##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from  to
 Commission File Number 0-25040
 APPLIX, INC.
 (Exact name of registrant as specified in its charter)
 MASSACHUSETTS
    
    04-2781676(State or other jurisdiction of
    
    (I.R.S. Employer Identificationincorporation or organization)
    
    Number)
 289 Turnpike Road, Westborough, Massachusetts 01581
(Address of principal executive offices)
 (508) 870-0300
(Registrants telephone number)
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Securities Exchange Act of 1934). Yes o No þ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Securities Exchange Act of 1934). Yes o No þ
 As of November 1, 2005, the Registrant had 14,804,134 outstanding shares of common stock.




---



APPLIX, INC.
 Form 10-Q
 For the Quarterly Period Ended September 30, 2005
 Table of Contents
 PageNoPart I  Financial InformationItem 1. Financial Statements (Unaudited):Condensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004
    
    
    3Condensed
Consolidated Statements of Income for the three and nine months ended
September 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended September
30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    23Part II  Other InformationItem 6. Exhibits
    
    
    24Signature
    
    
    25Ex-31.1 Section 302 Certification of CEOEx-31.2 Section 302 Certification of CFOEx-32.1 Section 906 Certification of CEOEx-32.2 Section 906 Certification of CFO
    2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
 Applix, Inc.
 
 Condensed Consolidated Balance Sheets
 (In thousands, except share and par value amounts)
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    18,700
    
    
    $
    15,924Short-term investments
    
    
    4,700
    
    
    
    Accounts receivable, less allowance for doubtful accounts of $343 and $227,
respectively
    
    
    4,199
    
    
    
    6,171Other current assets
    
    
    1,229
    
    
    
    1,207Deferred tax assets
    
    
    455
    
    
    
    496Total current assets
    
    
    29,283
    
    
    
    23,798Restricted cash
    
    
    500
    
    
    
    400Property and equipment, net
    
    
    712
    
    
    
    580Other assets
    
    
    635
    
    
    
    687Intangible asset, net of accumulated amortization of $1,125 and $938, respectively
    
    
    375
    
    
    
    562Goodwill
    
    
    1,158
    
    
    
    1,158TOTAL ASSETS
    
    $
    32,663
    
    
    $
    27,185LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    915
    
    
    $
    795Accrued expenses
    
    
    4,603
    
    
    
    5,177Accrued restructuring expenses, current portion
    
    
    46
    
    
    
    112Deferred revenues
    
    
    8,271
    
    
    
    8,421Total current liabilities
    
    
    13,835
    
    
    
    14,505Accrued restructuring expenses, long term portion
    
    
    202
    
    
    
    261Other long term liabilities
    
    
    113
    
    
    
    181Commitments and contingencies (Note 7)Stockholders equity:Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued
and outstandingCommon stock, $.0025 par value; 30,000,000 shares authorized; 14,802,884
and 14,290,584 shares issued and outstanding, respectively
    
    
    37
    
    
    
    36Additional paid-in capital
    
    
    56,664
    
    
    
    54,348Accumulated deficit
    
    
    (36,411
    )
    
    
    (40,673
    )Accumulated other comprehensive loss
    
    
    (1,777
    )
    
    
    (1,473
    )Total stockholders equity
    
    
    18,513
    
    
    
    12,238TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    32,663
    
    
    $
    27,185
  3




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Applix, Inc.
 
 Condensed
Consolidated Statements of Income
(In thousands, except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Software license
    
    $
    4,373
    
    
    $
    3,307
    
    
    $
    12,846
    
    
    $
    10,766Professional services and maintenance
    
    
    4,441
    
    
    
    3,602
    
    
    
    13,048
    
    
    
    10,789Total revenues
    
    
    8,814
    
    
    
    6,909
    
    
    
    25,894
    
    
    
    21,555Cost of revenues
    
    
    998
    
    
    
    863
    
    
    
    3,000
    
    
    
    3,220Gross margin
    
    
    7,816
    
    
    
    6,046
    
    
    
    22,894
    
    
    
    18,335Operating expenses:Sales and marketing
    
    
    3,695
    
    
    
    2,473
    
    
    
    11,005
    
    
    
    7,631Product development
    
    
    1,308
    
    
    
    1,059
    
    
    
    3,753
    
    
    
    3,614General and administrative (includes $15 of
stock-based compensation for the three
months ended September 30, 2005 and 2004,
respectively, and $45 of stock-based
compensation for the nine months ended
September 30, 2005 and 2004, respectively)
    
    
    1,101
    
    
    
    1,507
    
    
    
    3,868
    
    
    
    4,603Restructuring
    
    
    
    
    
    
    604
    
    
    
    
    
    
    
    577Amortization of an acquired intangible asset
    
    
    63
    
    
    
    63
    
    
    
    188
    
    
    
    188Total operating expenses
    
    
    6,167
    
    
    
    5,706
    
    
    
    18,814
    
    
    
    16,613Operating income
    
    
    1,649
    
    
    
    340
    
    
    
    4,080
    
    
    
    1,722Non-operating income (expense):Interest and other income, net
    
    
    84
    
    
    
    290
    
    
    
    178
    
    
    
    256Income
from continuing operations before income taxes
    
    
    1,733
    
    
    
    630
    
    
    
    4,258
    
    
    
    1,978(Benefit) provision for income taxes
    
    
    (240
    )
    
    
    178
    
    
    
    (74
    )
    
    
    293Income from continuing operations
    
    
    1,973
    
    
    
    452
    
    
    
    4,332
    
    
    
    1,685Discontinued operations:Loss from discontinued operations
    
    
    (20
    )
    
    
    (36
    )
    
    
    (70
    )
    
    
    (80
    )Net income
    
    $
    1,953
    
    
    $
    416
    
    
    $
    4,262
    
    
    $
    1,605Net income (loss) per share, basic and diluted:Continuing operations, basic
    
    $
    0.13
    
    
    $
    0.03
    
    
    $
    0.30
    
    
    $
    0.12Continuing operations, diluted
    
    $
    0.12
    
    
    $
    0.03
    
    
    $
    0.26
    
    
    $
    0.11Discontinued operations, basic and diluted
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.01
    )Net income per share, basic
    
    $
    0.13
    
    
    $
    0.03
    
    
    $
    0.29
    
    
    $
    0.11Net income per share, diluted
    
    $
    0.12
    
    
    $
    0.03
    
    
    $
    0.26
    
    
    $
    0.10Weighted average number of shares outstanding:Basic
    
    
    14,744
    
    
    
    14,243
    
    
    
    14,610
    
    
    
    13,957Diluted
    
    
    16,534
    
    
    
    15,539
    
    
    
    16,370
    
    
    
    15,432
  4




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Applix, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 (In thousands)
 Nine Months EndedSeptember 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    4,262
    
    
    $
    1,605Adjustments to reconcile net income to net cash provided
by (used in) operating activities:Depreciation
    
    
    228
    
    
    
    474Amortization
    
    
    188
    
    
    
    452Provision for doubtful accounts
    
    
    135
    
    
    
    (9
    )Deferred gain on sale of subsidiary
    
    
    
    
    
    
    (195
    )Non-cash stock-based compensation expense
    
    
    45
    
    
    
    45Non-cash restructuring credit
    
    
    
    
    
    
    (27
    )Changes in operating assets and liabilities:Decrease in accounts receivable
    
    
    1,451
    
    
    
    1,458(Increase) decrease in prepaid and other current assets
    
    
    (71
    )
    
    
    326Increase in other assets
    
    
    (5
    )
    
    
    Increase in accounts payable
    
    
    197
    
    
    
    174Decrease in accrued expenses
    
    
    (458
    )
    
    
    (1,161
    )Decrease in accrued restructuring expenses
    
    
    (125
    )
    
    
    (2,969
    )Decrease in other liabilities
    
    
    (80
    )
    
    
    (86
    )Increase (decrease) in deferred revenues
    
    
    154
    
    
    
    (1,483
    )Cash provided by (used in) operating activities
    
    
    5,921
    
    
    
    (1,396
    )Cash flows from investing activities:Property and equipment expenditures
    
    
    (339
    )
    
    
    (188
    )Proceeds from sale of subsidiary
    
    
    
    
    
    
    195(Increase) decrease in restricted cash
    
    
    (100
    )
    
    
    417Purchases of short-term investments
    
    
    (8,650
    )
    
    
    Sales of short-term investments
    
    
    3,950
    
    
    
    Cash (used in) provided by investing activities
    
    
    (5,139
    )
    
    
    424Cash flows from financing activities:Proceeds from issuance of common stock to affiliate
    
    
    
    
    
    
    3,000Proceeds from issuance of common stock under stock plans
    
    
    1,425
    
    
    
    1,739Proceeds from notes receivable
    
    
    892
    
    
    
    232Cash provided by financing activities
    
    
    2,317
    
    
    
    4,971Effect of exchange rate changes on cash
    
    
    (323
    )
    
    
    88Increase in cash and cash equivalents
    
    
    2,776
    
    
    
    4,087Cash and cash equivalents at beginning of period
    
    
    15,924
    
    
    
    9,241Cash and cash equivalents at end of period
    
    $
    18,700
    
    
    $
    13,328Supplemental disclosure of cash flow informationCash paid for income tax
    
    $
    325
    
    
    $
    518
  5




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APPLIX, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. The Company
  2. Summary of Significant Accounting Policies
 Basis of Presentation
   Use of Estimates
  6




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Cash and Cash Equivalents
   Short-term Investments
  7




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Goodwill
 th
 Stock-Based Compensation
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income as reported
    
    $
    1,953
    
    
    $
    416
    
    
    $
    4,262
    
    
    $
    1,605Add: Total stock-based
employee compensation
expense included in
reported net income, net
of related tax effects
    
    
    15
    
    
    
    15
    
    
    
    45
    
    
    
    45Deduct: Total stock-based
employee compensation
expense not included in
reported net income,
determined under fair
value based method for all
awards, net of related tax
effects
    
    
    (419
    )
    
    
    (324
    )
    
    
    (1,235
    )
    
    
    (1,062
    )Pro forma net income
    
    $
    1,549
    
    
    $
    107
    
    
    $
    3,072
    
    
    $
    588Net income per share:Basic  as reported
    
    $
    0.13
    
    
    $
    0.03
    
    
    $
    0.29
    
    
    $
    0.11Diluted  as reported
    
    $
    0.12
    
    
    $
    0.03
    
    
    $
    0.26
    
    
    $
    0.10Basic  pro forma
    
    $
    0.11
    
    
    $
    0.01
    
    
    $
    0.21
    
    
    $
    0.04Diluted  pro forma
    
    $
    0.10
    
    
    $
    0.01
    
    
    $
    0.19
    
    
    $
    0.04Pro forma weighted average
number of shares
outstanding:Basic
    
    
    14,744
    
    
    
    14,243
    
    
    
    14,610
    
    
    
    13,957Diluted
    
    
    16,044
    
    
    
    15,211
    
    
    
    15,832
    
    
    
    15,093
 8




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2005
    
    2004Expected life (years)
    
    
    4
    
    
    
    4Expected stock price volatility
    
    
    86.1
    %
    
    
    80.6
    %Risk free interest rate
    
    
    4.02
    %
    
    
    3.25
    %
 New Accounting Pronouncements
 Share-Based Payment Accounting for Stock-Based Compensation, Accounting for Stock Issued to Employees,
  3. Net Income (Loss) Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In thousands, except per share data)Numerator:Income from continuing operations
    
    $
    1,973
    
    
    $
    452
    
    
    $
    4,332
    
    
    $
    1,685Loss from discontinued operations
    
    
    (20
    )
    
    
    (36
    )
    
    
    (70
    )
    
    
    (80
    )Net income
    
    $
    1,953
    
    
    $
    416
    
    
    $
    4,262
    
    
    $
    1,605Denominator:Denominator for basic net income per share:Weighted average shares outstanding
    
    
    14,744
    
    
    
    14,243
    
    
    
    14,610
    
    
    
    13,957Dilutive effect of assumed exercise of stock options
    
    
    1,790
    
    
    
    1,296
    
    
    
    1,760
    
    
    
    1,475Denominator for diluted net income (loss) per share
    
    
    16,534
    
    
    
    15,539
    
    
    
    16,370
    
    
    
    15,432Basic net income (loss) per shareContinuing operations
    
    $
    0.13
    
    
    $
    0.03
    
    
    $
    0.30
    
    
    $
    0.12Discontinued operations
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.01
    )Net income per share
    
    $
    0.13
    
    
    $
    0.03
    
    
    $
    0.29
    
    
    $
    0.11Diluted net income (loss) per shareContinuing operations
    
    $
    0.12
    
    
    $
    0.03
    
    
    $
    0.26
    
    
    $
    0.11Discontinued operations
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.01
    )Net income per share
    
    $
    0.12
    
    
    $
    0.03
    
    
    $
    0.26
    
    
    $
    0.10
 9




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4. Short-Term Investments
  September 30, 2005(In thousands)Unrealized
    
    
    UnrealizedCost Basis
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueDebt securities
    
    $
    4,701
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    4,700Total
    
    $
    4,701
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    4,700
  5. Comprehensive Income (Loss)
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,(In thousands)
    
    
    (In thousands)2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    1,953
    
    
    $
    416
    
    
    $
    4,262
    
    
    $
    1,605Other
comprehensive (loss) income:Foreign
currency translation adjustments
 
    
    (52
    )
    
    
    (197
    )
    
    
    (303
    )
    
    
    185Unrealized
gain on investments
    
    
    1
    
    
    
    
    
    
    
    (1
    )
    
    
    Other comprehensive (loss) income
    
    
    (51
    )
    
    
    (197
    )
    
    
    (304
    )
    
    
    185Total comprehensive income
    
    $
    1,902
    
    
    $
    219
    
    
    $
    3,958
    
    
    $
    1,790
 6. Income Taxes
    7. Commitments and Contingencies
 Contingencies
  10




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8. Restructuring Expenses
    Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    
    Restructuring
    
    
    
    
    
    
    September 30,2004
    
    
    Expenses
    
    
    Payments
    
    
    2005Facility exit costs
    
    $
    373,000
    
    
    
    
    
    
    $
    (125,000
    )
    
    $
    248,000Total
    
    $
    373,000
    
    
    
    
    
    
    $
    (125,000
    )
    
    $
    248,000
 9. Discontinued Operations
  11




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW OF THE COMPANYS OPERATIONS
   CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   
    
    Revenue Recognition
    
    Accounts Receivable and Allowance for Doubtful Accounts
    
    Goodwill and Other Intangible Assets and Related Impairment
    
    Restructuring
    
    Income Taxes
  12




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RESULTS OF OPERATIONS
 Three and Nine Months Ended September 30, 2005 and 2004
 Revenues
 (In thousands, except percentages)Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percentof
    
    
    
    
    
    
    of
    
    
    
    
    
    
    of
    
    
    
    
    
    
    of2005
    
    
    Revenues
    
    
    2004
    
    
    Revenues
    
    
    2005
    
    
    Revenues
    
    
    2004
    
    
    RevenuesSoftware
License Revenues
    
    $
    4,373
    
    
    
    50
    %
    
    $
    3,307
    
    
    
    48
    %
    
    $
    12,846
    
    
    
    50
    %
    
    $
    10,766
    
    
    
    50
    %Professional
Services Revenues
    
    
    513
    
    
    
    6
    %
    
    
    320
    
    
    
    4
    %
    
    
    1,523
    
    
    
    6
    %
    
    
    1,142
    
    
    
    5
    %Maintenance Revenues
    
    
    3,928
    
    
    
    44
    %
    
    
    3,282
    
    
    
    48
    %
    
    
    11,525
    
    
    
    44
    %
    
    
    9,647
    
    
    
    45
    %Total Professional
Services and
Maintenance
Revenues
    
    
    4,441
    
    
    
    50
    %
    
    
    3,602
    
    
    
    52
    %
    
    
    13,048
    
    
    
    50
    %
    
    
    10,789
    
    
    
    50
    %Total Revenues
    
    $
    8,814
    
    
    
    100
    %
    
    $
    6,909
    
    
    
    100
    %
    
    $
    25,894
    
    
    
    100
    %
    
    $
    21,555
    
    
    
    100
    %
  Software License Revenues
    13




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Professional Services and Maintenance
  Cost of Revenues
 (In thousands, except percentages)Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    
    
    
    
    2004
    
    
    
    
    
    
    2005
    
    
    
    
    
    
    2004Cost of Software
License Revenues
    
    $
    5
    
    
    
    
    
    
    $
    7
    
    
    
    
    
    
    $
    61
    
    
    
    
    
    
    $
    391Cost of Professional
Services Revenues and
Maintenance Revenues:Cost of Professional
Services Revenues
    
    
    424
    
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    1,213
    
    
    
    
    
    
    
    841Cost of Maintenance
Revenues
    
    
    569
    
    
    
    
    
    
    
    596
    
    
    
    
    
    
    
    1,726
    
    
    
    
    
    
    
    1,988Total
    
    
    993
    
    
    
    
    
    
    
    856
    
    
    
    
    
    
    
    2,939
    
    
    
    
    
    
    
    2,829Total Cost of Revenues
    
    $
    998
    
    
    
    
    
    
    $
    863
    
    
    
    
    
    
    $
    3,000
    
    
    
    
    
    
    $
    3,220Gross Margin:
    
    
    
    
    
    
    (A
    )
    
    
    
    
    
    
    (A
    )
    
    
    
    
    
    
    (A
    )
    
    
    
    
    
    
    (A
    )Software License
    
    $
    4,368
    
    
    
    100
    %
    
    $
    3,300
    
    
    
    100
    %
    
    $
    12,785
    
    
    
    100
    %
    
    $
    10,375
    
    
    
    96
    %Professional Services
and Maintenance:Professional Services
    
    
    89
    
    
    
    17
    %
    
    
    60
    
    
    
    19
    %
    
    
    310
    
    
    
    20
    %
    
    
    301
    
    
    
    26
    %Maintenance
    
    
    3,359
    
    
    
    86
    %
    
    
    2,686
    
    
    
    82
    %
    
    
    9,799
    
    
    
    85
    %
    
    
    7,659
    
    
    
    79
    %Total
    
    
    3,448
    
    
    
    78
    %
    
    
    2,746
    
    
    
    76
    %
    
    
    10,109
    
    
    
    77
    %
    
    
    7,960
    
    
    
    74
    %Total Gross Margin
    
    $
    7,816
    
    
    
    89
    %
    
    $
    6,046
    
    
    
    88
    %
    
    $
    22,894
    
    
    
    88
    %
    
    $
    18,335
    
    
    
    85
    %
 
 (A)
    
    Gross margins calculated as a percentage of related revenues. Cost of Software License Revenues
  14




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Cost of Professional Services and Maintenance Revenues
  Operating Expenses
 (In thousands, except percentages)Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of2005
    
    
    Revenues
    
    
    2004
    
    
    Revenues
    
    
    2005
    
    
    Revenues
    
    
    2004
    
    
    RevenuesSales and marketing
    
    $
    3,695
    
    
    
    42
    %
    
    $
    2,473
    
    
    
    36
    %
    
    $
    11,005
    
    
    
    43
    %
    
    $
    7,631
    
    
    
    35
    %Product development
    
    
    1,308
    
    
    
    15
    %
    
    
    1,059
    
    
    
    15
    %
    
    
    3,753
    
    
    
    14
    %
    
    
    3,614
    
    
    
    17
    %General and
administrative
    
    
    1,101
    
    
    
    12
    %
    
    
    1,507
    
    
    
    22
    %
    
    
    3,868
    
    
    
    15
    %
    
    
    4,603
    
    
    
    21
    %Restructuring
    
    
    
    
    
    
    
    %
    
    
    604
    
    
    
    9
    %
    
    
    
    
    
    
    
    %
    
    
    577
    
    
    
    3
    %Amortization of
acquired intangible
asset
    
    
    63
    
    
    
    1
    %
    
    
    63
    
    
    
    1
    %
    
    
    188
    
    
    
    1
    %
    
    
    188
    
    
    
    1
    %Total operating
expenses
    
    $
    6,167
    
    
    
    70
    %
    
    $
    5,706
    
    
    
    83
    %
    
    $
    18,814
    
    
    
    73
    %
    
    $
    16,613
    
    
    
    77
    %
 Sales and Marketing Expenses
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##### Table of Contents



Product Development Expenses
   General and Administrative Expenses
  Restructuring
  16




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##### Table of Contents



Amortization of Acquired Intangible Asset
  Interest and Other Income (Expense), Net
   Provision for Income Taxes
  17




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LIQUIDITY AND CAPITAL RESOURCES
          18




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##### Table of Contents



FACTORS THAT MAY AFFECT FUTURE RESULTS
 OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS.
  
    
    demand for and market acceptance of our products and services;
    
    the size and timing of customer orders, particularly large orders, 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;
    
    the acquisition and retention of key partners;
    
    changes in generally accepted accounting policies, especially those related to the recognition of software revenue; and
    
    new government legislation or regulation.
  WE MAY NOT BE ABLE TO FULFILL ANY FUTURE CAPITAL NEEDS.
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##### Table of Contents



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



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



BECAUSE THE SALES CYCLE FOR OUR PRODUCTS CAN BE LENGTHY, IT IS DIFFICULT FOR US TO PREDICT WHEN
OR WHETHER A SALE WILL BE MADE.
  OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO PROTECT OUR TRADEMARKS FROM MISUSE BY THIRD
PARTIES.
  OUR PRODUCTS MAY CONTAIN DEFECTS THAT MAY BE COSTLY TO CORRECT, DELAY MARKET ACCEPTANCE OF OUR
PRODUCTS AND EXPOSE US TO LITIGATION.
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  22




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   23




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 (a) Exhibits
 ExhibitNumber
    
    Description10.1*
    
    Letter Agreement between Applix, Inc. and Craig Cervo, dated October 26, 2005.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule
15d-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule
15d-14(a) of the Securities Exchange Act of 1934, as amended.32.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(b)/Rule
15d-14(b) of the Securities Exchange Act of 1934, as amended.32.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(b)/Rule
15d-14(b) of the Securities Exchange Act of 1934, as amended.
 
 *
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on October 31, 2005. 24




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##### Table of Contents



SIGNATURE
  APPLIX, INC.Date: November 14, 2005
    
    /s/ Milton A. Alpern

Milton A. AlpernChief Financial Officer and Treasurer (DulyAuthorized Officer and Principal Financial and
Accounting Officer)
 25




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1*
    
    Letter Agreement between Applix, Inc. and Craig Cervo, dated October 26, 2005.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule
15d-14(a) of the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule
15d-14(a) of the Securities Exchange Act of 1934, as amended.32.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(b)/Rule
15d-14(b) of the Securities Exchange Act of 1934, as amended.32.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(b)/Rule
15d-14(b) of the Securities Exchange Act of 1934, as amended.
 
 *
    
    Incorporated by reference from the Registrants Current Report on Form 8-K, as filed with the
Securities and Exchange Commission on October 31, 2005. 26