##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10-Q [X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2004 OR [   ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period fromto Commission File Number 0-25040 APPLIX, INC. (Exact name of registrant as specified in its charter)
 MASSACHUSETTS
(State or other jurisdiction of
incorporation or organization)
    
    04-2781676
(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 whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ] Indicate by check whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of May 5, 2004, there were 14,209,620 shares of the Registrants
common stock, $0.0025 par value, outstanding.




---



APPLIX, INC. Form 10-Q For the Quarterly Period Ended March 31, 2004 Table of Contents PageNo.Part I  Financial Information
    
    
    3Item 1. Condensed Consolidated Financial Statements (Unaudited):
    
    
    3Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26Part II  Other Information
    
    
    26Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits and Reports on Form 8-K
    
    
    27Signature
    
    
    28Ex-31.1 Section 302 CEO CertificationEx-31.2 Section 302 CFO CertificationEx-32.1 Section 906 CEO CertificationEx-32.2 Section 906 CFO Certification
  Applix and TM1 are registered trademarks of Applix, Inc. TM1 Integra,
Applix Interactive Planning, and TM1 Web 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, operating 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
Factors that May Affect Future Results. 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




---



##### Table of Contents



PART I. FINANCIAL INFORMATION 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Applix, Inc. 
 Condensed Consolidated Balance Sheets (In thousands, except share and par value amounts)
 March 31,
    
    December 31,2004
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,657
    
    
    $
    9,241Accounts receivable, less allowance for
doubtful accounts of $214 and $252,
respectively
    
    
    4,796
    
    
    
    5,715Other current assets
    
    
    2,037
    
    
    
    2,125Total current assets
    
    
    19,490
    
    
    
    17,081Restricted cash
    
    
    400
    
    
    
    817Property and equipment, at cost
    
    
    13,362
    
    
    
    13,404Less: accumulated amortization and depreciation
    
    
    (12,586
    )
    
    
    (12,431
    )Net property and equipment
    
    
    776
    
    
    
    973Capitalized software costs, net of accumulated
amortization of $1,707 and $1,575,
respectively
    
    
    133
    
    
    
    265Goodwill
    
    
    1,158
    
    
    
    1,158Intangible asset, net of accumulated
amortization of $750 and $688, respectively
    
    
    750
    
    
    
    812Other assets
    
    
    843
    
    
    
    843TOTAL ASSETS
    
    $
    23,550
    
    
    $
    21,949LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,049
    
    
    $
    1,083Accrued expenses
    
    
    6,025
    
    
    
    6,657Accrued restructuring expenses
    
    
    304
    
    
    
    3,400Deferred revenues
    
    
    8,021
    
    
    
    8,060Total current liabilities
    
    
    15,399
    
    
    
    19,200Long term liabilities
    
    
    453
    
    
    
    494Commitments and contingencies (Note 6)
    
    
    
    
    
    
    Stockholders equity:Preferred stock, $.01 par value; 1,000,000
shares authorized; none issued and
outstanding
    
    
    
    
    
    
    Common stock, $.0025 par value; 30,000,000
shares authorized; 14,541,723 and 13,272,379
shares issued, respectively
    
    
    36
    
    
    
    33Additional paid-in capital
    
    
    55,208
    
    
    
    50,497Accumulated deficit
    
    
    (44,637
    )
    
    
    (45,375
    )Accumulated other comprehensive loss
    
    
    (1,600
    )
    
    
    (1,539
    )9,007
    
    
    
    3,616Less: treasury stock, 357,627 shares at cost
    
    
    (1,309
    )
    
    
    (1,361
    )Total stockholders equity
    
    
    7,698
    
    
    
    2,255TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    23,550
    
    
    $
    21,949
 See accompanying Notes to Condensed Consolidated Financial Statements. 3




---



##### Table of Contents



Applix, Inc. 
 Condensed Consolidated Statements of Operations
(In thousands, except per share amounts) Three Months EndedMarch 31,2004
    
    2003Revenues:Software license
    
    $
    3,767
    
    
    $
    2,691Professional services and maintenance
    
    
    3,616
    
    
    
    4,142Total revenues
    
    
    7,383
    
    
    
    6,833Cost of revenues:Software license
    
    
    206
    
    
    
    412Professional services and maintenance
    
    
    1,023
    
    
    
    1,734Total cost of revenues
    
    
    1,229
    
    
    
    2,146Gross margin
    
    
    6,154
    
    
    
    4,687Operating expenses:Sales and marketing
    
    
    2,513
    
    
    
    2,707Product development
    
    
    1,326
    
    
    
    1,537General and administrative (includes $15
and $45 of stock-based compensation for the
three months ended March 31, 2004 and 2003,
respectively)
    
    
    1,608
    
    
    
    2,228Compensation
expense related to acquisition
    
    
    
    
    
    
    583Amortization of
acquired intangible asset
    
    
    63
    
    
    
    63Total operating expenses
    
    
    5,510
    
    
    
    7,118Operating income (loss)
    
    
    644
    
    
    
    (2,431
    )Non-operating income:Interest and other income, net
    
    
    147
    
    
    
    174Net gain
from sale of CRM business (Note 5)
    
    
    
    
    
    
    8,000Income before taxes
    
    
    791
    
    
    
    5,743Provision for income taxes
    
    
    27
    
    
    
    649Income from continuing operations
    
    
    764
    
    
    
    5,094Loss from discontinued operations
    
    
    (26
    )
    
    
    (33
    )Net income
    
    $
    738
    
    
    $
    5,061Net income per share, basic and diluted:Continuing operations basic
    
    $
    0.06
    
    
    $
    0.41Continuing operations diluted
    
    $
    0.05
    
    
    $
    0.40Discontinued operations basic and diluted
    
    $
    (0.00
    )
    
    $
    (0.00
    )Net income per share basic
    
    $
    0.05
    
    
    $
    0.41Net income per share diluted
    
    $
    0.05
    
    
    $
    0.40Weighted average number of shares outstanding:Basic
    
    
    13,517
    
    
    
    12,453Diluted
    
    
    15,061
    
    
    
    12,649
 See accompanying Notes to Condensed Consolidated Financial Statements. 4




---



##### Table of Contents



Applix, Inc. 
 Condensed Consolidated Statements of Cash Flows (In thousands)
 Three Months EndedMarch 31,2004
    
    2003Cash flows from operating activities:Net income
    
    $
    738
    
    
    $
    5,061Adjustments to reconcile net income to net cash used in
operating activities:Depreciation
    
    
    183
    
    
    
    265Amortization
    
    
    195
    
    
    
    291Provision for doubtful accounts
    
    
    41
    
    
    
    16Gain on sale of CRM business
    
    
    
    
    
    
    (8,000
    )Non-cash stock compensation expense
    
    
    15
    
    
    
    Changes in operating assets and liabilities:Decrease in restricted cash
    
    
    417
    
    
    
    Decrease in accounts receivable
    
    
    902
    
    
    
    1,391Decrease (increase) in prepaid and other current assets
    
    
    111
    
    
    
    (560
    )Decrease in accounts payable
    
    
    (5
    )
    
    
    (651
    )Decrease in accrued expenses
    
    
    (659
    )
    
    
    (602
    )Decrease in accrued restructuring expenses
    
    
    (3,096
    )
    
    
    Decrease in other liabilities
    
    
    (10
    )
    
    
    (Decrease)
increase in deferred revenues
    
    
    (39
    )
    
    
    328Cash used in operating activities
    
    
    (1,207
    )
    
    
    (2,461
    )Cash flows from investing activities:Property and equipment expenditures
    
    
    (25
    )
    
    
    (37
    )Net proceeds from sale of CRM business
    
    
    
    
    
    
    5,525Cash (used in) provided by investing activities
    
    
    (25
    )
    
    
    5,488Cash flows from financing activities:Proceeds from issuance of common stock to affiliate
    
    
    3,000
    
    
    
    Proceeds from issuance of common stock under stock plans
    
    
    1,355
    
    
    
    198Payment on short-term borrowing
    
    
    
    
    
    
    (216
    )Proceeds from notes receivable
    
    
    232
    
    
    
    Cash provided by (used in) financing activities
    
    
    4,587
    
    
    
    (18
    )Effect of exchange rate changes on cash
    
    
    61
    
    
    
    (227
    )Increase in cash and cash equivalents
    
    
    3,416
    
    
    
    2,782Cash and cash equivalents at beginning of period
    
    
    9,241
    
    
    
    8,389Cash and cash equivalents at end of period
    
    $
    12,657
    
    
    $
    11,171Supplemental disclosure of cash flow informationCash paid for income tax
    
    $
    108
    
    
    $
    62
 See accompanying Notes to Condensed Consolidated Financial Statements. 5




---



##### Table of Contents



APPLIX, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The Company Applix, Inc. ( the Company) is a global provider of Business
Intelligence (BI) and Business Performance Management (BPM) solutions, focused
on interactive planning, budgeting and analytics, as well as financial
reporting, which includes Applix TM1 and Applix Integra technology and related
modules, such as Applix TM1 Web. The Companys products represent one principal
business segment, which the Company reports as its continuing operations. Historically, the Company also provided customer relationship management
(CRM) solutions. The Company sold certain assets relating to its CRM software
solutions (the CRM Business) in the first quarter of 2003 (See Note 5). The
Companys operating results reflect the CRM Business up through the sale of the
business, which occurred on January 21, 2003, followed by a March 17, 2003
closing of certain assets relating to the German CRM operations. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States 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 accounting principles generally accepted in the United States 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,
2004 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2004. 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, 2003. Use of Estimates The preparation of financial statements and accompanying notes in
conformity with accounting principles generally accepted in the United States
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 or assumptions. Estimates and assumptions in these
financial statements relate to, among other items, the useful lives of fixed
assets, capitalized software costs and their realizability, intangible assets,
domestic and foreign income tax liabilities, valuation of deferred tax assets,
the allowance for doubtful accounts, accrued expenses, deferred revenue and
certain post-closing adjustments and transaction costs related to the sale of
the Companys CRM Business. Revenue Recognition The Company generates revenues mainly from licensing the rights to use its
software products and providing services. The Company sells products primarily
through a direct sales force, indirect channel partners and Original Equipment
Manufacturers (OEMs). The Company accounts for software revenue transactions
in accordance with Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended. Revenues from software arrangements are recognized
when:  
    
    Persuasive evidence of an arrangement exists, which is typically when
a non-cancelable sales and software license agreement has been signed,
or purchase order has been received; 6




---



##### Table of Contents




    
    Delivery has occurred. If the assumption by the customer of the risks
and rewards of its licensing rights occurs upon the delivery to the
carrier (FOB Shipping Point), then delivery occurs upon shipment (which
is typically the case). If assumption of such risks and rewards occurs
upon delivery to the customer (FOB Destination), then delivery occurs
upon receipt by the customer. In all instances delivery includes
electronic delivery of authorization keys to the customer;
    
    The customers fee is deemed to be fixed or determinable and free of contingencies or significant uncertainties;
    
    Collectibility is probable; and
    
    Vendor specific objective evidence of fair value exists for all
undelivered elements, typically maintenance and professional services. The Company also uses the residual method under SOP 98-9, Modification of
SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions.
Under the residual method, the fair value of the undelivered elements is
deferred and the remaining portion of the arrangement fee is allocated to the
delivered elements and is recognized as revenue, assuming all other conditions
for revenue recognition have been satisfied. Substantially all of the Companys
product revenue is recognized in this manner. If the Company cannot determine
the fair value of any undelivered element included in an arrangement, the
Company will defer revenue until all elements are delivered, until services are
performed or until fair value of the undelivered elements can be objectively
determined. In circumstances where the Company offers significant and
incremental fair value discounts for future purchases of other software
products or services to its customers as part of an arrangement, utilizing the
residual method the Company defers the value of the discount and recognizes
such discount to revenue as the related product or service is delivered. As part of an arrangement, end-user customers typically purchase
maintenance contracts. Maintenance services include telephone and Web based
support as well as rights to unspecified upgrades and enhancements, when and if
the Company makes them generally available. Substantially all of the Companys
software license revenue is earned from perpetual licenses of off-the-shelf
software requiring no modification or customization. Therefore, professional
services are deemed to be non-essential to the functionality of the software
and typically are for implementation planning, loading of software, training,
building simple interfaces and running test data. In instances where the services are deemed to be essential to the
functionality of the software, both license and service revenues are recognized
together on a percentage of completion basis utilizing hours incurred to date
as a percentage of total estimated hours to complete the project. Revenues from maintenance services are recognized ratably over the term of
the maintenance contract period, which is typically one year, based on vendor
specific objective evidence of fair value. Vendor specific objective evidence
of fair value is based upon the amount charged when maintenance is purchased
separately, which is typically the contracts renewal rate. Revenues from professional services are generally recognized based on
vendor specific objective evidence of fair value when: (1) a non-cancelable
agreement for the services has been signed or a customers purchase order has
been received; and (2) the professional services have been delivered. Vendor
specific objective evidence of fair value is based upon the price charged when
these services are sold separately and is typically an hourly rate for
professional services and a per class rate for training. Revenues for
consulting services are generally recognized on a time and material basis as
services are delivered. Based upon the Companys experience in completing
product implementations, it has determined that these services are typically
delivered within three months or less subsequent to the contract signing. The Companys license arrangements with its end-user customers and
indirect channel partners do not include any rights of return or price
protection, nor do arrangements with indirect channel partners include any
sell-through contingencies. In those instances where the Company has granted a
customer rights to when-and-if available additional products, the Company
recognizes the arrangement fee ratably over the term of the agreement. Generally, the Companys arrangements with end-user customers and indirect
channel partners do not include any acceptance provisions. In those cases in
which significant uncertainties exist with respect to customer acceptance or in
which specific customer acceptance criteria are included in the arrangement,
the Company defers the entire arrangement fee and recognizes revenue, assuming
all other conditions for revenue recognition have been satisfied, when the
uncertainty regarding acceptance is resolved as generally evidenced by written
acceptance by the customer. The Companys arrangements with indirect channel
partners and end-user customers do include a standard warranty provision
whereby the Company will use reasonable efforts to cure material nonconformity 7




---



##### Table of Contents



or defects of the software from the Companys published specifications. The standard
warranty provision does not provide the indirect channel partners or end-user
customer with the right of refund. In very limited instances, the Company has
granted the right to refund for an extended period if the arrangement is
terminated because the product does not meet the Companys published technical
specifications, and the Company is unable to reasonably cure the nonconformity
or defect. Generally, the Company determines that this warranty provision is
not an acceptance provision and therefore should be accounted for as a warranty
in accordance with SFAS No. 5. At the time the Company enters into an arrangement, the Company assesses
the probability of collection of the fee and the payment terms granted to the
customer. For end-user customers and indirect channel partners, the Companys
typical payment terms are due within 30 days of invoice date. However, in those
cases where payment terms are greater than 30 days, the Company does not
recognize revenue from the arrangement fee unless the payment is due within 90
days. If the payment terms for the arrangement are considered extended (greater
than 90 days), the Company defers revenue under these arrangements and such
revenue is recognized, assuming all other conditions for revenue recognition
have been satisfied, when the payment of the arrangement fee becomes due. In some instances indirect channel partners provide first level
maintenance services to the end-user customer and the Company provides second
level maintenance support to the indirect channel partner. The Company accounts
for amounts received in these arrangements in accordance with Emerging Issues
Task Force (EITF) 99-19, Reporting Revenue Gross as a Principal versus Net
as an Agent (EITF 99-19). When the Company receives a net fee from the
indirect channel partner to provide second level support to the indirect
channel partner, this amount is recorded as revenue over the term of the
maintenance period at the net amount received because the Company does not
collect the fees from the end-user customer, does not have latitude in
establishing the price paid by the end-user customer for maintenance services,
and does not have the latitude to select the supplier providing first level
support. However, in circumstances where the Company renews maintenance
contracts directly with the end-user customers, receives payment for the gross
amount of the maintenance fee, has the ability to select the supplier for first
level support, and the Company believes that it is the primary obligor for
first level support to the end customer, the Company records revenue for the
gross amounts received. In such circumstances, the Company remits a portion of
the payment received to the indirect channel partner to provide first level
support to the end-user customer, and such amounts are capitalized and
amortized over the maintenance period. Revenue recorded for amounts collected
by the Company and remitted to the indirect channel partners for such renewals
aggregated $ 245,000 and $155,000 for the three months ended March 31, 2004 and
2003, respectively. Income Taxes Deferred tax assets and liabilities are provided for differences between
financial reporting and tax bases of assets and liabilities and for loss and
credit carryforwards and are measured using enacted income tax rates and laws
that will be in effect when the temporary differences are expected to reverse.
A valuation allowance is established against net deferred tax assets if, based
on the weighted available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. For the three months ended March 31, 2004 and 2003, the Company recorded a
provision for income taxes of $27,000 and $649,000, respectively. The provision
for the three months ended March 31, 2003 includes $355,000 for United States
(federal and state) and foreign income taxes related to the Companys sale of
its CRM Business. Additionally, during 2003, the Company evaluated its ability to utilize
its net operating loss carryforwards and the impact of Section 382 of the
United States (U.S.) Internal Revenue Code of 1986, as amended (Section
382) including use of such loss carryforwards to offset its U.S. gain on the
sale of the U.S. portion of its CRM Business. Section 382 provides annual
limitations to the use of net operating loss carry forwards against future
taxable income in the event of a change of ownership. The Company has completed
a full analysis of these ownership changes and does not believe that the
changes in ownership will increase the Companys income tax expense as a result
of a limitation on its ability to use its net operating loss carry forwards. The Company has provided for amounts due in various foreign tax
jurisdictions. Judgment is required in determining the Companys worldwide
income tax expense provision based upon the evaluation of the estimated
forecasted results for the year as a whole. Uncertainties may arise as a
consequence of cost reimbursement arrangements among related entities. Although
management believes its estimates are reasonable, no assurance can be given
that the final tax outcome of these matters will not be different from that
which is reflected in the Companys historical income tax provisions and
accruals. Such differences could have a material impact on the Companys income
tax provision and operating results in the period in which such determination
is made. 8




---



##### Table of Contents



Stock-Based Compensation The Company periodically grants stock options for a fixed number of shares
to employees and directors with an exercise price equal to the fair market
value of the shares at the date of the grant. The Company accounts for stock
option grants to employees and directors using the intrinsic value method and
intends to continue to do so. Under the intrinsic value method, compensation
associated with stock awards to employees and directors is determined as the
difference, if any, between the current fair value of the underlying common
stock on the date compensation is measured and the price the employee or
director must pay to exercise the award. The measurement date for employee
awards is generally the date of grant. If stock-based compensation expense had been recorded based on the fair
value of stock awards at the date of grant, the Companys net income would have
been adjusted to the pro forma amounts presented below (in thousands, except
for per share amounts): Three Months EndedMarch 31,2004
    
    2003Net income as reported
    
    $
    738
    
    
    $
    5,061Add: Total stock-based employee compensation
expense included in reported net income, net
of related tax effects
    
    
    15
    
    
    
    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
    
    
    (591
    )
    
    
    (757
    )Pro forma net income
    
    $
    162
    
    
    $
    4,349Net income per share:Basic  as reported
    
    $
    0.05
    
    
    $
    0.41Diluted  as reported
    
    $
    0.05
    
    
    $
    0.40Basic  pro forma
    
    $
    0.01
    
    
    $
    0.35Diluted   pro forma
    
    $
    0.01
    
    
    $
    0.34Weighted average number of shares outstanding:Basic
    
    
    13,517
    
    
    
    12,453Diluted
    
    
    15,061
    
    
    
    12,649
 The fair value for stock option awards is estimated at the date of the
grant using a Black-Scholes option-pricing model, assuming no dividends and the
following assumptions: 2004
    
    2003Expected life (years)
    
    
    4
    
    
    
    4Expected stock price volatility
    
    
    81.7
    %
    
    
    97.1
    %Risk free interest rate
    
    
    2.77
    %
    
    
    3.82
    %
 9




---



##### Table of Contents



3. Net Income Per Share Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net income per share is computed using the weighted average number of common
shares outstanding during the period, plus the dilutive effect, if any, of
potential common shares, which consists of stock options. The following table
sets forth the computation of basic and diluted net income per share (in
thousands, except for per share amounts): Three Months EndedMarch 31,2004
    
    2003Numerator:Income from continuing operations
    
    $
    764
    
    
    $
    5,094Loss from discontinued operations
    
    
    (26
    )
    
    
    (33
    )Net income
    
    $
    738
    
    
    $
    5,061Denominator:Denominator for basic net income per share 
weighted average number of shares outstanding
    
    
    13,517
    
    
    
    12,453Dilutive effect of assumed exercises of stock options
    
    
    1,544
    
    
    
    196Denominator for diluted net income per share
    
    
    15,061
    
    
    
    12,649Basic net income (loss) per shareContinuing operations
    
    $
    0.06
    
    
    $
    0.41Discontinued operations
    
    $
    (0.00
    )
    
    $
    (0.00
    )Total net income per share
    
    $
    0.05
    
    
    $
    0.41Diluted net income (loss) per shareContinuing operations
    
    $
    0.05
    
    
    $
    0.40Discontinued operations
    
    $
    (0.00
    )
    
    $
    (0.00
    )Total net income per share
    
    $
    0.05
    
    
    $
    0.40
 The Company had an additional 635,588 and 3,445,000 of anti-dilutive
common stock equivalents (stock options) outstanding for the three months ended
March 31, 2004 and 2003, respectively, which were not included in the
calculation of diluted net income per share as the stock option exercise price
exceeded the average market price for the respective periods. 4. Comprehensive Income (Loss) Components of comprehensive income include net income and certain
transactions that have generally been reported in the consolidated statements
of stockholders equity. Other comprehensive income (loss) includes gains and
losses from foreign currency translation adjustments. Three Months EndedMarch 31,2004
    
    2003(in thousands)Net income
    
    $
    738
    
    
    $
    5,061Other comprehensive loss
    
    
    (61
    )
    
    
    (355
    )Total comprehensive income
    
    $
    677
    
    
    $
    4,706
 10




---



##### Table of Contents



5. Net Gain from Sale of CRM Business In the first quarter of 2003, the Company completed the sale of the CRM
Business to iET Acquisition, LLC (iET), a wholly-owned subsidiary of Platinum
Equity Holdings, LLC for $5,750,000 in cash consideration, of which $487,000
was paid to iET for net working capital adjustments and $3,552,000 in net
assumed liabilities. The sale excluded approximately $2,800,000 in net accounts
receivable generated from the sale of CRM products and services. iET paid $4,250,000 of the Purchase Price in cash at the initial closing
and paid an additional $1,500,000 in cash on March 17, 2003 upon the completion
of the closing of certain assets of the Companys Germany subsidiary, Applix
GmbH. During the period of 11




---



##### Table of Contents



the initial closing and completion of the Companys
Germany subsidiary closing, Applix GmbH continued to resell the CRM software
products sold to iET, and to provide professional services and maintenance
support under a resellers agreement between the Company and iET. The Companys results for three months ended March 31, 2003 included CRM
license revenues of $253,000 and CRM professional services and maintenance
revenues of $999,000. In the first quarter of 2003, the Company recorded a net gain before tax of $8,000,000, which
includes net cash consideration of $5,525,000, which reflects $262,000 paid back to
iET, and $3,552,000 of net liabilities
assumed by iET less transaction costs of $1,077,000. The purchase price is
subject to certain post closing adjustments relating to the net working capital
as set forth in the Asset Purchase Agreement between the Company and iET, dated
January 21, 2003. In
the fourth quarter of 2003, the Company recorded an adjustment, a
change in estimates, of $90,000 to reduce the net gain from the sale of the CRM
Business and paid back to iET an additional $225,000 of the total cash consideration
received due to post-closing adjustments. 6. Commitments and Contingencies Contingencies From time to time, the Company is a party to routine litigation and
proceedings in the ordinary course of business. The Company is not aware of any
current litigation to which the Company is or may be a party that the Company
believes could materially adversely affect its consolidated results of
operations or financial condition. On June 16, 2003, the Company announced that is was the subject of an
investigation by the Securities and Exchange Commission related to the
restatement of the Companys financial statements for fiscal years 2001 and
2002. The Company is cooperating fully with the SEC in this matter. Commitments In January 2004, the Company entered into a lease amendment of its
original lease with its landlord for its Westborough, MA headquarters. The
amendment required the payment of a $3,000,000 restructuring fee to the
landlord, which was paid on January 22, 2004. Per terms of the amendment, the
original lease was amended as follows: 1) a reduction in the amount of space
leased from 49,960 square feet to 24,376 square feet, 2) a reduction in annual
rental payments from approximately $1,400,000 to $550,000, 3) a reduction in
remaining term of the lease from 9 3/4 years to 7 years, and 4) a reduction of
the amount of the required irrevocable standby letter of credit from $817,000
to $400,000. The payment required pursuant to the release of excess space was
expensed in 2003 as part of the restructuring charge recorded (See
Note 7). Indemnifications The Company frequently has agreed to indemnification provisions in
software license agreements with customers and in its real estate leases in the
ordinary course of its business. With respect to software license agreements, these indemnifications
generally include provisions indemnifying the customer against losses,
expenses, and liabilities from damages that may be awarded against the customer
in the event the Companys software is found to infringe upon a patent or
copyright of a third party. The software license agreements generally limit the
scope of and remedies for such indemnification obligations in a variety of
industry-standard respects, including but not limited to certain
geography-based scope limitations, the right to replace or modify an infringing
product, and the right to terminate the license and refund a portion of the
original license fee within a defined period of time from the original
licensing date if a remedy is not commercially practical. The Company believes
its internal development processes and other policies and practices limit its
exposure related to the indemnification provisions of the software license
agreements. In addition, the Company requires its employees to sign an
agreement, which assigns the rights to its employees development work to the
Company. To date, the Company has not had to reimburse any of its customers for
any losses related to these indemnification provisions. With respect to real estate lease agreements, these indemnifications
typically apply to claims asserted against the landlord relating to personal
injury and property damage at the leased premises or to certain breaches of the
Companys contractual obligations. The 12




---



##### Table of Contents



term of these indemnification provisions
generally survive the termination of the agreement, although the provision has
the most relevance during the contract term and for a short period of time
thereafter. The maximum potential amount of future payments that the Company
could be required to make under these indemnification provisions is unlimited.
The Company has purchased insurance that reduces its monetary exposure for
landlord indemnifications. The Company has never paid any amounts to defend
lawsuits or settle claims related to these indemnification provisions.
Accordingly, the Company believes the estimated fair value of these
indemnification arrangements is minimal. 7. Restructuring Expenses In the fourth quarter of 2003, the Company adopted a plan of restructuring
to reduce operating costs. Under this plan, the Company had ceased to use and
made the determination that it had no future use and benefit of certain space
pertaining to its Westborough headquarters office lease. The Company also
commenced negotiations with its landlord to settle amounts related to its lease
in general and the abandoned space in particular. These negotiations were
completed in January 2004, and as a result, the Company was able to estimate
the cost to exit this facility. Additionally, the Company had determined that
it would dispose of certain assets, which were removed from service shortly
after the implementation of the plan. As a result of this restructuring plan,
the Company recorded a restructuring expense for this space of $3,238,000.
Restructuring expense included a $3,000,000 fee paid to the landlord for the
abandoned space, an adjustment of $162,000 to reduce the Companys deferred
rent expense, adjusted transaction costs of $350,000 for professional service
fees (brokerage and legal) and $50,000 in non-cash charges relating to the
disposition of certain assets. The accrued restructuring expenses, as well as the Companys 2004
adjustments and payments made against accruals are detailed as follows: Balance at
    
    
    
    
    
    
    
    
    
    Balance atDecember 31,
    
    Adjustment/Charge
    
    Payments
    
    March 31,2003
    
    Incurred
    
    Made
    
    2004Payment to landlord for abandoned space
    
    $
    3,000,000
    
    
    $
    
    
    
    $
    (3,000,000
    )
    
    $
    Professional service fees
    
    
    400,000
    
    
    
    (50,000
    )
    
    
    (46,000
    )
    
    
    304,000Total cash components
    
    $
    3,400,000
    
    
    $
    (50,000
    )
    
    $
    (3,046,000
    )
    
    $
    304,000
 8. Discontinued Operations In
December 2000, the Board of Directors committed a plan to dispose of
the operations of the Companys VistaSource business. On March
31, 2001, the Company completed the sale of the VistaSource business
unit. The Companys results of operations for the quarters ended March 31, 2004
and 2003 included $26,000 and $33,000, respectively, in expenses primarily
relating to legal and accounting costs associated with winding down the
VistaSource business, a discontinued operation. 9. Bank Credit Facilities On March 19, 2004, the Company entered into two credit facilities,
providing for loans, with Silicon Valley Bank (SVB). The first facility, a
domestic working capital line of credit, has an interest rate of prime plus
1.00% per annum and is in the aggregate principal amount of up to the lesser of
(i) $2,000,000 or (ii) an amount based upon a percentage the Companys
qualifying domestic accounts receivable. The second facility, an equipment line
of credit, has an interest rate of prime plus 1.50% per annum and is in the
aggregate principal amount of up to $1,000,000. The obligations of the Company
to SVB are guaranteed the Company and certain of its domestic subsidiaries and
are secured by substantially all of the assets of the Company and such domestic
subsidiaries. The two 13




---



##### Table of Contents



credit facilities will expire on March 18, 2005. As of
March 31, 2004, there were no amounts outstanding under these two credit
facilities. 10. Executive Termination Costs On February 27, 2003, the Company entered into a Severance Agreement with
an executive of the Company. Pursuant to this agreement, the Company has agreed
to pay the executive 15 months of salary and provide the executive certain
medical benefits during the 15-month period after his termination. In addition,
the Company forgave all outstanding principal and interest due under a Secured
Promissory Note dated July 30, 2000 in the principal amount of $225,000,
executed pursuant to the Companys Executive Stock Loan Purchase Program.
Pursuant to the Severance Agreement, the executive transferred to the Company
51,429 shares of the Companys common stock, which were held by the Company in
treasury as of March 31, 2004, which stock the executive had purchased using
the funds loaned to the executive pursuant to such Secured Promissory Note.
During the first quarter of 2003, the Company recorded $356,000 in costs
related to the termination of employment of the executive. The severance
amounts are to be paid in 15 equal installments, and the remaining unpaid
balance as of March 31, 2004 was $38,000. 11. Stockholders Equity On February 3, 2004, the Board of Directors of Company adopted, subject to
stockholder approval, the 2004 Stock Incentive Plan (2004 Plan). Under the
2004 Plan, up to 1,000,000 shares of common stock (subject to adjustment in the
event of stock splits and other similar events) may be issued pursuant to
awards granted under the 2004 Plan. The 2004 Plan is intended to replace the
Companys 1994 Equity Incentive Plan (1994 Plan), which expires by its terms
on April 10, 2004 and no additional stock awards can be issued under the 1994
Plan after its expiration. On February 3, 2004, the Board of Directors of the Company adopted,
subject to stockholder approval, an amendment to the 2001 Employee Stock
Purchase Plan increasing the total number of shares reserved for issuance by an
additional 500,000 shares of common stock to an aggregate of 1,300,000 shares
of common stock. On February 27, 2004, a member of the Companys Board of Directors along
with another investor, who is related to the Board member, purchased a total
657,894 shares of common stock for approximately $3,000,000. The board member
and the other investor each purchased 328,947 shares of common stock.
The purchase price of the shares was $4.56 per share, which
represents the average of the last reported sales price per share of
Applix common stock on the NASDAQ SmallCap Market over the five
consecutive trading days ending February 26, 2004. On
February 27, 2004, the Company amended its Rights Agreement. The amendment
provided that the purchasing Board member and any person or entity deemed to be
affiliated or associated with him shall not be considered an Acquiring
Person, as defined under the Rights Agreement, unless the board member
together with affiliates become the beneficial owner of 20% or more of the
shares of common stock of the Company then outstanding. 14




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview of the Companys Operations The Company is a global provider of business intelligence (BI) and
business performance management (BPM) solutions, focused on interactive
planning, budgeting, forecasting and analytics as well as financial reporting.
These solutions enable customers to continuously manage and monitor performance
across financial and operational functions within the enterprise, with the
views of past performance, the current state of business, and future
opportunities. The Company sells its products through both a direct sales force and an
expanding network of partners, both domestically and internationally. These
organizations provide additional implementation resources, domain expertise and
complementary applications using the Companys software products. The Company
continues to focus its efforts selling and marketing the licensing and
maintenance of its products while increasing the engagement of partners to
provide consulting services on the implementation and integration of its
product. The Company has decided to strategically and tactically focus its efforts
including development, sales and marketing on its BI and BPM products. In the
first quarter of 2003, the Company sold its customer relationship management
business (CRM Business) (see Note 6 of the Notes to the Consolidated
Financial Statements). The Companys operating results reflect the operations of
the CRM Business up through its sale, which occurred on January 21, 2003,
followed by a March 17, 2003 closing relating to the German component of the
CRM Business. The Company is currently only selling BPM and BI products and
related services. CRITICAL ACCOUNTING POLICIES AND ESTIMATES This Managements Discussion and Analysis of Financial Condition and
Results of Operations discusses the Companys condensed consolidated 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. 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
    
    Accounts Receivable and Bad Debt
    
    Goodwill and Other Intangible Assets and Related Impairment
    
    Restructuring
    
    Deferred Income Taxes These policies are unchanged from those used to prepare the 2003 annual
financial statements. For more information regarding our critical accounting
policies, we refer the reader to the discussion contained in Item 7 under the
heading Critical Accounting Policies and Estimates of our Annual Report on
Form 10-K for the year ended December 31, 2003, Note 1 to the consolidated
financial statements for the year ended December 31, 2003, contained within our
Annual Report on Form 10-K for the year ended December 31, 2003, and to Note 2
to the unaudited condensed consolidated financial statements contained in this
Quarterly Report on Form 10-Q. 15




---



##### Table of Contents



RESULTS OF OPERATIONS Three Months Ended March 31, 2004 and 2003 Revenues Three Months Ended March 31,Percent of
    
    
    
    
    
    Percent of2004
    
    Revenues
    
    2003
    
    RevenuesBI/BPM
    
    $
    3,767,000
    
    
    
    100
    %
    
    $
    2,438,000
    
    
    
    91
    %CRM
    
    
    
    
    
    
    
    %
    
    
    253,000
    
    
    
    9
    %Total Software License Revenues
    
    
    3,767,000
    
    
    
    51
    %
    
    
    2,691,000
    
    
    
    39
    %BI/BPM
    
    
    181,000
    
    
    
    100
    %
    
    
    55,000
    
    
    
    54
    %CRM
    
    
    
    
    
    
    
    %
    
    
    46,000
    
    
    
    46
    %Total Training Revenues
    
    
    181,000
    
    
    
    2
    %
    
    
    101,000
    
    
    
    2
    %BI/BPM
    
    
    284,000
    
    
    
    100
    %
    
    
    674,000
    
    
    
    63
    %CRM
    
    
    
    
    
    
    
    %
    
    
    394,000
    
    
    
    37
    %Total Consulting Revenues
    
    
    284,000
    
    
    
    4
    %
    
    
    1,068,000
    
    
    
    15
    %BI/BPM
    
    
    3,151,000
    
    
    
    100
    %
    
    
    2,414,000
    
    
    
    81
    %CRM
    
    
    
    
    
    
    
    %
    
    
    559,000
    
    
    
    19
    %Total Maintenance Revenues
    
    
    3,151,000
    
    
    
    43
    %
    
    
    2,973,000
    
    
    
    44
    %BI/BPM
    
    
    3,616,000
    
    
    
    100
    %
    
    
    3,143,000
    
    
    
    76
    %CRM
    
    
    
    
    
    
    
    %
    
    
    999,000
    
    
    
    24
    %Total Professional Services and
Maintenance Revenues
    
    
    3,616,000
    
    
    
    49
    %
    
    
    4,142,000
    
    
    
    61
    %Total Revenues
    
    $
    7,383,000
    
    
    
    100
    %
    
    $
    6,833,000
    
    
    
    100
    %
 Total revenues for the three months ended March 31, 2004 were $7,383,000,
consisting exclusively of BI/BPM revenues, compared to $6,833,000 consisting of
$5,581,000 of BI/BPM revenues and $1,252,000 of CRM revenues, for the three
months ended March 31, 2003. The increase in total revenues was primarily due
to an increase of $1,076,000 in the Companys software license revenues, which was partially offset by a decrease of
$526,000 in professional services and maintenance revenues. This decrease is
primarily due to a $999,000 decrease in total professional services and
maintenance revenues as a result of the sale of the CRM Business in the first
quarter of 2003 and an increased reliance on the Companys partners to provide
consulting services. Software License Revenues Software license revenues increased by $1,076,000 to $3,767,000, or 51% of
total revenues, for the three months ended March 31, 2004, from $2,691,000, or
39% of total revenues, for the three months ended March 31, 2003. Software
license revenues for the three months ended March 31, 2004 were solely from
BI/BPM products. BI/BPM software license revenues for the three months ended
March 31, 2004 represented a 55% increase from $2,438,000 of BI/BPM software
license revenues for the three months ended March 31, 2003. The increase in
software license revenues was primarily due to an increase in license
transactions for BI/BPM products, which included six deals greater than
$100,000 each, totaling $904,000, for the three months ended March 31, 2004,
compared to three deals greater than $100,000 each, totaling $394,000, for the
three months ended March 31, 2003. Domestic license revenues increased by $507,000 to $1,238,000 for the
three months ended March 31, 2004 from $731,000 for the three months ended
March 31, 2003. International license revenues increased by $569,000 to
$2,529,000 for the three months ended March 31, 2004 from $1,960,000 for the
three months ended March 31, 2003. The Company markets its products through its direct sales force and
indirect partners. The Company continues to focus on complementing its direct
sales force with indirect channel partners, which consist of Original Equipment
Manufacturers (OEMs), Value Added Resellers (VARs), independent
distributors and sales agents. 16




---



##### Table of Contents



The Companys software license to professional services and
maintenance revenues mix was 51% and 49%, respectively, and 39% and 61%,
respectively, of total revenues for the three months ended March 31, 2004 and
2003, respectively. The Company continues to make progress towards its target
revenue mix of 60%/40%. Professional Services and Maintenance Revenues Professional services and maintenance revenues decreased to $3,616,000, or
49% of total revenues, for the three months ended March 31, 2004, compared to
$4,142,000, or 61% of total revenues for the three months ended March 31, 2003.
During the three months ended March 31, 2004, maintenance revenues increased
$178,000 to $3,151,000, compared to $2,973,000 for the three months ended March
31, 2003, and professional services decreased $704,000 to $465,000, compared to
$1,169,000 for the three months ended March 31, 2003. The Company expects
maintenance revenues to increase due to strong customer maintenance renewal
rates and the greater use of the Companys partners for professional services.
The decrease in professional services and maintenance revenues was primarily
due to the sale of the CRM Business in the three months ended March 31, 2003,
as well as the Companys focus on more selective consulting engagements and
greater reliance on its partners. The Company will continue to rely primarily
on its partners to provide consulting services, including BI/BPM product
implementations, as the Company focuses on maintenance services, which includes
telephonic support, unspecified product upgrades and bug fixes and patches. Cost of Revenues Three Months Ended March 31,2004
    
    
    
    
    
    2003Cost of Software License Revenues
    
    $
    206,000
    
    
    
    
    
    
    $
    412,000Cost of Professional Services and
Maintenance RevenuesCost of Professional Services Revenues
    
    
    347,000
    
    
    
    
    
    
    
    983,000Cost of Maintenance Revenues
    
    
    676,000
    
    
    
    
    
    
    
    751,000Total Cost of Service Revenues
    
    
    1,023,000
    
    
    
    
    
    
    
    1,734,000Total Cost of Revenues
    
    $
    1,229,000
    
    
    
    
    
    
    $
    2,146,000Gross Margin
    
    
    
    
    
    
    (A
    )
    
    
    
    
    
    
    (A
    )Software License
    
    $
    3,561,000
    
    
    
    95
    %
    
    $
    2,279,000
    
    
    
    85
    %Professional Services
    
    
    118,000
    
    
    
    25
    %
    
    
    186,000
    
    
    
    16
    %Maintenance
    
    
    2,475,000
    
    
    
    79
    %
    
    
    2,222,000
    
    
    
    75
    %Total Gross Margin
    
    $
    6,154,000
    
    
    
    83
    %
    
    $
    4,687,000
    
    
    
    68
    %
 (A) Gross margins as a percentage of related revenues. Cost of Software License Revenues Cost of software license revenues consists primarily of third-party
software royalties, cost of product packaging and documentation materials, and
amortization of capitalized software costs. Cost of software license revenues
was $206,000 for the three months ended March 31, 2004, compared to $412,000
for the three months ended March 31, 2003. The decrease in the cost of license
revenues was primarily due to a decrease in the amortization of capitalized
software development costs and a decrease in third-party software royalties. As
a percentage of software license revenues, cost of software license revenues
decreased to 5% for the three months ended March 31, 2004, compared to 15% for
the three months ended March 31, 2003. Cost of software license revenues is
anticipated to continue to decrease due to previously capitalized software
development costs becoming fully amortized in the second quarter of 2004, and a
decrease in third-party software royalties associated with the reselling of a
third-party product. 17




---



##### Table of Contents



Cost of Professional Services and Maintenance Revenues The cost of professional services and maintenance revenues consists
primarily of personnel salaries and benefits, facilities and information system
costs incurred to provide consulting, training and customer support and
payments to indirect channel partners to provide first level support to
end-user customers, which is generally amortized over the 12-month maintenance
support period of the underlying contract with the end-user customer. Cost of
professional services and maintenance revenues decreased to $1,023,000 for the
three months ended March 31, 2004 from $1,734,000 for the three months ended
March 31, 2003. The decrease in the cost of professional services and
maintenance revenues was primarily due to consultants transferred with the sale
of the CRM Business. Professional services and maintenance revenues gross
margin as a percentage of professional services revenues improved to 28% for
the three months ended March 31, 2004 as compared to 42% for the three months
ended March 31, 2003. The improvements in gross margins was primarily due to
the reduction in consulting revenues and costs from the sale of the CRM
Business in the first quarter of 2003 and a change in revenue mix from lower
margin consulting revenues to higher margin maintenance revenues. The Company
will continue to focus on the utilization of partners to deliver consulting
services for product implementations and customization of its product. Operating Expenses Three Months Ended March 31,Percent of
    
    
    
    
    
    Percent of2004
    
    Revenues
    
    2003
    
    RevenuesSales and marketing
    
    $
    2,513,000
    
    
    
    34
    %
    
    $
    2,707,000
    
    
    
    40
    %Product development
    
    
    1,326,000
    
    
    
    18
    %
    
    
    1,537,000
    
    
    
    22
    %General and administrative
    
    
    1,608,000
    
    
    
    22
    %
    
    
    2,228,000
    
    
    
    33
    %Compensation expenses and
amortization of acquired
intangible asset
    
    
    63,000
    
    
    
    1
    %
    
    
    646,000
    
    
    
    9
    %Total operating expenses
    
    $
    5,510,000
    
    
    
    75
    %
    
    $
    7,118,000
    
    
    
    104
    %
 Sales and Marketing Expenses Sales and marketing expenses consist primarily of salaries and benefits,
commissions and bonuses for the Companys sales and marketing personnel, field
office expenses, travel and entertainment, promotional and advertising expenses
and the cost of the Companys international operations, which are sales
operations. Sales and marketing expenses decreased 7% to $2,513,000 for the
three months ended March 31, 2004 from $2,707,000 for the three months ended
March 31, 2003. Sales and marketing expenses decreased as a percentage of
total revenue to 34% for three months ended March 31, 2004 compared to 40% for
the three months ended March 31, 2003. The decreases in sales and marketing
expenses were primarily due to a reduction in salaries, commissions, bonuses
and benefits from those employees transferred in connection with the sale of
the CRM Business in the first quarter of 2003. The Company anticipates
increasing its staffing in sales and marketing, including its direct sales
force and presales technical staff, and making investments in securing new
partner relationships, including OEM relationships. As a result, there may be
an increase in sales and marketing costs in 2004 as compared to 2003. The
Company will, however, continue to closely monitor discretionary costs. Product Development Expenses 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 and 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
achieved when a product design and working model of the software product have
been completed and the software product is ready for initial customer testing.
Capitalized software development costs are then amortized on a
product-by-product basis over the estimated product life of between one to two
years and are included in the cost of software license revenue. Product
development costs not meeting the requirements of capitalization are expensed
as incurred. The Companys product development utilizes a total quality
management approach to software development and participates in a
self-management process measurement using Carnegie Mellon Software Engineering
Institutes Capability Maturity Model (self-assessment only). Product development expenses decreased to $1,326,000 for the three months
ended March 31, 2004 from $1,537,000 for the three months ended March 31, 2003.
These expenses represent 18% of total revenue for the three months ended March
31, 2004, as 18




---



##### Table of Contents



compared to 22% of total revenues for the three months ended March
31, 2003. The decrease in product development expenses was due primarily to a
reduction in product development salaries and benefits from those employees
transferred in connection with the sale of the CRM Business in the first
quarter of 2003. The Company anticipates that it will continue to devote
substantial resources to the development of new products, new versions of its
existing products including Applix TM1, Applix Integra and related
applications. General and Administrative Expenses General and administrative expenses consist primarily of salaries and
benefits and occupancy costs for executive, administrative, finance,
information technology and human resource personnel. General and administrative
expenses also include legal costs associated with the Companys investigation
by the Securities and Exchange Commission related to the Companys financial
restatements for the fiscal years 2001 and 2002. General and administrative
expenses decreased $620,000, to $1,608,000, or 22% of total revenues, for the
three months ended March 31, 2004 from $2,228,000, or 33% of total revenues,
for the three months ended March 31, 2003. The decrease was primarily due to
lower executive severance costs, stock-based compensation expenses related to
certain executive stock options and costs associated with the Companys two
financial restatements and related SEC investigation. The decrease was also
attributable to a reduction in rent expense in the first quarter of 2004
resulting from the Companys restructured headquarters lease. The Company
will continue to closely monitor general and administrative costs. Compensation Expenses and Amortization of Acquired Intangible Asset Compensation expenses and amortization of acquired intangibles consists
primarily of contingent cash consideration relating to the Companys March 2001
acquisition of Dynamic Decisions and the amortization of identified intangible
assets, consisting of customer relationships, associated with the acquisition.
For the three months ended March 31, 2004 and 2003, the Company recorded $0 and
$583,000, respectively, for compensation expenses related to the acquisition of
Dynamic Decisions, which includes the impact of foreign currency exchange rate
fluctuations of translating the Australian dollar to the U.S. dollar. All
contingent amounts relating to the Dynamic Decisions acquisition were paid in
2003 and no further amounts are due. Amortization expense for the customer relationships associated with the
Dynamic Decisions acquisition was $63,000 for each of the three months ended
March 31, 2004 and 2003, respectively. Non-Operating Income Three Months Ended March 31,Percent of
    
    
    
    
    
    Percent of2004
    
    Revenues
    
    2003
    
    RevenuesInterest and other income, net
    
    $
    147,000
    
    
    
    2
    %
    
    $
    174,000
    
    
    
    3
    %Net gain from sale of CRM business
    
    
    
    
    
    
    0
    %
    
    
    8,000,000
    
    
    
    117
    %Total
    
    $
    147,000
    
    
    
    
    
    
    $
    8,174,000
 Interest and Other Income, Net Interest and other income decreased to $147,000 for the three months ended
March 31, 2004, as compared to interest and other income of $174,000 for the
three months ended March 31, 2003. The decrease is primarily due to foreign
currency exchange rate fluctuations on intercompany balances denominated in the
Companys foreign subsidiaries local currencies. Net Gain from Sale of CRM Business In the first quarter of 2003, the Company completed the sale of the CRM
Business to iET Acquisition, LLC (iET), a wholly-owned subsidiary of Platinum
Equity Holdings, LLC for $5,750,000 in cash consideration, of which $487,000
was paid to iET for net working capital adjustments and $3,552,000 in net
assumed liabilities. The sale excluded approximately $2,800,000 in net accounts
receivable generated from the sale of CRM products and services. iET paid $4,250,000 of the purchase price in cash at the initial closing
and paid an additional $1,500,000 in cash on March 17, 2003 upon the completion
of the closing of certain assets of the Companys Germany subsidiary, Applix
GmbH. During the period of 19




---



##### Table of Contents



the initial closing and completion of the Companys
Germany subsidiary closing, Applix GmbH continued to resell the CRM software
products sold to iET, and to provide professional services and maintenance
support under a resellers agreement between the Company and iET. The Companys results for the three months ended March 31, 2003 included
CRM license revenues of $253,000 and CRM professional services and maintenance
revenues of $999,000. In
the first quarter of 2003, the Company recorded a net gain before tax of $8,000,000, which includes
net cash consideration of $5,525,000, which reflects $262,000 paid back to
iET, and $3,552,000 of net liabilities assumed
by iET less transaction costs of $1,077,000. The purchase price is subject to
certain post closing adjustments relating to the net working capital as set
forth in the Asset Purchase Agreement between the Company and iET, dated
January 21, 2003. In
the fourth quarter of 2003, the Company recorded an adjustment, a
change in estimates, of $90,000 to reduce the net gain from the sale of the CRM
Business and paid back an additional $225,000 to iET of the total cash consideration
received due to post-closing adjustments. Provision for Income Taxes The provision for income taxes represents the Companys state and foreign
income tax obligations and amortization of a deferred tax liability related to
the Companys acquisition of Dynamic Decisions. The Companys provision for
income taxes was $27,000 for the three months ended March 31, 2004, compared to
$649,000 for the three months ended March 31, 2003. The provision for income
taxes for the three months ended March 31, 2003 includes $355,000 for U.S.
(federal and state) and foreign income taxes related to the Companys sale of
its CRM Business including the sale of related U.S. and foreign assets and
transferred assumed liabilities. LIQUIDITY AND CAPITAL RESOURCES The Company derives its liquidity and capital resources primarily from the
Companys cash flow from operations and from working capital. In
addition, for the
three months ended March 31, 2004, the Company sold $3 million of its common
stock to a member of the Companys Board of Directors, along with another
investor, who is related to the Board member and increased its cash balance by
$1.4 million from the issuance of the Companys common stock under its stock
plans. The Companys cash and cash equivalents balances were $13,057,000 and
$10,058,000 as of March 31, 2004 and December 31, 2003, respectively, which
includes restricted cash of $400,000 and $817,000, respectively. The Companys
days sales outstanding (DSO) in accounts receivable was 58 days as of both
March 31, 2004 and 2003. Cash
used in the Companys operating activities was $1,207,000 for the
three months ended March 31, 2004, compared to cash used in operating
activities of $2,461,000 for the three months ended March 31, 2003. Cash used
in the Companys operating activities was affected by a decrease in operating
assets of $1,430,000 and a decrease in operating liabilities of $3,809,000.
The decrease in operating liabilities reflects a $3,096,000 change in accrued
restructuring expenses from payments made in the three months ended March 31,
2004. Cash used in investing activities totaled $25,000 for the three months
ended March 31, 2004 compared to cash provided by investing activities of
$5,488,000 for the three months ended March 31, 2003. The decrease in cash
provided by investing activities is primarily a result of the net cash proceeds
of $5,525,000 from the sale of the CRM Business in the three months ended March
31, 2003. Cash provided by financing activities totaled $4,587,000 for the three
months ended March 31, 2004, which consisted of proceeds of $3,000,000 from the
sale of common stock to two investors described above, $1,355,000 from issuance
of stock under the Companys stock plans and $232,000 from the repayment of
notes receivable. This compares to total cash used in financing activities of
$18,000 for the three months ended March 31, 2003. Cash paid for income taxes by the Company of $108,000 and $62,000 for the
three months ended March 31, 2004 and 2003, respectively. The increase in cash
was primarily due an increase in foreign income taxes paid by the Companys
foreign subsidiaries. In January 2004, the Company entered into a lease amendment of its
original lease with its landlord for its Westborough, MA headquarters. The
amendment required the payment of a $3,000,000 restructuring fee to the
landlord, which was paid on January 22, 2004. Per terms of the amendment, the
original lease was amended as follows: 1) a reduction in the amount of space
leased from 20




---



##### Table of Contents



49,960 square feet to 24,376 square feet, 2) a reduction in annual
rental payments from approximately $1,400,000 to $550,000, 3) a reduction in
the remaining term of the lease from 9 3/4 years to 7 years, and 4) a reduction
of the amount of the required irrevocable standby letter of credit from
$817,000 to $400,000. The payment required pursuant to the release of excess
space was expensed in 2003 as part of the accrued restructuring expenses. In February 2004, a member of the Companys board of directors, along with
another investor, who is related to the Board member, purchased 657,894 shares
of common stock from the Company for $3 million. On March 19, 2004, the Company entered into two credit facilities,
providing for loans, with Silicon Valley Bank (SVB). The first facility, a
domestic working capital line of credit, has an interest rate of prime plus
1.00% per annum and provides for borrowings of up to the lesser of (i)
$2,000,000 or (ii) an amount based upon a percentage of the Companys
qualifying domestic accounts receivable. The second facility, an equipment line
of credit, has an interest rate of prime plus 1.50% per annum and provides for
borrowings of up to $1,000,000. The obligations of the Company to SVB are
guaranteed by the Company and certain of its domestic subsidiaries and are
secured by substantially all of the assets of the Company and such domestic
subsidiaries. The facilities will expire on March 18, 2005. As of March 31,
2004, there were no amounts outstanding under these two credit facilities. As of March 31, 2004, the Company had the following future cash
commitments, which includes the net effects of the Companys amended
Westborough, Massachusetts headquarters lease, for the cash payments
pertaining to its contractual obligations. Total
    
    Less Than
    
    1 - 3
    
    4 - 5
    
    AfterYears
    
    1 year
    
    Years
    
    Years
    
    5 YearsNon-cancelable operating leases
    
    $
    6,991,000
    
    
    $
    1,237,000
    
    
    $
    2,136,000
    
    
    $
    2,057,000
    
    
    $
    1,561,000Non-cancelable capital leases
    
    
    64,000
    
    
    
    32,000
    
    
    
    32,000
    
    
    
    
    
    
    
    Purchase obligations
    
    
    427,000
    
    
    
    427,000
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    7,482,000
    
    
    $
    1,696,000
    
    
    $
    2,168,000
    
    
    $
    2,057,000
    
    
    $
    1,561,000
 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. The Company has plans for approximately $475,000 in
capital expenditures for the remainder of 2004, including hardware, software, upgrades and
replacements. The Company may finance these purchases through use of
third-party financing arrangements including its equipment line of credit. For the three months ended March 31, 2004, the Company achieved operating
profitability and generated positive cash flow. The Company has, however,
historically incurred operating losses and negative cash flows for the last
several years. As of March 31, 2004, the Company had an accumulated deficit of
$44.6 million. Managements plans include increasing revenues and generating
positive cash flows from operations. 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 expected to be generated from operations, and the two SVB credit
facilities. The availability of borrowings under the Companys
two credit facilities are subject to the maintenance of certain
financial covenants. The Companys working capital line of
credit is also limited to the lesser of (i) $2 million or (ii) an amount based upon a
percentage of the Companys qualifying domestic accounts receivable. 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 or used by
operations will be dependent upon such factors as the successful execution of
the Companys business plan, including increasing revenues and reinvesting into
its sales and marketing and field operations. If the Company does not meet its
plans to generate sufficient revenue or positive cash flows, it may need to
raise additional capital or reduce spending. 21




---



##### Table of Contents



FACTORS THAT MAY AFFECT FUTURE RESULTS OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY SIGNIFICANT FLUCTUATIONS IN OUR
QUARTERLY RESULTS. We may 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;
    
    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 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 as 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 OUR CURRENT
PRODUCTS. We have devoted a substantial amount of resources to the development and
marketing of our current products. We believe that our future financial
performance will be dependent in large part on the success of our ability to
market our BI and BPM solutions. WE MAY NOT BE ABLE TO FULFILL ANY FUTURE CAPITAL NEEDS. We achieved operating profitability for the three months ended March 31,
2004 and generated positive cash flow for the three months ended March 31,
2004. The Company has, however, historically incurred losses from continuing
operations for the last several years. Additionally, we could incur operating
losses and negative cash flows in the future because of costs and expenses
relating to brand development, marketing and other promotional activities,
continued development of our information technology infrastructure, expansion
of product offerings and development of relationships with other businesses.
Although we achieved profitability in the first quarter of 2004, there can be
no assurance that we will achieve a profitable level of operations in the
future. 22




---



##### Table of Contents



We believe, based upon our current business plan, that our current cash
and cash equivalents, funds expected to be generated from operations and
available credit lines should be sufficient to fund our operations as planned
for at least the next twelve months. However, we may need additional funds
sooner than anticipated if our performance deviates significantly from our
current business plan or if there are significant changes in competitive or
other market factors. If we elect to raise additional operating funds, such
funds, whether from equity or debt financing or other sources, may not be
available, or available on terms acceptable to us. 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 business performance management and business intelligence markets,
including in interactive planning, budgeting and analytics 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 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. 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. 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. 23




---



##### Table of Contents



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;
    
    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. If we fail to compete successfully in the highly competitive and rapidly
changing business performance management and business intelligence markets, we
may not be able to succeed. We face competition primarily from business
intelligence firms. We also face competition from 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 IN PART 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. 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 24




---



##### Table of Contents



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. 25




---



##### Table of Contents



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 its subsidiaries are
denominated in foreign currencies. The Companys exposure to changes in net
income, due to foreign exchange rates fluctuations, in the Companys foreign
subsidiaries is mitigated to some extent by expenses incurred by the foreign
subsidiary in the same currency. The Companys primary foreign currency
exposures relate to its short-term intercompany balances with its foreign
subsidiaries. These foreign subsidiaries have functional currencies denominated
in the Euro, Australian dollar, British pound and Swiss franc that are
remeasured at each period end with any exchange gains or losses recorded in the
Companys consolidated statements of operations. Based on foreign currency
exposures existing at March 31, 2004, a 10% unfavorable movement in foreign
exchange rates related to the British pound, Euro, Australian dollar, and Swiss
franc would result in approximately a $281,000 loss to earnings. The Company
has currently not engaged in activities to hedge these exposures. At March 31, 2004, the Company held $13,057,000 in cash equivalents,
including $400,000 of restricted cash, consisting primarily of money market
funds and commercial paper with original maturities of three months or less.
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. 
 ITEM 4. CONTROLS AND PROCEDURES The Companys management, with the participation of the Companys chief
executive officer and chief financial officer, evaluated the effectiveness of
the Companys disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act))
as of March 31, 2004. Based on this evaluation, the Companys chief executive
officer and chief financial officer concluded that, as of March 31, 2004, the
Companys disclosure controls and procedures were (1) designed to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to the Companys chief executive officer and chief
financial officer by others within those entities, particularly during the
period in which this report was being prepared and (2) effective, in that they
provide reasonable assurance that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms. No change in the Companys internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred
during the quarter ended March 31, 2004 that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over
financial reporting. 
 PART II. OTHER INFORMATION 
 ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES On February 27, 2004, the Company sold 328,947 shares of its common stock
to Brad Fire, one of the Companys directors, and 328,947 shares of its common
stock to a relative of Mr. Fire. The total aggregate proceeds received by the
Company was $3,000,000. The Company relied on the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended. The
purchasers represented to the Company that each has knowledge and experience in
financial and business matters such that each purchaser was capable of
evaluating the merits and risks of the investment in the Companys common
stock. 
 ITEM 5. OTHER INFORMATION The Company granted a stock option for 50,000 shares of the Companys
common stock to David Mahoney, the Companys chief executive officer, on March
10, 2003 at an exercise price of $1.40 pursuant to the Companys 1994 Equity
Incentive Plan. The stock option was granted to Mr. Mahoney upon the Companys
customary stock option terms. This information was inadvertently omitted from
the Companys proxy statement, filed with the Securities and Exchange
Commission on April 12, 2004. 26




---



##### Table of Contents



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits ExhibitNumber
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934,
as amended31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934,
as amended32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 (b) Reports on Form 8-K  1.
    
    On February 5, 2004, the Company furnished a Current Report on Form 8-K
under Item 12 containing the Companys pres release relating to the
Companys financial results for the year ended December 31, 2003.2.
    
    On February 27, 2004, the Company filed Amendment No. 1 to Current
Report on Form 8-K/A under Item 5 containing Amendment No. 1, dated as of
February 27, 2004, to the Rights Agreement, dated as of September 18,
2000, between the Company and American Stock Transfer & Trust Company, as
Rights Agent. 27




---



##### Table of Contents



SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized. APPLIX, INC.Date: May 14, 2004
    
    /s/ Milton A. AlpernMilton A. AlpernChief Financial Officer and Treasurer (Duly AuthorizedOfficer and Principal Financial and Accounting Officer)
 28




---



##### Table of Contents



EXHIBIT INDEX ExhibitNumber
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934,
as amended31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934,
as amended32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 29