| |  |  | 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 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, 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.

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

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

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

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

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

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

Despite testing by Applix and our customers, errors may be found in our
products after commencement of commercial shipments. If errors are discovered,
we may have to make significant expenditures of capital to eliminate them and
yet may not be able to successfully correct them in a timely manner or at all.
Errors and failures in our products could result in a loss of, or delay in,
market acceptance of our products and could damage our reputation and our
ability to convince commercial users of the benefits of our products.

In addition, failures in our products could cause system failures for our
customers who may assert warranty and other claims for substantial damages
against us. Although our license agreements with our customers typically
contain provisions designed to limit our exposure to potential product
liability claims, it is possible that these provisions may not be effective or
enforceable under the laws of some jurisdictions. Our insurance policies may
not adequately limit our exposure to this type of claim. These claims, even if
unsuccessful, could be costly and time-consuming to defend.

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a multinational corporation, the Company is exposed to market risk,
primarily from changes in foreign exchange rates. These exposures may change
over time and could have a material adverse impact
on the Companys financial results. Most of the Companys international
sales through it subsidiaries are denominated in foreign currencies. Relative
to foreign currency exposures existing at March 31, 2002, a 10% unfavorable
movement in foreign exchange rates would not expose the Company to significant
losses in earnings or cash flows. To date, foreign currency
fluctuations have not had a material effect on the Companys operating results.

At March 31, 2002, the Company held $9,370,000 in cash equivalents,
including $1,050,000 of restricted cash, consisting primarily of money market
funds. Cash equivalents are classified as available for sale and carried at
fair value, which approximates cost. A hypothetical 10% increase in interest
rates would not have a material impact on the fair market value of these
instruments due to their short maturity, and the Companys intention that all
the securities will be sold within one year. There have been no significant
changes since March 31, 2002.




PART II.   OTHER INFORMATION




ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K



|(A)  |  | EXHIBITS                                                                                                  
|---- |  | ----------------------------------------------------------------------------------------------------------
|    
|10.1 |  | Termination Agreement, dated January 14, 2002, by and between the
Company, Applix GmbH and
Michael Scheib.
|    
|(B)  |  | REPORTS ON FORM 8-K                                                                                       
|    
|     |  | The Company filed no reports on Form 8-K during the quarter for which this
report was filed.              

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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.(Registrant)
|
|
|
|
| |  |                          |  |                                                                                               
|
|
|
|
| |  | By:                      |  | /s/ Walt Hilger                                                                               
| |  |                          |  |                                                                                               
| |  |                          |  | Walt Hilger
Chief Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
|
|
|
|
| |  |                          |  |                                                                                               
|
|
|
|
| |  | Date:                    |  | May 14, 2002                                                                                  

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Exhibit Index

|            |      |       |  |                                                                                                               
|----------- | ---- | ----- |  | --------------------------------------------------------------------------------------------------------------
|            |      |      
|Exhibit
No: |      | Name:
|            |      |      
|            | 10.1 |       |  | Termination Agreement, dated January 14, 2002, by
    and between the Company, Applix GmbH and Michael Scheib.

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