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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 September 30, 2003


OR

|     |  |                                                                                          | 
|---- |  | ---------------------------------------------------------------------------------------- | 
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from    to


Commission File Number 0-25040

APPLIX, INC.

(Exact name of registrant as specified in its charter)


|                                                                             |  |                                                   
|---------------------------------------------------------------------------- |  | --------------------------------------------------
|MASSACHUSETTS
(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 November 7, 2003, there were 12,866,557 shares of the Registrants
common stock, $0.0025 par value, outstanding.





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TABLE OF CONTENTS



|                                            |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION              
|                                            | ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                              
|                                            |                                                                                               | Condensed Consolidated Balance Sheets               
|                                            |                                                                                               | Condensed Consolidated Statements of Operations     
|                                            |                                                                                               | Condensed Consolidated Statements of Cash Flows     
|                                            |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                            | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                            | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                            | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION                 
|                                            | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                                  
|EXHIBIT INDEX                              
|EX-31.1 SECTION 302 CERTIFICATION OF C.E.O.
|EX-31.2 SECTION 302 CERTIFICATION OF C.F.O.
|EX-32.1 SECTION 906 CERTIFICATION OF C.E.O.
|EX-32.2 SECTION 906 CERTIFICATION OF C.F.O.



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##### Table of Contents



APPLIX, INC.
Form 10-Q
For the Quarterly Period Ended September 30, 2003

Table of Contents

|                                                                                              |                                                                                                                 |  |      |   | 
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- |  | ---- | - | 
|                                                                                              |                                                                                                                 |  | Page
|                                                                                              |                                                                                                                 |  | No. 
|                                                                                              |                                                                                                                 |  |     
|Part I - Financial Information                                                                |                                                                                                                 |  | 3    |  
|Item 1. Condensed Consolidated Financial Statements (Unaudited):                              |                                                                                                                 |  | 3    |  
|                                                                                              | Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002                            |  |      | 3 | 
|                                                                                              | Condensed Consolidated Statements of Operations for the three and nine months ended
September 30, 2003 and 2002 |  |      | 4 | 
|                                                                                              | Condensed Consolidated Statements of Cash Flows for the nine months ended September
30, 2003 and 2002           |  |      | 5 | 
|                                                                                              | Notes to Condensed Consolidated Financial Statements                                                            |  |      | 6 | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                 |  | 18   |  
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                 |  | 33   |  
|Item 4. Controls and Procedures                                                               |                                                                                                                 |  | 33   |  
|Part II - Other Information                                                                   |                                                                                                                 |  | 34   |  
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                 |  | 34   |  
|Signature                                                                                     |                                                                                                                 |  | 36   |  

Applix and TM1 are registered trademarks of Applix, Inc. Applix Integra,
Applix Interactive Planning and Applix Service Analytics 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



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




Applix, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)

|                                                                                               |                                                                                                                     |                                                                                              |                            |         |               |        |              |         |       |        | 
|---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------------- | ------ | ------------ | ------- | ----- | ------ | 
|                                                                                               |                                                                                                                     |                                                                                              |                            |         | September 30, |        | December 31,
|                                                                                               |                                                                                                                     |                                                                                              |                            |         | 2003          |        | 2002        
|                                                                                               |                                                                                                                     |                                                                                              |                            |         |               |        |             
|ASSETS                                                                                         |                                                                                                                     |                                                                                              |                            |         |               |        |              |        
|Current assets:                                                                                |                                                                                                                     |                                                                                              |                            |         |               |        |              |        
|                                                                                               |                                                                                                                     | Cash and cash equivalents                                                                    |                            | $       | 8,970         |        |              | $       | 8,389 |       
|                                                                                               |                                                                                                                     | Accounts receivable, less allowance for doubtful
accounts of $1,999 and $2,098, respectively |                            |         | 3,419         |        |              |         | 5,810 |       
|                                                                                               |                                                                                                                     | Other current assets                                                                         |                            |         | 2,341         |        |              |         | 1,906 |       
|                                                                                               |                                                                                                                     |                                                                                              |                            |         |               |        |              |         |       |       
|                                                                                               |                                                                                                                     |                                                                                              | Total current assets       |         |               | 14,730 |              |         |       | 16,105 | 
|Restricted cash                                                                                |                                                                                                                     |                                                                                              | 933                        |         |               |        | 933          |        
|Property and equipment, at cost                                                                |                                                                                                                     |                                                                                              | 13,761                     |         |               |        | 14,633       |        
|Less: accumulated amortization and depreciation                                                |                                                                                                                     |                                                                                              | (12,640                    | )       |               |        | (12,758      | )      
|                                                                                               |                                                                                                                     |                                                                                              |                            |         |               |        |              |         |       |       
|                                                                                               | Net property and equipment                                                                                          |                                                                                              |                            | 1,121   |               |        |              | 1,875   |      
|Capitalized software costs, net of accumulated amortization of
$1,069 and $2,733, respectively |                                                                                                                     |                                                                                              | 771                        |         |               |        | 1,460        |        
|Goodwill                                                                                       |                                                                                                                     |                                                                                              | 1,158                      |         |               |        | 1,187        |        
|Intangible asset, net of accumulated amortization of $625 and $438, respectively               |                                                                                                                     |                                                                                              | 875                        |         |               |        | 1,062        |        
|Other assets                                                                                   |                                                                                                                     |                                                                                              | 796                        |         |               |        | 925          |        
|                                                                                               |                                                                                                                     |                                                                                              |                            |         |               |        |              |         |       |       
|TOTAL ASSETS                                                                                   |                                                                                                                     | $                                                                                            | 20,384                     |         |               | $      | 23,547       |        
|                                                                                               |                                                                                                                     |                                                                                              |                            |         |               |        |              |         |       |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                           |                                                                                                                     |                                                                                              |                            |         |               |        |              |        
|Current liabilities:                                                                           |                                                                                                                     |                                                                                              |                            |         |               |        |              |        
|                                                                                               | Accounts payable                                                                                                    |                                                                                              | $                          | 1,753   |               |        | $            | 2,296   |      
|                                                                                               | Accrued expenses                                                                                                    |                                                                                              |                            | 7,206   |               |        |              | 9,563   |      
|                                                                                               | Deferred revenue                                                                                                    |                                                                                              |                            | 5,790   |               |        |              | 8,703   |      
|                                                                                               |                                                                                                                     |                                                                                              |                            |         |               |        |              |         |       |       
|                                                                                               |                                                                                                                     |                                                                                              | Total current liabilities  |         |               | 14,749 |              |         |       | 20,562 | 
|Long term liabilities                                                                          |                                                                                                                     |                                                                                              | 503                        |         |               |        | 566          |        
|Commitments and contingencies (Note 8)                                                         |                                                                                                                     |                                                                                              |                            |         |               |        |              |        
|Stockholders equity:                                                                          |                                                                                                                     |                                                                                              |                            |         |               |        |              |        
|                                                                                               | Preferred stock, $.01 par value; 1,000,000 shares authorized;
none issued                                           |                                                                                              |                            |        |               |        |              |        |      
|                                                                                               | Common stock, $.0025 par value; 30,000,000 shares authorized;
13,123,939 and 12,675,176 shares issued, respectively |                                                                                              |                            | 33      |               |        |              | 32      |      
|                                                                                               | Additional paid in capital                                                                                          |                                                                                              |                            | 50,292  |               |        |              | 49,600  |      
|                                                                                               | Accumulated deficit                                                                                                 |                                                                                              |                            | (42,706 | )             |        |              | (45,365 | )    
|                                                                                               | Accumulated other comprehensive loss                                                                                |                                                                                              |                            | (1,126  | )             |        |              | (487    | )    
|                                                                                               |                                                                                                                     |                                                                                              |                            |         |               |        |              |         |       |       
|                                                                                               |                                                                                                                     |                                                                                              | 6,493                      |         |               |        | 3,780        |        
|                                                                                               | Less: treasury stock, 357,627 and 306,198 shares, respectively                                                      |                                                                                              |                            | (1,361  | )             |        |              | (1,361  | )    
|                                                                                               |                                                                                                                     |                                                                                              |                            |         |               |        |              |         |       |       
|                                                                                               |                                                                                                                     |                                                                                              | Total stockholders equity |         |               | 5,132  |              |         |       | 2,419  | 
|                                                                                               |                                                                                                                     |                                                                                              |                            |         |               |        |              |         |       |       
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                     |                                                                                                                     | $                                                                                            | 20,384                     |         |               | $      | 23,547       |        
|                                                                                               |                                                                                                                     |                                                                                              |                            |         |               |        |              |         |       |       

See accompanying Notes to Condensed Consolidated Financial Statements.

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

|                                                             |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |        |        |        | 
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------------------------ | ----- | ------------------ | ----- | ----------------- | ----- | ------ | ----- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | 
|                                                             |                                                                                                                                                      |                                       |                          |       | Three Months Ended |       | Nine Months Ended
|                                                             |                                                                                                                                                      |                                       |                          |       | September 30,      |       | September 30,    
|                                                             |                                                                                                                                                      |                                       |                          |       |                    |       |                  
|                                                             |                                                                                                                                                      |                                       |                          |       | 2003               |       | 2002              |       | 2003   |       | 2002  
|                                                             |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |       
|Revenues:                                                    |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |       
|                                                             | Software license                                                                                                                                     |                                       | $                        | 3,108 |                    |       | $                 | 3,231 |        |       | $      | 8,457  |        |        | $      | 11,682 |       
|                                                             | Professional services and maintenance                                                                                                                |                                       |                          | 3,315 |                    |       |                   | 4,951 |        |       |        | 10,741 |        |        |        | 15,082 |       
|                                                             |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |       
|                                                             |                                                                                                                                                      |                                       | Total revenues           |       |                    | 6,423 |                   |       |        | 8,182 |        |        |        | 19,198 |        |        |        | 26,764 | 
|Cost of revenues:                                            |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |       
|                                                             | Software license                                                                                                                                     |                                       |                          | 329   |                    |       |                   | 502   |        |       |        | 1,161  |        |        |        | 1,275  |       
|                                                             | Professional services and maintenance                                                                                                                |                                       |                          | 1,164 |                    |       |                   | 2,341 |        |       |        | 4,089  |        |        |        | 7,605  |       
|                                                             |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |       
|                                                             |                                                                                                                                                      |                                       | Total cost of revenues   |       |                    | 1,493 |                   |       |        | 2,843 |        |        |        | 5,250  |        |        |        | 8,880  | 
|Gross margin                                                 |                                                                                                                                                      |                                       | 4,930                    |       |                    |       | 5,339             |       |        |       | 13,948 |        |        |        | 17,884 |       
|Operating expenses:                                          |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |       
|                                                             | Product development                                                                                                                                  |                                       |                          | 1,343 |                    |       |                   | 1,615 |        |       |        | 4,233  |        |        |        | 4,060  |       
|                                                             | Sales and marketing (includes $0 and $23 of stock-based compensation for the
three and nine months ended September 30, 2003, respectively)           |                                       |                          | 2,332 |                    |       |                   | 3,435 |        |       |        | 7,812  |        |        |        | 10,411 |       
|                                                             | General and administrative (includes $105 and $275 of stock-based
compensation for the three and nine months ended September 30, 2003, respectively) |                                       |                          | 1,723 |                    |       |                   | 1,318 |        |       |        | 6,003  |        |        |        | 3,836  |       
|                                                             | Compensation expenses and amortization of acquired intangible asset (Note 6)                                                                         |                                       |                          | 63    |                    |       |                   | 616   |        |       |        | 771    |        |        |        | 1,792  |       
|                                                             | Restructuring expenses                                                                                                                               |                                       |                          |      |                    |       |                   | 398   |        |       |        |       |        |        |        | 361    |       
|                                                             |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |        |       
|                                                             |                                                                                                                                                      |                                       | Total operating expenses |       |                    | 5,461 |                   |       |        | 7,382 |        |        |        | 18,819 |        |        |        | 20,460 | 
|                                                             |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |       
|Operating loss                                               |                                                                                                                                                      |                                       | (531                     | )     |                    |       | (2,043            | )     |        |       | (4,871 | )      |        |        | (2,576 | )     
|Non-operating income (expense):                              |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |       
|                                                             | Net gain (loss) from sale of subsidiary                                                                                                              |                                       |                          | (144  | )                  |       |                   |      |        |       |        | (164   | )      |        |        |       |       
|                                                             | Interest and other income (expense), net                                                                                                             |                                       |                          | 85    |                    |       |                   | (126  | )      |       |        | 710    |        |        |        | (9     | )     
|                                                             | Net gain from sale of CRM business (Note 7)                                                                                                          |                                       |                          | (12   | )                  |       |                   |      |        |       |        | 7,910  |        |        |        |       |       
|                                                             |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |        |       
|Income (loss) from continuing operations before income taxes |                                                                                                                                                      |                                       | (602                     | )     |                    |       | (2,169            | )     |        |       | 3,585  |        |        |        | (2,585 | )     
|                                                             | (Benefit from) provision for income taxes                                                                                                            |                                       |                          |      |                    |       |                   | (49   | )      |       |        | 764    |        |        |        | 111    |       
|                                                             |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |        |       
|Income (loss) from continuing operations                     |                                                                                                                                                      |                                       | (602                     | )     |                    |       | (2,120            | )     |        |       | 2,821  |        |        |        | (2,696 | )     
|Loss from discontinued operations                            |                                                                                                                                                      |                                       | (106                     | )     |                    |       | (43               | )     |        |       | (162   | )      |        |        | (128   | )     
|                                                             |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |        |       
|Net income (loss)                                            |                                                                                                                                                      | $                                     | (708                     | )     |                    | $     | (2,163            | )     |        | $     | 2,659  |        |        | $      | (2,824 | )     
|                                                             |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |        |       
|Net income (loss) per share, basic and diluted               |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |       
|                                                             |                                                                                                                                                      | Continuing operations - basic         |                          | $     | (0.05              | )     |                   | $     | (0.17  | )     |        | $      | 0.23   |        |        | $      | (0.22  | )     
|                                                             |                                                                                                                                                      | Discontinued operations - basic       |                          | $     | (0.01              | )     |                   | $     | (0.00  | )     |        | $      | (0.01  | )      |        | $      | (0.01  | )     
|                                                             |                                                                                                                                                      | Net income (loss) per share - basic   |                          | $     | (0.06              | )     |                   | $     | (0.18  | )     |        | $      | 0.21   |        |        | $      | (0.23  | )     
|                                                             |                                                                                                                                                      | Net income (loss) per share - diluted |                          | $     | (0.06              | )     |                   | $     | (0.18  | )     |        | $      | 0.21   |        |        | $      | (0.23  | )     
|Weighted average number of shares outstanding:               |                                                                                                                                                      |                                       |                          |       |                    |       |                   |       |        |       |        |        |        |        |        |       
|                                                             |                                                                                                                                                      | Basic                                 |                          |       | 12,641             |       |                   |       | 12,282 |       |        |        | 12,508 |        |        |        | 12,184 |       
|                                                             |                                                                                                                                                      | Diluted                               |                          |       | 12,641             |       |                   |       | 12,282 |       |        |        | 12,839 |        |        |        | 12,184 |       

See accompanying Notes to Condensed Consolidated Financial Statements.

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

|                                                 |                                                                                      |   |                                                          |                                                 |   |                   |        |        |   |        |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------------ | - | -------------------------------------------------------- | ----------------------------------------------- | - | ----------------- | ------ | ------ | - | ------ | ------ | -
|                                                 |                                                                                      |   |                                                          |                                                 |   | Nine Months Ended
|                                                 |                                                                                      |   |                                                          |                                                 |   | September 30,    
|                                                 |                                                                                      |   |                                                          |                                                 |   |                  
|                                                 |                                                                                      |   |                                                          |                                                 |   | 2003              |        | 2002  
|                                                 |                                                                                      |   |                                                          |                                                 |   |                   |        |       
|Cash flows from operating activities:            |                                                                                      |   |                                                          |                                                 |   |                   |        |       
|                                                 | Net income (loss)                                                                    |   | $                                                        | 2,659                                           |   |                   | $      | (2,824 | )
|                                                 | Adjustments to reconcile net income (loss) to net cash used in
operating activities: |   |                                                          |                                                 |   |                   |        |        |  
|                                                 |                                                                                      |   | Depreciation                                             |                                                 |   | 705               |        |        |   | 847    |       
|                                                 |                                                                                      |   | Amortization                                             |                                                 |   | 876               |        |        |   | 917    |       
|                                                 |                                                                                      |   | Provision for doubtful accounts                          |                                                 |   | 22                |        |        |   | 229    |       
|                                                 |                                                                                      |   | Gain on sale of CRM business                             |                                                 |   | (7,910            | )      |        |   |       |       
|                                                 | Changes in operating assets and liabilities:                                         |   |                                                          |                                                 |   |                   |        |        |  
|                                                 |                                                                                      |   | Decrease in accounts receivable                          |                                                 |   | 2,369             |        |        |   | 231    |       
|                                                 |                                                                                      |   | Sale of accounts receivable                              |                                                 |   |                  |        |        |   | 1,655  |       
|                                                 |                                                                                      |   | Increase in prepaid and other current assets             |                                                 |   | (425              | )      |        |   | (409   | )     
|                                                 |                                                                                      |   | Decrease in accounts payable                             |                                                 |   | (427              | )      |        |   | (33    | )     
|                                                 |                                                                                      |   | Decrease in accrued expenses                             |                                                 |   | (3,136            | )      |        |   | (1,685 | )     
|                                                 |                                                                                      |   | Increase in deferred revenue                             |                                                 |   | 681               |        |        |   | 870    |       
|                                                 |                                                                                      |   |                                                          |                                                 |   |                   |        |        |  
|                                                 |                                                                                      |   |                                                          | Cash used in operating activities               |   |                   | (4,586 | )      |   |        | (202   | )
|Cash flows from investing activities:            |                                                                                      |   |                                                          |                                                 |   |                   |        |       
|                                                 |                                                                                      |   | Property and equipment expenditures                      |                                                 |   | (148              | )      |        |   | (385   | )     
|                                                 |                                                                                      |   | Capitalized software costs                               |                                                 |   |                  |        |        |   | (1,417 | )     
|                                                 |                                                                                      |   | Net proceeds from sale of CRM business                   |                                                 |   | 5,525             |        |        |   |       |       
|                                                 |                                                                                      |   |                                                          |                                                 |   |                   |        |        |  
|                                                 |                                                                                      |   |                                                          | Cash provided by (used in) investing activities |   |                   | 5,377  |        |   |        | (1,802 | )
|Cash flows from financing activities:            |                                                                                      |   |                                                          |                                                 |   |                   |        |       
|                                                 |                                                                                      |   | Proceeds from issuance of common stock under stock plans |                                                 |   | 693               |        |        |   | 388    |       
|                                                 |                                                                                      |   | Proceeds from short-term borrowing                       |                                                 |   |                  |        |        |   | 234    |       
|                                                 |                                                                                      |   | Payment on short-term borrowing                          |                                                 |   | (237              | )      |        |   | (644   | )     
|                                                 |                                                                                      |   |                                                          |                                                 |   |                   |        |        |  
|                                                 |                                                                                      |   |                                                          | Cash provided by (used in) financing activities |   |                   | 456    |        |   |        | (22    | )
|Effect of exchange rate changes on cash          |                                                                                      |   | (666                                                     | )                                               |   |                   | 89     |       
|                                                 |                                                                                      |   |                                                          |                                                 |   |                   |        |        |  
|Increase (decrease) in cash and cash equivalents |                                                                                      |   | 581                                                      |                                                 |   |                   | (1,937 | )     
|Cash and cash equivalents at beginning of period |                                                                                      |   | 8,389                                                    |                                                 |   |                   | 8,228  |       
|                                                 |                                                                                      |   |                                                          |                                                 |   |                   |        |        |  
|Cash and cash equivalents at end of period       |                                                                                      | $ | 8,970                                                    |                                                 |   | $                 | 6,291  |       
|                                                 |                                                                                      |   |                                                          |                                                 |   |                   |        |        |  
|Supplemental disclosure of cash flow information |                                                                                      |   |                                                          |                                                 |   |                   |        |       
|                                                 |                                                                                      |   | Cash paid for income tax                                 |                                                 | $ | 509               |        |        | $ |       |       
|                                                 |                                                                                      |   |                                                          |                                                 |   |                   |        |        |  

See accompanying Notes to Condensed
Consolidated Financial Statements.

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APPLIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. The Company

Applix, Inc. (Applix or the Company) is a global provider of Business
Intelligence (BI) and Business Performance Management (BPM) solutions, focused
on interactive planning, budgeting and analytics, which include Applix TM1 and
Applix Integra technology and related applications, such as Applix TM1 Web. The Companys products represent one principal business
segment, which Applix 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 7). 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 relating to
the German CRM operations.

On March 30, 2001, the Company sold its VistaSource business unit,
previously reported as the Linux Division. This unit has been reported as a
discontinued operation for all periods presented (See Note 10).

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 and nine month periods ended
September 30, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Companys Annual Report on Form 10-K/A, as amended, for the year ended December
31, 2002.

Principles of Consolidation

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

Revenue Recognition

The Company 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 97-2 (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 software license agreement has been signed, or purchase
order has been received;                                                                                                                                                                                                                                                                                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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;                                                                                                                                                                                                                                                                                                                                                                          

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| |  |  | 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 future 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 and sometimes professional services from the Company.
Maintenance services include telephone and Web based technical 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 those instances 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 3 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 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 it therefore has been accounted for as a
warranty in accordance with Statement of Financial Accounting Standards
(SFAS) No. 5 Accounting For Contingencies (SFAS 5).

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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 those instances in which 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). In initial and renewal years for which the Company
receives a net fee from the indirect channel partner to provide second level
support to the indirect channel partner, such amount is recorded as revenue
over the term of the maintenance period at the net amount received since the
Company does not collect the fees from the end-user customer, it does not have
latitude in establishing the price paid by the end-user customer for
maintenance services, and it does not have the latitude to select the supplier
providing first level support. However, in those 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.

Concentrations of Credit Risk, Accounts Receivable and Allowance for Doubtful
Accounts

The Companys financial instruments that are exposed to concentrations of
credit risk consist primarily of cash, cash equivalents and trade receivables.
The Company maintains cash and cash equivalents with high credit quality
financial institutions and monitors the amount of credit exposure to any one
financial institution.

The Company extends credit to its customers in the normal course of
business, resulting in trade receivables. The Companys normal credit terms are
30 days.

The Company performs continuing credit evaluations of its customers
financial condition and although the Company generally does not require
collateral, letters of credit may be required from its customers in certain
circumstances. An allowance for doubtful accounts is provided for accounts
which management believes may not be collected due to a customers financial
circumstance (e.g. bankruptcy), and for all accounts which are 180 days past
due, absent evidence which supports their collectibility.

Intangible Asset

Amortization expense related to an intangible asset, the customer
relationships acquired in the Dynamic Decisions Pty Limited (Dynamic
Decisions) acquisition (See Note 6), totaled $62,500 and $187,500 for the
three and nine months ended September 30, 2003 and 2002, respectively. The
estimated future annual amortization expense for this intangible asset
remaining as of September 30, 2003 is as follows:

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

Impairment of Long-Lived Assets

The Company tests goodwill for impairment in accordance with SFAS No. 142
Goodwill and Other Intangible Assets (SFAS 142), which requires goodwill to
be tested for impairment at the reporting unit level at least annually and more
frequently upon occurrence of certain events, as defined by SFAS 142. The
Company completed its annual testing for impairment in the third quarter of
2003 and determined that no such impairment exists as of the third quarter of
2003. Goodwill is tested for impairment annually in a two-step process. First,
the Company determines if the fair value of its reporting unit exceeds the
carrying amount of the reporting unit. If the fair value does not exceed the
carrying amount, goodwill of the reporting unit is potentially impaired, and
the Company

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must then measure the impairment loss by comparing the implied
fair value of the goodwill, as defined by SFAS 142, to its carrying amount.
The fair value of the reporting unit is estimated using the Income Approach, a
present value technique.

In accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144), the Company evaluates the
recoverability of long-lived assets, including intangible assets, for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable based on expected
undiscounted cash flows attributable to that asset. The amount of any
impairment loss is measured as the difference between the carrying value and
the fair value of the impaired asset and charged to expense in the period
identified. Fair value is determined by either a quoted market price or a value
determined by a discounted cash flow technique, whichever is more appropriate
under the circumstances. The rates that would be utilized to discount net cash
flows to net present value would take into account the time value of money and
investment risk factor. Management believes that no such events have occurred.

Software Development Costs

In accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed (SFAS 86), software
development costs are expensed as incurred until technological feasibility has
been established, at which time such costs are capitalized until the product is
available for general release to customers. 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.

The Company evaluates the net realizable value of capitalized software on
an ongoing basis, relying on a number of factors including demand for a
product, operating results, business plans and economic projections. In
addition, the Company considers non-financial data such as market trends,
product development cycles and changes in managements market emphasis. During
the three and nine months ended September 30, 2003, the Company had $387,000
and $682,000, respectively, in revenue for the products to which the
capitalized software development costs relate. The Company believes that based
on future anticipated sales, the carrying value of the capitalized software of
approximately $771,000 does not exceed its net realizable value as of September
30, 2003. The Company will continue to evaluate the net realizable value of the
capitalized software based primarily on actual and forecasted sales and record
a charge to write-down the carrying value if factors indicate that the carrying
value will not be realizable.

There were no software development costs that qualified for capitalization
during the three and nine months ended September 30, 2003. Amortization expense related
to software development cost was $230,000 and $275,000, for the three months
ended September 30, 2003 and 2002, respectively. Amortization expense related
to software development costs was $689,000 and $728,000 for the nine months
ended September 30, 2003 and 2002, respectively.

Income Taxes

Deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
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 and nine months ended September 30, 2003, the Company
recorded a provision for income taxes of $0 and $764,000, respectively. The
nine months ended September 30, 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 carry forwards 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 carry forwards 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

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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.

Translation of Foreign Currencies

The Company considers the functional currency of its foreign subsidiaries
to be the local currency, and accordingly, the financial statements of the
foreign subsidiaries are translated into U.S. dollars using exchange rates in
effect at the period end for assets and liabilities and average exchange rates
during each reporting period for the results of operations. Adjustments
resulting from translation of foreign subsidiary financial statements are
reported on the balance sheet in accumulated other comprehensive income (loss)
within stockholders equity (See Note 4). The Company has determined that its
intercompany receivables and payables balances with its foreign subsidiaries
are short-term in nature and as a result, the Company re-measures these
balances at each period end and records any related foreign currency gains and
losses in its consolidated statements of operations. The short-term
intercompany balances with its foreign subsidiaries are denominated in the
Euro, Australian dollar, Swiss franc and British pound. For the three and nine
months ended September 30, 2003, foreign exchange gains recorded in the
consolidated statements of operations totaled $64,000 and $723,000,
respectively, primarily as a result of the strengthening Euro, British pound
and Australian dollar against the U.S. dollar. For the three and nine months
ended September 30, 2002, foreign exchange gains and losses recorded in the
consolidated statements of operations were not material.

The Company occasionally enters into foreign currency forward contracts
that economically hedge gains and losses generated by the re-measurement of
certain assets and liabilities denominated in a foreign currency. These foreign
exchange contracts are entered into in the ordinary course of business, and
accordingly, are not speculative in nature. The Company typically hedges
intercompany and receivable balances for periods of 90 days or less. The
changes in the fair value of these undesignated hedges are recognized in the
statements of operations immediately as an offset to the changes in fair value
of the asset or liability being hedged. The Company entered into one hedging
contract in 2002 and did not have any open hedging contracts as of September
30, 2003. For the three and nine months ended September 30, 2002, realized and
unrealized gains and losses were not material.

Use of Estimates

The preparation of financial statements 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.
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
liabilities, deferred revenue and certain post closing adjustments and
transaction costs related to the sale of the Companys CRM Business.

Stock-Based Compensation

The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25), and related interpretations, and follows the
disclosure-only requirements under SFAS 123, Accounting for Stock Based
Compensation (SFAS No. 123). APB No. 25 provides that compensation expense
relative to the Companys employee stock options is measured based on the
intrinsic value of the stock options at the measurement date. Accordingly, no
stock-based employee compensation cost is reflected in net income (loss), for
options granted under the plans with an exercise price equal to the market
value of the underlying common stock on the date of grant. If compensation
expense had been recorded consistent with SFAS No. 123 based on the fair value
of stock awards at the date of grant, the Companys net income (loss) would
have been adjusted to the pro forma amounts presented below (in thousands,
except for per share data):

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|                                                                                                                                            |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                            |  | Three Months Ended |        | Nine Months Ended
|                                                                                                                                            |  | September 30,      |        | September 30,    
|                                                                                                                                            |  |                    |        |                  
|                                                                                                                                            |  | 2003               |        | 2002              |  | 2003 |        | 2002
|                                                                                                                                            |  |                    |        |                   |  |      |        |     
|Net income (loss) as reported                                                                                                               |  | $                  | (708   | )                 |  | $    | (2,163 | )    |  | $ | 2,659  |   |  | $ | (2,824 | )
|Add: Stock-based employee compensation
expense included in reported net income
(loss), net of related tax effects                           |  |                    | 105    |                   |  |      |       |      |  |   | 275    |   |  |   |       |  
|Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects |  |                    | (457   | )                 |  |      | (582   | )    |  |   | (1,616 | ) |  |   | (1,943 | )
|                                                                                                                                            |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Pro forma net income (loss)                                                                                                                 |  | $                  | (1,060 | )                 |  | $    | (2,745 | )    |  | $ | 1,318  |   |  | $ | (4,767 | )
|                                                                                                                                            |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Net income (loss) per share                                                                                                                 |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Basic  as reported                                                                                                                         |  | $                  | (0.06  | )                 |  | $    | (0.18  | )    |  | $ | 0.21   |   |  | $ | (0.23  | )
|Diluted  as reported                                                                                                                       |  | $                  | (0.06  | )                 |  | $    | (0.18  | )    |  | $ | 0.21   |   |  | $ | (0.23  | )
|Basic  pro forma                                                                                                                           |  | $                  | (0.08  | )                 |  | $    | (0.22  | )    |  | $ | 0.11   |   |  | $ | (0.39  | )
|Diluted pro forma                                                                                                                          |  | $                  | (0.08  | )                 |  | $    | (0.22  | )    |  | $ | 0.10   |   |  | $ | (0.39  | )
|Weighted average number of shares outstanding:                                                                                              |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                                                                       |  |                    | 12,641 |                   |  |      | 12,282 |      |  |   | 12,508 |   |  |   | 12,184 |  
|Diluted                                                                                                                                     |  |                    | 12,641 |                   |  |      | 12,282 |      |  |   | 12,839 |   |  |   | 12,184 |  

3. Net Income (Loss) Per Share

Net income (loss) is computed in accordance with SFAS No. 128, Earnings
Per Share. Basic net income (loss) per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding during the
period. Dilutive net income (loss) is computed using the weighted average
number of common shares outstanding during the period, plus the dilutive
effect, if any, of potential
common shares, which consists of stock options. The following table sets
forth the computation of basic and diluted net income (loss) per share.

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|                                    |                                                                                 |  |                                                    |        |                   |  |       |        |      |  |       |        |   |  |       |        |  
|----------------------------------- | ------------------------------------------------------------------------------- |  | -------------------------------------------------- | ------ | ----------------- |  | ----- | ------ | ---- |  | ----- | ------ | - |  | ----- | ------ | -
|                                    |                                                                                 |  | Three Months Ended                                 |        | Nine Months Ended
|                                    |                                                                                 |  | September 30,                                      |        | September 30,    
|                                    |                                                                                 |  |                                                    |        |                  
|                                    |                                                                                 |  | 2003                                               |        | 2002              |  | 2003  |        | 2002
|                                    |                                                                                 |  |                                                    |        |                   |  |       |        |     
|                                    |                                                                                 |  | (in thousands, except net income (loss) per share)
|Numerator:                          |                                                                                 |  |                                                    |        |                   |  |       |        |      |  |       |        |   |  |       |       
|                                    | Income (loss) from continuing operations                                        |  | $                                                  | (602   | )                 |  | $     | (2,120 | )    |  | $     | 2,821  |   |  | $     | (2,696 | )
|                                    | Loss from discountinued operations                                              |  |                                                    | (106   | )                 |  |       | (43    | )    |  |       | (162   | ) |  |       | (128   | )
|                                    |                                                                                 |  |                                                    |        |                   |  |       |        |      |  |       |        |   |  |       |        |  
|                                    | Net income (loss)                                                               |  | $                                                  | (708   | )                 |  | $     | (2,163 | )    |  | $     | 2,659  |   |  | $     | (2,824 | )
|                                    |                                                                                 |  |                                                    |        |                   |  |       |        |      |  |       |        |   |  |       |        |  
|Denominator:                        |                                                                                 |  |                                                    |        |                   |  |       |        |      |  |       |        |   |  |       |       
|                                    | Denominator for basic net income (loss)
per share  weighted shares outstanding |  |                                                    | 12,641 |                   |  |       | 12,282 |      |  |       | 12,508 |   |  |       | 12,184 |  
|                                    | Effect of dilutive employee stock options                                       |  |                                                    |       |                   |  |       |       |      |  |       | 331    |   |  |       |       |  
|                                    |                                                                                 |  |                                                    |        |                   |  |       |        |      |  |       |        |   |  |       |        |  
|                                    | Denominator for diluted net income
(loss) per share                             |  |                                                    | 12,641 |                   |  |       | 12,282 |      |  |       | 12,839 |   |  |       | 12,184 |  
|                                    |                                                                                 |  |                                                    |        |                   |  |       |        |      |  |       |        |   |  |       |        |  
|Basic net income (loss) per share   |                                                                                 |  |                                                    |        |                   |  |       |        |      |  |       |        |   |  |       |       
|                                    | Continuing operations                                                           |  | $                                                  | (0.05  | )                 |  | $     | (0.17  | )    |  | $     | 0.23   |   |  | $     | (0.22  | )
|                                    | Discontinued operations                                                         |  | $                                                  | (0.01  | )                 |  | $     | (0.00  | )    |  | $     | (0.01  | ) |  | $     | (0.01  | )
|                                    | Total net income (loss) per share                                               |  | $                                                  | (0.06  | )                 |  | $     | (0.18  | )    |  | $     | 0.21   |   |  | $     | (0.23  | )
|                                    |                                                                                 |  |                                                    |        |                   |  |       |        |      |  |       |        |   |  |       |        |  
|Diluted net income (loss) per share |                                                                                 |  |                                                    |        |                   |  |       |        |      |  |       |        |   |  |       |       
|                                    | Continuing operations                                                           |  | $                                                  | (0.05  | )                 |  | $     | (0.17  | )    |  | $     | 0.22   |   |  | $     | (0.22  | )
|                                    | Discontinued operations                                                         |  | $                                                  | (0.01  | )                 |  | $     | (0.00  | )    |  | $     | (0.01  | ) |  | $     | (0.01  | )
|                                    | Total net income (loss) per share                                               |  | $                                                  | (0.06  | )                 |  | $     | (0.18  | )    |  | $     | 0.21   |   |  | $     | (0.23  | )
|                                    |                                                                                 |  |                                                    |        |                   |  |       |        |      |  |       |        |   |  |       |        |  
|Antidilutive options                |                                                                                 |  | 1,672                                              |        |                   |  | 3,677 |        |      |  | 1,735 |        |   |  | 3,047 |       

Diluted loss per share is the same as basic loss per share for three and
nine months ended September 30, 2002 and for the three months ended September
30, 2003 since the effect of stock options would be anti-dilutive.
Anti-dilutive options for the nine months ended September 30,
2003 represent
options that have an exercise price greater than the average fair market value
of the Companys common stock for the period.

4. Comprehensive Income (Loss)

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

|                                  |  |                    |      |                   |  |      |        |      |  |   |       |   |  |   |        |  
|--------------------------------- |  | ------------------ | ---- | ----------------- |  | ---- | ------ | ---- |  | - | ----- | - |  | - | ------ | -
|                                  |  | Three Months Ended |      | Nine Months Ended
|                                  |  | September 30,      |      | September 30,    
|                                  |  |                    |      |                  
|                                  |  | 2003               |      | 2002              |  | 2003 |        | 2002
|                                  |  |                    |      |                   |  |      |        |     
|                                  |  | (in thousands)     |      | (in thousands)   
|Net income (loss)                 |  | $                  | (708 | )                 |  | $    | (2,163 | )    |  | $ | 2,659 |   |  | $ | (2,824 | )
|Other comprehensive
income (loss) |  |                    | (38  | )                 |  |      | 89     |      |  |   | (639  | ) |  |   | 130    |  
|                                  |  |                    |      |                   |  |      |        |      |  |   |       |   |  |   |        |  
|Total comprehensive
income (loss) |  | $                  | (746 | )                 |  | $    | (2,074 | )    |  | $ | 2,020 |   |  | $ | (2,694 | )
|                                  |  |                    |      |                   |  |      |        |      |  |   |       |   |  |   |        |  

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5. Segments and Geographical Information

The Company and its subsidiaries are principally engaged in the design,
development, marketing and support of the Companys Business Intelligence and
Business Performance Management software products, which it considers to be a
single industry segment. Substantially all of the Companys revenues result
from the licensing of its software products and related professional services
and maintenance services. Financial information provided to the Companys key
operating decision makers is accompanied by disaggregated information about
revenues and expenses by geographic region for purposes of making operating
decisions and assessing each geographic regions financial performance.

6. Acquisition

On
March 31, 2001, the Company acquired all of the outstanding
common stock of Dynamic Decisions, its primary Australian reseller, to improve its
market presence and increase the Companys sales in the Pacific Rim region. The
total cost of $5,867,000 consists of maximum cash consideration of $5,150,000,
transaction costs of $490,000, and 100,000 shares of the Companys common
stock, which had a fair market value of $227,000 at the date of acquisition.
The acquisition was accounted for under the purchase method of accounting, and
the purchase price was allocated based on the estimated fair value of the
assets acquired and liabilities assumed. An intangible asset, acquired customer
relationships of $1,500,000, was recorded based on the fair value of the asset
at the time of acquisition and is being amortized on a straight-line basis over
its estimated useful life of six years. The excess of the purchase price over
the fair value of the net assets acquired of $935,000 was recorded as goodwill.
Goodwill is no longer amortized under the provision of SFAS 142.

Per the terms of the share purchase agreement, the total maximum cash
consideration relating to the purchase of Dynamic Decisions was $5,150,000
payable in 10 installments over a maximum of 30 months beginning on July 1,
2001. Of the 10 installments, two of the installments totaling $1,267,000 were
guaranteed, paid in 2001 and accounted for as purchase price. The remaining
eight installments were contingent upon the employment of the two key
employees, who were former shareholders of Dynamic Decisions, and therefore
were accounted for as compensation expenses within operating expenses. These
eight installments were expensed ratably on a straight-line basis over the
employees contractual employment period, which commenced on April 1, 2001 and
ended on March 31, 2003. The amounts that are recognized as expenses and
accrued are translated into U.S. dollars from Australian dollars, resulting in
foreign currency exchange fluctuations to the Companys financial statements.
Of these contingent payments, the Company made three cash payments totaling
$1,855,000 in 2003 and four cash payments totaling $2,153,000 in 2002. As of
September 30, 2003, there is one remaining contingent payment totaling
$681,000, which has been accrued and will be paid in the fourth quarter of
2003.

The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of the acquisition.

|                                                  |  |                |       | 
|------------------------------------------------- |  | -------------- | ----- | 
|                                                  |  | At            
|                                                  |  | March 31, 2001
|                                                  |  | (in thousands)
|                                                  |  |               
|Cash, cash equivalents and short-term investments |  | $              | 25    | 
|Accounts receivable, net                          |  |                | 611   | 
|Prepaid and other current assets                  |  |                | 154   | 
|Fixed assets, net                                 |  |                | 16    | 
|Intangible customer relationships                 |  |                | 1,500 | 
|Goodwill                                          |  |                | 935   | 
|Accounts payable                                  |  |                | 433   | 
|Accrued expenses                                  |  |                | 60    | 
|Deferred maintenance                              |  |                | 300   | 
|Deferred tax liability                            |  |                | 450   | 

7. 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 $225,000
was paid back and an additional amount of $262,000 was accrued for as
of September 30, 2003 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.

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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 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-month period ended September 30, 2003
do not include any CRM related license, professional services and maintenance
revenues. The Companys results for the nine months ended September 30, 2003
included CRM license revenues of $253,000 and CRM professional services and
maintenance revenues of $999,000.

The Company has recorded a net gain before tax of $7,910,000, which
includes net cash consideration of $5,525,000 and $3,552,000 of net liabilities
assumed by iET less transaction costs of $1,167,000. 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.

8. Commitments and Contingencies

On February 8, 2002, a customer of the Companys divested business unit
filed a claim in Germany against the Companys German subsidiary, Veriteam GmbH
(which was formerly known as VistaSource). The claim alleges a breach of
contract pertaining to software sold and implemented by the divested business
unit on behalf of the Company. The customer is seeking repayment for the cost
of the software and related services of approximately $800,000. The claim was
dismissed by the German court on June 10, 2003 and the decision is final.

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 or pending 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.

As of September 30, 2003, the Company had future cash commitments for the
payments pertaining to its obligation under its non-cancelable leases. The
Companys future minimum lease payments for its operating lease payments for
its office facilities and certain equipment are:

|                             |  |                  |        | 
|---------------------------- |  | ---------------- | ------ | 
|                             |  | Operating leases
|                             |  |                 
|                             |  | (in thousands)  
|2003                         |  | $                | 531    | 
|2004                         |  |                  | 2,017  | 
|2005                         |  |                  | 1,907  | 
|2006                         |  |                  | 1,868  | 
|2007                         |  |                  | 1,855  | 
|2008 and after               |  |                  | 10,010 | 
|                             |  |                  |        | 
|Total minimum lease payments |  | $                | 18,188 | 
|                             |  |                  |        | 

The Company is currently evaluating its space needs on a company-wide
basis and expects to attempt to sublease space at its headquarters. In the
event that space is sublet and not used by the Company, dependent on market
rates at the time, the Company could incur a loss. If all space the Company
expects to sublease was vacated and subleased, the Company could incur a loss
of $1,900,000, which is based upon the aggregate difference over the remaining
ten and a quarter years term between the Companys committed lease rate and the
estimated market rates at September 30, 2003 of a prospective sublease
arrangement, utilizing a discount rate of 8.5% which the Company determined to
be its estimated incremental borrowing rate. In the event that market rates
change or other events occur relating to the Companys evaluation of its
options regarding its lease arrangement, the loss could be materially
different. The Company currently has full access to all its leased facilities
and has not recorded any charges related to potential lease abandonment. Such
charges will only be recorded if and when the Company commits to actions, which
will result in vacating space.

On June 16, 2003, the Company announced that it is the subject of an SEC
investigation. The Company is cooperating fully with the SEC in this matter.

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9. Restructuring Charges

In 2002, the Company adopted two plans of restructuring aimed at reducing
operating costs company-wide, strengthening the Companys financial position,
and reallocating resources to pursue the Companys future operating strategies.

In the second quarter of 2002, the Company adopted a plan of restructuring
to reduce operating costs. The plan included the reduction of headcount of five
non-management employees, four sales people and one administrative employee.
The plan also included the closure of two foreign offices. As a result of the
restructuring plan, the Company recorded a charge of $103,000 comprising of
$74,000 for workforce reduction and $29,000 for office closures. The
restructuring charge was fully paid as of December 31, 2002.

In the third quarter of 2002, the Company adopted a plan of restructuring
to further reduce operating costs. The plan included a reduction of headcount
of twenty-one non-management and three management employees, primarily
professional services, sales, marketing, and customer support personnel. The
plan also included the closure of one foreign office. As a result of the
restructuring plan, the Company recorded a charge of $398,000, which is
comprised of $372,000 for workforce reduction, $20,000 related termination
costs, and $6,000 for office closure. During the fourth quarter of 2002, the
Company recorded an adjustment to increase this charge by $20,000. In addition,
the Company adjusted the amounts within workforce, office closures and other
contractual obligations as changes in estimates but did not change the total
amount of the charge except as disclosed. These changes are not significant.
The remaining unpaid balance of $71,000 as of December 31, 2002 was paid in
full during the first quarter of 2003.

The components of the restructuring cash charges, as well as the Companys
2003 payments made against accruals are detailed as follows:

|                                   |  |              |        |          |  |           |        |            |  |   |   | 
|---------------------------------- |  | ------------ | ------ | -------- |  | --------- | ------ | ---------- |  | - | - | 
|                                   |  | Balance at   |        |          |  |           |        | Balance at
|                                   |  | December 31, |        | Payments |  | March 31,
|Cash charges                       |  | 2002         |        | made     |  | 2003     
|                                   |  |              |        |          |  |          
|Restructuring
Work force reduction |  | $            | 52,000 |          |  | $         | 52,000 |            |  | $ |  | 
|Office closures                    |  |              | 17,000 |          |  |           | 17,000 |            |  |   |  | 
|Other contractual
obligations      |  |              | 2,000  |          |  |           | 2,000  |            |  |   |  | 
|                                   |  |              |        |          |  |           |        |            |  |   |   | 
|Total restructuring                |  | $            | 71,000 |          |  | $         | 71,000 |            |  | $ |  | 
|                                   |  |              |        |          |  |           |        |            |  |   |   | 

10. Discontinued Operation

In December 2000, the Board of Directors committed to a plan to dispose of
the operations of its VistaSource business. On March 30, 2001, the Company
completed the sale of the VistaSource business unit to Real Time International,
Inc. (Real-Time), a subsidiary of Parallax Capital Partners, LLC for
$1,300,000 and a 19% equity interest in Real-Time. The results of operations
including revenue, operating expenses, other income and expense, and income
taxes of the VistaSource business unit was reclassified as a discontinued
operation. The Companys results of operations for the quarters ended September
30, 2003 and 2002 included $106,000 and $43,000, respectively, in expenses
primarily relating to certain defense costs incurred from a claim filed against
VistaSource (See Note 8) and legal and accounting costs associated with winding
down the VistaSource business. For the nine months ended September 30, 2003 and
2002, expenses related to discontinued operations were $162,000 and $128,000,
respectively.

11. Non-recourse Sale of Receivables

The Company has a non-recourse accounts receivable purchase arrangement
with a certain bank, which allows the Company from time to time to sell
qualifying accounts receivable to the bank, in an aggregate amount of up to $2
million outstanding, at a purchase price equal to the balance of the accounts
less a discount rate and a fee. During 2003, the Company
did not sell any of its accounts receivables.

On or about December 31, 2002, the Company factored certain accounts
receivable to the bank pursuant to the purchase arrangement in the amount of
$905,000 resulting in a sale of accounts receivable of $668,000 for the three
months ended December 31, 2002. In accordance with SFAS No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of

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Liabilities (SFAS 140), the Company recognized a sale for those account
receivable balances for which there was no future obligation to the customer in
the amount of $668,000 for the three months ended December 31, 2002. The
Company concluded that these accounts have been legally isolated, and
accordingly, these amounts were excluded from the Companys accounts receivable
balance at December 31, 2002. The loss from the sale of the financial assets
and retained interest for cash collection were not material to the Companys
results of operations or financial position. At December 31, 2002, the Company
recorded a net amount of $237,000 of the $905,000 as a financing transaction
and recognized this amount as a liability because the sale of these
receivables did not qualify to be recorded as a sale under SFAS 140.

12. Restricted Cash

On August 1, 2001, the Company established a $1,050,000 irrevocable
standby letter of credit in connection with executing an agreement to lease
certain office space, which commenced on November 1, 2001. The irrevocable
standby letter of credit is collateralized by a restricted cash deposit of
$1,050,000, which is drawn down over the term of the lease, provided the
Company has not defaulted on the office lease. The irrevocable standby letter
of credit and underlying security deposit (restricted cash) requirement of
$1,050,000 was reduced to $933,000 as of November 1, 2002 and will be reduced
starting the first day of the second lease year as follows:

|                                     |  |                  |         | 
|------------------------------------ |  | ---------------- | ------- | 
|                                     |  | Reduction Amount
|                                     |  |                 
|Third lease year (November 1, 2003)  |  | $                | 116,667 | 
|Fourth lease year (November 1, 2004) |  | $                | 175,001 | 
|Fifth lease year (November 1, 2005)  |  | $                | 233,330 | 
|Sixth lease year (November 1, 2006)  |  | $                | 283,335 | 

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

13. 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 was held by the Company in treasury as of September 30, 2003,
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 September 30, 2003 was $172,000.

In the second quarter of 2003, the Company entered into Severance
Agreements with two executives. Pursuant to their agreements, the Company has
agreed to pay the executives their salary and provide the executives certain
benefits including medical during their severance period. During the second
quarter of 2003, the Company recorded $206,000 in costs related to the
termination of the executives, and $103,000 in stock-based compensation related
to one of the executives. The severance amounts are to be paid in equal
installments. In the third quarter, the Company recorded an adjustment of
$37,000 for severance amounts for one of these executives. The remaining unpaid
balance as of September 30, 2003 was $34,500.

14. 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

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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 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.

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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 and analytics, which include Applix TM1 and Applix Integra
technology and related applications, such as Applix TM1 Web. Historically, the Company also provided customer relationship management
(CRM) solutions. 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 $225,000 was paid back and an additional $262,000 will be paid in the
fourth quarter of 2003 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.
The Company has recorded a net gain of $7,910,000 in 2003.

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 the sale of certain of the assets of the Companys German
subsidiary, Applix GmbH. Applix GmbH was allowed to continue 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,
during the period from January 21, 2003 to March 17, 2003.

Included in the Companys results for the nine month period ending
September 30, 2003 are CRM revenues of $253,000 and $999,000 for license, and
professional services and maintenance, respectively.

In December 2000, the Company committed to a plan to dispose of the
operations of its VistaSource business. On March 30, 2001, the Company
completed the sale of the VistaSource business unit to Real Time International,
Inc. (Real-Time), a subsidiary of Parallax Capital Partners, LLC, for
$1,300,000 and a 19% equity interest in Real-Time. The Companys results of
operations for the three and nine months ended September 30, 2003 included
$106,000 and $162,000, respectively, in expenses recorded as discontinued
operations primarily relating to certain defense costs incurred from a claim
filed against VistaSource and legal and accounting costs associated with
winding down the VistaSource business. See Note 8 and Note 10 to the unaudited
condensed consolidated financial statements.

On
March 31, 2001, the Company acquired all of the outstanding
common
stock of Dynamic Decisions, its primary Australian reseller, to improve its
market presence and increase the Companys sales in the Pac Rim region. The
total cost of $5,867,000 consists of maximum cash consideration of $5,150,000,
transaction costs of $490,000, and 100,000 shares of the Companys common
stock, which had a fair market value of $227,000 at the date of acquisition.
The acquisition was accounted for under the purchase method of accounting, and
the purchase price was allocated based on the estimated fair value of the
assets acquired and liabilities assumed. An intangible asset, acquired customer
relationships of $1,500,000, was recorded based on the fair value of the asset
at the time of acquisition and is being amortized on a straight-line basis over
its estimated useful life of six years. The excess of the purchase price over
the fair value of the net assets acquired of $935,000 was recorded as goodwill.
Goodwill is no longer amortized under the provision of SFAS 142. The purchase
price exceeded the fair market value of the net assets purchased due in part to
the revenues, profitability and expected future cash flow from established
customer base.

Per the terms of the share purchase agreement, the total maximum cash
consideration relating to the purchase of Dynamic Decisions was $5,150,000
payable in 10 installments over a maximum of 30 months beginning on July 1,
2001. Of the 10 installments, two of the installments totaling $1,267,000 were
guaranteed, paid in 2001 and accounted for as purchase price. The remaining
eight installments were contingent upon the employment of the two key
employees, who were former shareholders of Dynamic
Decisions, and therefore were accounted for as compensation expenses within
operating expenses. These eight installments were expensed ratably on a
straight-line basis over the employees contractual employment period, which
commenced on April 1, 2001 and ended on March 31, 2003. The amounts that are
recognized as expense and accrued are translated into U.S. dollars from
Australian dollars, resulting in foreign currency exchange fluctuations to the
Companys financial statements. Of these contingent payments, the Company made
three cash payments totaling $1,855,000 in 2003 and four cash payments totaling
$2,153,000 in 2002. As of September 30, 2003, there is one remaining contingent
payment totaling $681,000, which has been accrued and will be paid in the
fourth quarter of 2003.

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In December 2002, the Company sold the stock of its Dutch subsidiary, a
remote sales office, for $362,000 and recorded a net gain of
$141,000. The
transaction included substantially all of the subsidiarys assets and
liabilities and an amendment to the existing distribution agreement between the
Company and the purchaser to provide the purchaser the exclusive rights to
resell the Companys CRM products in the Netherlands. During the third quarter
of 2003, the Company recorded an adjustment to eliminate the gain on the sale of
its Dutch subsidiary.

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

Revenue from software licensing and service fees is recognized in
accordance with Statement of Position (SOP) 97-2, Software Revenue
Recognition, and SOP 98-9 Software Revenue Recognition with Respect to
Certain Transactions. Substantially all of the Companys product license
revenue is earned from licenses of off-the-shelf software requiring no
customization. Accordingly, the Company recognizes revenue from software
licensing when all of the following criteria are met: (1) persuasive evidence
of an arrangement exists via a signed agreement or purchase order; (2) delivery
has occurred including authorization keys; (3) the fee is fixed or determinable
representing amounts that are due unconditionally with no future obligations
under customary payment terms; and (4) collectibility is probable.

Revenue from consulting and training is recognized at the time the
services are rendered. For contracts with multiple obligations (e.g.,
deliverable and undeliverable products, support obligations, consulting, and
training services), the Company allocates revenue to each element of the
contract based on vendor specific objective evidence (VSOE) of the fair value
of the elements. The Company has determined fair value based upon prices it
charges customers when these elements are sold separately. Maintenance
contracts are generally sold with the initial licenses. The related maintenance
revenue is deferred based upon VSOE, which is determined by the renewal price
of the annual maintenance contract, and is recognized ratably over the
maintenance contract period. The Company recognizes consulting and training
service revenues, including those sold with license fees, as the services are
performed based upon their established VSOE. The Company determines the amount
of revenue to allocate to the licenses sold with services or maintenance using
the residual method of accounting. Under the residual method, the Company
allocates
the total value of the arrangement first to the undelivered elements based
on their VSOE and the remainder to the delivered element, the software license.

In those instances 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.

In those instances in which indirect channel partners provides certain
support services under the maintenance support contracts to the end-user
customer, the Company accounts for amounts received in these arrangements in
accordance with Emerging Issues Task Force 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent. The Company must make certain judgments in
these types of arrangements including whether the Company or the indirect
channel partners is in the principal obligor in the arrangement with the
end-user customer.

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Accounts Receivable and Bad Debt

The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
The Company continuously monitors collections and payments from its customers
and determines the allowance for doubtful accounts based upon analysis of aged
accounts receivable, historical experience and specific customer collection
issues. An allowance for doubtful accounts is provided for accounts which
management believes may not be collected due to a customers financial
circumstance (e.g. bankruptcy), and for all accounts which are over 180 days
past due, absent evidence which supports their collectibility. If the financial
condition of the Companys customers were to deteriorate, resulting in an
impairment of their ability to make payments, or the Companys overdue
receivables balance were to increase significantly, additional allowances may
be required. The Company generally invoices the customer in the same local
currency as to be paid by the customer. The Company generally does not hedge
its foreign customer receivables due to the relatively small exposure from
foreign currency rate fluctuations.

Software Development Costs

The Company accounts for software development costs in accordance with
SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased,
or Marketed (SFAS 86). SFAS 86 specifies that software development costs
incurred internally should be expensed as incurred until technological
feasibility has been established. Once technological feasibility has been
established, all software development costs should be capitalized until the
product is available for general release to customers. Judgment is required in
determining when the technological feasibility of products is established. 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 amortized as a cost of software license revenue over the
estimated product life. Development costs not capitalized under the policy are
classified as a development expense in the same period as incurred. If
management determines that the recoverability of these unamortized capitalized
software costs is not probable based on its cash flow estimates, these costs
may require adjustment to their net realizable value, which could affect the
results of the reporting period.

Goodwill and Other Intangible Assets and Related Impairment

During 2001, the Company completed its acquisition of Dynamic Decisions
and recorded goodwill in the amount of $935,000 associated with the excess
purchase price over the fair value of the net assets acquired and identifiable
intangible assets of $937,000, net of accumulated amortization, assigned to
identified customer relationships. The amounts assigned to the identifiable
assets and liabilities acquired in connection with the acquisition were based
on estimated fair values at the date of acquisition. The fair
values were determined by the Companys management, based in part upon
information supplied by the management of the acquired business and a valuation
prepared by an independent appraiser. The valuation of identified customer
relationships has been based primarily upon future cash flow projections
discounted to present value using a risk-adjusted discount rate.

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

Restructuring

During 2002, the Company recorded charges in connection with its
restructuring programs. These charges include estimates pertaining to employee
separation costs and the settlements of contractual obligations resulting from
the Companys actions. Although the Company does not anticipate significant
changes, the actual costs may differ from these estimates and impact
operations and cash flow other than to the extent already provided in
these financial statements.

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 Accounting for Income Taxes (SFAS 109) which
requires that deferred tax assets and liabilities be recognized using enacted
tax rates for the effect of temporary differences between the book and tax
bases of recorded assets and liabilities. SFAS 109 also requires that deferred
tax assets be reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax asset will not be

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realized. The Company evaluates quarterly the realizability of its deferred tax
assets by assessing its valuation allowance and by adjusting the amount of such
allowance, if necessary. At September 30, 2003 and December 31, 2002, the
Companys deferred tax assets were fully reserved. In the event the Company
were to determine in the future that it would be able to realize its deferred
tax assets in excess of its net-recorded amount, an adjustment to the deferred
tax asset would increase income in the period such determination was made.

During 2003, the Company evaluated its ability to utilize its net
operating loss carryforwards and the impact of Section 382 of the U.S. Internal
Revenue Code of 1986, as amended (Section 382), including use of such loss
carryforwards on its U.S. gain of the U.S. portion of its CRM Business. Under
Section 382, annual limitations apply to the use of net operating loss
carryforwards against future taxable income in the event of a change of
ownership, as defined by Section 382. The Company has completed a full analysis
of these ownership changes and does not believe that changes in ownership will
impact its ability to use its net operating loss carryforwards.

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.

Results of Operations

For the Three and Nine Months Ended September 30, 2003 and 2002:

Revenues

|                                            |  |                                   |       |                                 |  |            |     |         |  |      |       |            |  |      |     |         |  |            |        |  |  |  |     |            |  |   |        |  |  |  |     |  
|------------------------------------------- |  | --------------------------------- | ----- | ------------------------------- |  | ---------- | --- | ------- |  | ---- | ----- | ---------- |  | ---- | --- | ------- |  | ---------- | ------ |  |  |  | --- | ---------- |  | - | ------ |  |  |  | --- | -
|                                            |  | (in thousands except percentages)
|                                            |  | Three Months Ended September 30,  |       | Nine Months Ended September 30,
|                                            |  |                                   |       |                                
|                                            |  |                                   |       |                                 |  | Percent of |     |         |  |      |       | Percent of |  |      |     |         |  | Percent of |        |  |  |  |     | Percent of
|                                            |  | 2003                              |       | Revenue                         |  | 2002       |     | Revenue |  | 2003 |       | Revenue    |  | 2002 |     | Revenue
|                                            |  |                                   |       |                                 |  |            |     |         |  |      |       |            |  |      |     |        
|Software License                            |  | $                                 | 3,108 |                                 |  |            | 48  | %       |  | $    | 3,231 |            |  |      | 39  | %       |  | $          | 8,457  |  |  |  | 44  | %          |  | $ | 11,682 |  |  |  | 44  | %
|Professional Services                       |  |                                   | 551   |                                 |  |            | 9   | %       |  |      | 1,200 |            |  |      | 15  | %       |  |            | 2,437  |  |  |  | 13  | %          |  |   | 4,359  |  |  |  | 16  | %
|Maintenance                                 |  |                                   | 2,764 |                                 |  |            | 43  | %       |  |      | 3,751 |            |  |      | 46  | %       |  |            | 8,304  |  |  |  | 43  | %          |  | $ | 10,723 |  |  |  | 40  | %
|                                            |  |                                   |       |                                 |  |            |     |         |  |      |       |            |  |      |     |         |  |            |        |  |  |  |     |            |  |   |        |  |  |  |     |  
|Total professional services
and maintenance |  |                                   | 3,315 |                                 |  |            | 52  | %       |  |      | 4,951 |            |  |      | 61  | %       |  |            | 10,741 |  |  |  | 56  | %          |  |   | 15,082 |  |  |  | 56  | %
|                                            |  |                                   |       |                                 |  |            |     |         |  |      |       |            |  |      |     |         |  |            |        |  |  |  |     |            |  |   |        |  |  |  |     |  
|Total Revenues                              |  | $                                 | 6,423 |                                 |  |            | 100 | %       |  | $    | 8,182 |            |  |      | 100 | %       |  | $          | 19,198 |  |  |  | 100 | %          |  | $ | 26,764 |  |  |  | 100 | %
|                                            |  |                                   |       |                                 |  |            |     |         |  |      |       |            |  |      |     |         |  |            |        |  |  |  |     |            |  |   |        |  |  |  |     |  

Total revenues for the quarter ended September 30, 2003 were $6,423,000,
consisting exclusively of BI/BPM revenue, compared to $8,182,000, consisting of
$5,142,000 of BI/BPM revenue and $3,040,000 of CRM revenue, for the quarter
ended September 30, 2002. Total revenues for the nine months ended September
30, 2003 and 2002 were $19,198,000 and $26,764,000, respectively. The decrease
in total revenues was primarily due to the Companys sale of its CRM Business
in the first quarter of 2003.

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##### Table of Contents



The following table sets forth the revenues by market:

|                                                |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |     |     |  
|----------------------------------------------- | ---------------------------------------------------- | ------------------------------- | - | -------------------------------- | ----- | ------------------------------- |  | ---------- | --- | ------ | - | --------------------------------- | ----- | ---------- |  | ------- | --- | - | - | ---------- | ------ |  |  | --- | --- | ---------- | - | ------ | ------ |  |  | --- | --- | -
|                                                |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   | (in thousands except percentages) |       |            |  |         |     |   |   |           
|                                                |                                                      |                                 |   | Three Months Ended September 30, |       | Nine Months Ended September 30,
|                                                |                                                      |                                 |   |                                  |       |                                
|                                                |                                                      |                                 |   | 2003                             |       | 2002                            |  | 2003       |     | 2002  
|                                                |                                                      |                                 |   |                                  |       |                                 |  |            |     |       
|                                                |                                                      |                                 |   |                                  |       |                                 |  | Percent of |     |        |   |                                   |       | Percent of |  |         |     |   |   | Percent of |        |  |  |     |     | Percent of
|                                                |                                                      | Amount                          |   | Revenue                          |       | Amount                          |  | Revenue    |     | Amount |   | Revenue                           |       | Amount     |  | Revenue
|                                                |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |  
|Market                                          |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |    
|Software license revenues:                      |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |    
|                                                |                                                      | BPM and BI                      |   | $                                | 3,108 |                                 |  |            | 100 | %      |   | $                                 | 2,668 |            |  |         | 83  | % |   | $          | 8,204  |  |  |     | 97  | %          |   | $      | 7,846  |  |  |     | 67  | %
|                                                |                                                      | CRM                             |   |                                  |      |                                 |  |            | 0   | %      |   |                                   | 563   |            |  |         | 17  | % |   |            | 253    |  |  |     | 3   | %          |   |        | 3,836  |  |  |     | 33  | %
|                                                |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |     |     |  
|                                                |                                                      | Total software license revenues |   |                                  | 3,108 |                                 |  |            | 100 | %      |   |                                   | 3,231 |            |  |         | 100 | % |   |            | 8,457  |  |  |     | 100 | %          |   |        | 11,682 |  |  |     | 100 | %
|                                                |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |    
|Professional services revenues:                 |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |    
|                                                |                                                      | BPM and BI                      |   |                                  | 551   |                                 |  |            | 100 | %      |   |                                   | 429   |            |  |         | 36  | % |   |            | 1,997  |  |  |     | 82  | %          |   |        | 1,393  |  |  |     | 32  | %
|                                                |                                                      | CRM                             |   |                                  |      |                                 |  |            | 0   | %      |   |                                   | 771   |            |  |         | 64  | % |   |            | 440    |  |  |     | 18  | %          |   |        | 2,966  |  |  |     | 68  | %
|                                                |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |     |     |  
|                                                | Total professional services revenues                 |                                 |   | 551                              |       |                                 |  | 100        | %   |        |   | 1,200                             |       |            |  | 100     | %   |   |   | 2,437      |        |  |  | 100 | %   |            |   | 4,359  |        |  |  | 100 | %  
|Maintenances revenues:                          |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |    
|                                                |                                                      | BPM and BI                      |   |                                  | 2,764 |                                 |  |            | 100 | %      |   |                                   | 2,045 |            |  |         | 55  | % |   |            | 7,745  |  |  |     | 93  | %          |   |        | 5,864  |  |  |     | 55  | %
|                                                |                                                      | CRM                             |   |                                  |      |                                 |  |            | 0   | %      |   |                                   | 1,706 |            |  |         | 45  | % |   |            | 559    |  |  |     | 7   | %          |   |        | 4,859  |  |  |     | 45  | %
|                                                |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |     |     |  
|                                                | Total maintenance revenues                           |                                 |   | 2,764                            |       |                                 |  | 100        | %   |        |   | 3,751                             |       |            |  | 100     | %   |   |   | 8,304      |        |  |  | 100 | %   |            |   | 10,723 |        |  |  | 100 | %  
|Professional services and maintenance revenues: |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |    
|                                                |                                                      | BPM and BI                      |   |                                  | 3,315 |                                 |  |            | 100 | %      |   |                                   | 2,474 |            |  |         | 50  | % |   |            | 9,742  |  |  |     | 91  | %          |   |        | 7,257  |  |  |     | 48  | %
|                                                |                                                      | CRM                             |   |                                  |      |                                 |  |            | 0   | %      |   |                                   | 2,477 |            |  |         | 50  | % |   |            | 999    |  |  |     | 9   | %          |   |        | 7,825  |  |  |     | 52  | %
|                                                |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |     |     |  
|                                                | Total professional services and maintenance revenues |                                 |   | 3,315                            |       |                                 |  | 100        | %   |        |   | 4,951                             |       |            |  | 100     | %   |   |   | 10,741     |        |  |  | 100 | %   |            |   | 15,082 |        |  |  | 100 | %  
|                                               
|Total revenues:                                 |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |    
|                                                |                                                      | BPM and BI                      |   |                                  | 6,423 |                                 |  |            | 100 | %      |   |                                   | 5,142 |            |  |         | 63  | % |   |            | 17,946 |  |  |     | 93  | %          |   |        | 15,103 |  |  |     | 56  | %
|                                                |                                                      | CRM                             |   |                                  |      |                                 |  |            | 0   | %      |   |                                   | 3,040 |            |  |         | 37  | % |   |            | 1,252  |  |  |     | 7   | %          |   |        | 11,661 |  |  |     | 44  | %
|                                                |                                                      |                                 |   |                                  |       |                                 |  |            |     |        |   |                                   |       |            |  |         |     |   |   |            |        |  |  |     |     |            |   |        |        |  |  |     |     |  
|                                                | Total revenues                                       |                                 | $ | 6,423                            |       |                                 |  | 100        | %   |        | $ | 8,182                             |       |            |  | 100     | %   |   | $ | 19,198     |        |  |  | 100 | %   |            | $ | 26,764 |        |  |  | 100 | %  

Software License Revenues

Software license revenues decreased by $123,000 to $3,108,000, which
represents 48% of the total revenue for the three months ended September 30,
2003, from $3,231,000, which represents 39% of the total revenue, for the three
months ended September 30, 2002. For the nine months ended September 30, 2003
and 2002, software license revenues were $8,457,000, which represents 44% of
the total revenues, and $11,682,000, which represents 44% of the total
revenues, respectively. The decrease in software license revenues was primarily
due to the Companys sale of the CRM Business in the first quarter of 2003,
which was partially offset by an increase in non-CRM revenues.

Revenues in the third quarter of 2003 solely represent BI/BPM revenues.
BI/BPM license revenues for the third quarter of 2003 were $3,108,000, which
represents a 16% increase from $2,668,000 of BI/BPM license revenues in the
third quarter ended September 30, 2002. For the nine months ended September 30,
2003, BI/BPM license revenues were $8,204,000 compared to $7,846,000 for the
nine months ended September 30, 2002.

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##### Table of Contents



The following table sets forth the software license revenues by sales
office geography:

|                             |                                 |   |                                   |       |                                 |  |                  |     |         |   |        |       |                  |  |        |     |         |   |                  |       |  |  |    |     |                  |   |       |        |  |  |    |     |  
|---------------------------- | ------------------------------- | - | --------------------------------- | ----- | ------------------------------- |  | ---------------- | --- | ------- | - | ------ | ----- | ---------------- |  | ------ | --- | ------- | - | ---------------- | ----- |  |  | -- | --- | ---------------- | - | ----- | ------ |  |  | -- | --- | -
|                             |                                 |   | (in thousands except percentages)
|                             |                                 |   | Three Months Ended September 30,  |       | Nine Months Ended September 30,
|                             |                                 |   |                                   |       |                                
|                             |                                 |   | 2003                              |       | 2002                            |  | 2003             |     | 2002   
|                             |                                 |   |                                   |       |                                 |  |                  |     |        
|                             |                                 |   |                                   |       |                                 |  | Percent of       |     |         |   |        |       | Percent of       |  |        |     |         |   | Percent of       |       |  |  |    |     | Percent of      
|                             |                                 |   |                                   |       |                                 |  | Software License |     |         |   |        |       | Software License |  |        |     |         |   | Software License |       |  |  |    |     | Software License
|                             |                                 |   | Amount                            |       | Revenue                         |  | Amount           |     | Revenue |   | Amount |       | Revenue          |  | Amount |     | Revenue
|                             |                                 |   |                                   |       |                                 |  |                  |     |         |   |        |       |                  |  |        |     |        
|North America                |                                 | $ | 1,145                             |       |                                 |  | 37               | %   |         | $ | 1,559  |       |                  |  | 48     | %   |         | $ | 2,569            |       |  |  | 30 | %   |                  | $ | 5,845 |        |  |  | 50 | %  
|                            
|PacRim                       |                                 |   | 404                               |       |                                 |  | 13               | %   |         |   | 514    |       |                  |  | 16     | %   |         |   | 1,498            |       |  |  | 18 | %   |                  |   | 1,543 |        |  |  | 13 | %  
|Europe                       |                                 |   | 1,559                             |       |                                 |  | 50               | %   |         |   | 1,158  |       |                  |  | 36     | %   |         |   | 4,390            |       |  |  | 52 | %   |                  |   | 4,294 |        |  |  | 37 | %  
|                             |                                 |   |                                   |       |                                 |  |                  |     |         |   |        |       |                  |  |        |     |         |   |                  |       |  |  |    |     |                  |   |       |        |  |  |    |    
|Total international revenues |                                 |   | 1,963                             |       |                                 |  | 63               | %   |         |   | 1,672  |       |                  |  | 52     | %   |         |   | 5,888            |       |  |  | 70 | %   |                  |   | 5,837 |        |  |  | 50 | %  
|                             |                                 |   |                                   |       |                                 |  |                  |     |         |   |        |       |                  |  |        |     |         |   |                  |       |  |  |    |     |                  |   |       |        |  |  |    |    
|                             | Total software license revenues |   | $                                 | 3,108 |                                 |  |                  | 100 | %       |   | $      | 3,231 |                  |  |        | 100 | %       |   | $                | 8,457 |  |  |    | 100 | %                |   | $     | 11,682 |  |  |    | 100 | %
|                             |                                 |   |                                   |       |                                 |  |                  |     |         |   |        |       |                  |  |        |     |         |   |                  |       |  |  |    |     |                  |   |       |        |  |  |    |    

North America license revenues decreased by $414,000 to $1,145,000 for the
quarter ended September 30, 2003 from $1,559,000 for the quarter ended
September 30, 2002. For the nine months ended September 30, 2003, North America
license revenues decreased by $3,276,000 to $2,569,000 from $5,845,000 for the
nine months ended September 30, 2002. The decreases in North America license
revenues were primarily due to the sale of the CRM Business. International
license revenues increased by $291,000 to $1,963,000 for the quarter ended
September 30, 2003 from $1,672,000 for the quarter ended September 30, 2002.
For the nine months ended September 30, 2003, international license revenues
increased by $51,000 to $5,888,000 compared to $5,837,000 for the nine months
ended September 30, 2002.

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

Professional Services and Maintenance Revenues

The following two tables set forth the professional services and
maintenance revenues generated by North America and international markets:

|                                                          |  |                                   |       |                                 |  |              |     |         |  |        |       |              |  |        |     |         |  |              |        |  |  |  |     |              |  |   |        |  |  |  |     |  
|--------------------------------------------------------- |  | --------------------------------- | ----- | ------------------------------- |  | ------------ | --- | ------- |  | ------ | ----- | ------------ |  | ------ | --- | ------- |  | ------------ | ------ |  |  |  | --- | ------------ |  | - | ------ |  |  |  | --- | -
|                                                          |  | (in thousands except percentages)
|                                                          |  | Three Months Ended September 30,  |       | Nine Months Ended September 30,
|                                                          |  |                                   |       |                                
|                                                          |  | 2003                              |       | 2002                            |  | 2003         |     | 2002   
|                                                          |  |                                   |       |                                 |  |              |     |        
|                                                          |  |                                   |       |                                 |  | Percent of   |     |         |  |        |       | Percent of   |  |        |     |         |  | Percent of   |        |  |  |  |     | Percent of  
|                                                          |  |                                   |       |                                 |  | Professional |     |         |  |        |       | Professional |  |        |     |         |  | Professional |        |  |  |  |     | Professional
|                                                          |  |                                   |       |                                 |  | Service and  |     |         |  |        |       | Service and  |  |        |     |         |  | Service and  |        |  |  |  |     | Service and 
|                                                          |  |                                   |       |                                 |  | Maintenance  |     |         |  |        |       | Maintenance  |  |        |     |         |  | Maintenance  |        |  |  |  |     | Maintenance 
|                                                          |  | Amount                            |       | Revenue                         |  | Amount       |     | Revenue |  | Amount |       | Revenue      |  | Amount |     | Revenue
|                                                          |  |                                   |       |                                 |  |              |     |         |  |        |       |              |  |        |     |        
|North America                                             |  | $                                 | 1,151 |                                 |  |              | 35  | %       |  | $      | 1,858 |              |  |        | 38  | %       |  | $            | 3,616  |  |  |  | 34  | %            |  | $ | 5,748  |  |  |  | 38  | %
|                                                         
|PacRim                                                    |  |                                   | 677   |                                 |  |              | 20  | %       |  |        | 614   |              |  |        | 12  | %       |  |              | 2,015  |  |  |  | 19  | %            |  |   | 1,881  |  |  |  | 12  | %
|Europe                                                    |  |                                   | 1,487 |                                 |  |              | 45  | %       |  |        | 2,479 |              |  |        | 50  | %       |  |              | 5,110  |  |  |  | 48  | %            |  |   | 7,453  |  |  |  | 49  | %
|                                                          |  |                                   |       |                                 |  |              |     |         |  |        |       |              |  |        |     |         |  |              |        |  |  |  |     |              |  |   |        |  |  |  |     |  
|Total international professional services and maintenance |  |                                   | 2,164 |                                 |  |              | 65  | %       |  |        | 3,093 |              |  |        | 62  | %       |  |              | 7,125  |  |  |  | 66  | %            |  |   | 9,334  |  |  |  | 62  | %
|                                                          |  |                                   |       |                                 |  |              |     |         |  |        |       |              |  |        |     |         |  |              |        |  |  |  |     |              |  |   |        |  |  |  |     |  
|Total professional services and maintenance revenues      |  | $                                 | 3,315 |                                 |  |              | 100 | %       |  | $      | 4,951 |              |  |        | 100 | %       |  | $            | 10,741 |  |  |  | 100 | %            |  | $ | 15,082 |  |  |  | 100 | %
|                                                          |  |                                   |       |                                 |  |              |     |         |  |        |       |              |  |        |     |         |  |              |        |  |  |  |     |              |  |   |        |  |  |  |     |  

Professional services and maintenance revenues decreased for the three
months ended September 30, 2003 to $3,315,000, or 52% of total revenue,
compared to $4,951,000, or 61% of total revenues for the three months ended
September 30, 2002. For the nine months ended September 30, 2003 and 2002,
professional services and maintenance revenues were $10,741,000, or 56% of
total revenues, and $15,082,000, or 56% of total revenues, respectively. During
the third quarter of 2003, maintenance revenues decreased $987,000 to
$2,764,000 as compared to $3,751,000 for the three months ended September 30,
2002, and professional services decreased $649,000 to $551,000 as compared to
$1,200,000 for the three months ended September 30, 2002. For the nine months
ended September 30, 2003, maintenance revenues decreased $2,419,000 to
$8,304,000 as compared to $10,723,000 for the same period in 2002.
Professional services decreased $1,922,000 during the

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nine
months ended September 30, 2003 to $2,437,000 as compared to $4,359,000 in the
same period of 2002. The decrease in professional services and maintenance
revenues is primarily due to the sale of the CRM Business. The Company expects
the maintenance revenues as a component of total professional service and
maintenance revenues to continue to increase due to strong customer
maintenance renewal rates and the greater use of authorized Applix partners for
professional services.

North America professional services and maintenance revenues decreased
$707,000 to $1,151,000 for the three months ended September 30, 2003 from
$1,858,000 for the three months ended September 30, 2002. For the nine months
ended September 30, 2003, North America professional services and maintenance
revenues decreased $2,132,000 to $3,616,000 as compared to $5,748,000 for the
same period ended September 30, 2002. International professional services and
maintenance revenues decreased $929,000 to $2,164,000 in the three months ended
September 30, 2003 from $3,093,000 for the three months ended September 30,
2002. For the nine months ended September 30, 2003, international professional
services and maintenance revenues decreased $2,209,000 to $7,125,000 as
compared to $9,334,000 for the nine months ended September 30, 2002. The
decrease in professional services and maintenance revenues in both the North
America and international markets was primarily attributable to the sale of the
CRM Business in the first quarter of 2003.

Cost of Revenues

|                                                       |                               |                       |       |                                    |       |                                 |    |      |    |     |       |       |       |     |    |      |     |     |       |       |        |  |    |    |    |   |       |       |        |   |    |     |    |  
|------------------------------------------------------ | ----------------------------- | --------------------- | ----- | ---------------------------------- | ----- | ------------------------------- | -- | ---- | -- | --- | ----- | ----- | ----- | --- | -- | ---- | --- | --- | ----- | ----- | ------ |  | -- | -- | -- | - | ----- | ----- | ------ | - | -- | --- | -- | -
|                                                       |                               |                       |       | ( in thousands except percentages)
|                                                       |                               |                       |       | Three Months Ended September 30,   |       | Nine Months Ended September 30,
|                                                       |                               |                       |       |                                    |       |                                
|                                                       |                               |                       |       | 2003                               |       | (A)                             |    | 2002 |    | (A) |       | 2003  |       | (A) |    | 2002 |     | (A)
|                                                       |                               |                       |       |                                    |       |                                 |    |      |    |     |       |       |       |     |    |      |     |    
|Cost of software license revenues                      |                               | $                     | 329   |                                    |       |                                 | 11 | %    |    | $   | 502   |       |       |     | 16 | %    |     | $   | 1,161 |       |        |  | 14 | %  |    | $ | 1,275 |       |        |   | 11 | %  
|Cost of professional services and maintenance revenues |                               |                       |       |                                    |       |                                 |    |      |    |     |       |       |       |     |    |      |     |     |       |       |        |  |    |    |    |   |       |       |        |   |    |    
|                                                       | Cost of professional services |                       |       | 517                                |       |                                 |    | 94   | %  |     |       | 1,316 |       |     |    | 110  | %   |     |       | 2,033 |        |  |    | 83 | %  |   |       | 4,438 |        |   |    | 102 | % 
|                                                       | Cost of maintenance revenues  |                       |       | 647                                |       |                                 |    | 23   | %  |     |       | 1,025 |       |     |    | 27   | %   |     |       | 2,056 |        |  |    | 25 | %  |   |       | 3,167 |        |   |    | 30  | % 
|                                                       |                               |                       |       |                                    |       |                                 |    |      |    |     |       |       |       |     |    |      |     |     |       |       |        |  |    |    |    |   |       |       |        |   |    |    
|                                                       |                               |                       | 1,164 |                                    |       |                                 |    |      |    |     | 2,341 |       |       |     |    |      |     |     | 4,089 |       |        |  |    |    |    |   | 7,605 |       |        |   |    |    
|                                                       |                               |                       |       |                                    |       |                                 |    |      |    |     |       |       |       |     |    |      |     |     |       |       |        |  |    |    |    |   |       |       |        |   |    |    
|Total cost of revenues                                 |                               | $                     | 1,493 |                                    |       |                                 |    |      |    | $   | 2,843 |       |       |     |    |      |     | $   | 5,250 |       |        |  |    |    |    | $ | 8,880 |       |        |   |    |    
|                                                       |                               |                       |       |                                    |       |                                 |    |      |    |     |       |       |       |     |    |      |     |     |       |       |        |  |    |    |    |   |       |       |        |   |    |    
|Gross margin                                           |                               |                       |       |                                    |       |                                 |    |      |    |     |       |       |       |     |    |      |     |     |       |       |        |  |    |    |    |   |       |       |        |   |    |    
|                                                       |                               | Software license      |       | $                                  | 2,779 |                                 |    |      | 89 | %   |       | $     | 2,729 |     |    |      | 84  | %   |       | $     | 7,296  |  |    |    | 86 | % |       | $     | 10,407 |   |    |     | 89 | %
|                                                      
|                                                       |                               | Professional services |       |                                    | 34    |                                 |    |      | 6  | %   |       |       | (116  | )   |    |      | -10 | %   |       |       | 404    |  |    |    | 17 | % |       |       | (79    | ) |    |     | -2 | %
|                                                       |                               | Maintenance           |       |                                    | 2,117 |                                 |    |      | 77 | %   |       |       | 2,726 |     |    |      | 73  | %   |       |       | 6,248  |  |    |    | 75 | % |       |       | 7,556  |   |    |     | 70 | %
|                                                       |                               |                       |       |                                    |       |                                 |    |      |    |     |       |       |       |     |    |      |     |     |       |       |        |  |    |    |    |   |       |       |        |   |    |    
|                                                       |                               |                       | 2,151 |                                    |       |                                 |    |      |    |     | 2,610 |       |       |     |    |      |     |     | 6,652 |       |        |  |    |    |    |   | 7,477 |       |        |   |    |    
|                                                       |                               |                       |       |                                    |       |                                 |    |      |    |     |       |       |       |     |    |      |     |     |       |       |        |  |    |    |    |   |       |       |        |   |    |    
|                                                       |                               | Total gross margin    |       | $                                  | 4,930 |                                 |    |      |    |     |       | $     | 5,339 |     |    |      |     |     |       | $     | 13,948 |  |    |    |    |   |       | $     | 17,884 |   |    |     |    |  
|                                                       |                               |                       |       |                                    |       |                                 |    |      |    |     |       |       |       |     |    |      |     |     |       |       |        |  |    |    |    |   |       |       |        |   |    |    

(A) Percentage represents:

(i) cost of software license
revenues as a percentage of software license revenues;
(ii) cost of professional services revenues as a percentage of
professional service revenues;
(iii) cost of maintenance revenues as percentage of maintenance
revenues;
(iv) gross margin as a percentage of total respective revenues.

Cost of Software License Revenue

Cost of software licenses revenues consists primarily of amortization of
capitalized software costs, third-party software royalties, personnel salaries
and benefits, cost of product packaging and documentation materials, and order
fulfillments. Cost of software license revenues was $329,000 for the three
months ended September 30, 2003, compared to $502,000 for the three months
ended September 30, 2002. For nine months ended September 30, 2003 and 2002,
cost of software license revenue was $1,161,000 and $1,275,000, respectively.
Cost
of software license revenues decreased for the three and nine months ended September 30,
2003 compared to September 30, 2002 primarily due to a decrease in the
amortization of capitalized software development costs related to the
Companys new product development and a decrease in third-party
royalties.
As a percentage of software license revenue, cost of software license revenue
decreased to 11% in the three months ended September 30, 2003, compared to 16%
for the same period ended September 30, 2002. For the nine months ended
September 30 2003 and 2002, cost of license revenue as a percentage of software
license revenue was 14% and 11%, respectively.

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Cost of software license as a percentage of license revenue decreased for the three and nine months
ended September 30, 2003 compared to September 30, 2002 was primarily due to the sale of the CRM
Business in the first quarter of 2003.

Cost of Professional Services and Maintenance Revenue

The cost of professional services and maintenance revenues consists
primarily of personnel salaries and benefits, facilities and 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 payments are generally capitalized and amortized over the 12-month
maintenance support period of the underlying contract with the end-user
customer. Cost of professional services and maintenance revenue decreased to
$1,164,000 for the three months ended September 30, 2003 from $2,341,000 for
the three months ended September 30, 2002. Professional services and
maintenance revenue gross margin as a percentage of professional services
revenue improved to 65% for the three months ended September 30, 2003 as
compared to 53% for the three months ended September 30, 2002. For the nine
months ended September 30, 2003, cost of professional services and maintenance
revenues decreased $3,516,000 to $4,089,000 from $7,605,000 in the same period
of 2002. The decrease was primarily due to the sale of the CRM
Business in the first quarter of 2003. During the same nine months period, professional services and
maintenance revenue gross margin as a percentage of professional services
revenue improved to 62% in 2003 as compared to 50% in 2002. The improvement in
professional services and maintenance revenue gross margin is due to higher
consulting utilization and a change in revenue mix from lower margin consulting
revenues to higher margin maintenance revenues.

Operating Expenses

|                                                                    |  |                                    |       |                                 |  |            |    |         |  |      |       |            |  |      |    |         |  |            |        |  |  |  |    |            |  |   |        |  |  |  |    |  
|------------------------------------------------------------------- |  | ---------------------------------- | ----- | ------------------------------- |  | ---------- | -- | ------- |  | ---- | ----- | ---------- |  | ---- | -- | ------- |  | ---------- | ------ |  |  |  | -- | ---------- |  | - | ------ |  |  |  | -- | -
|                                                                    |  | ( in thousands except percentages)
|                                                                    |  | Three Months Ended September 30,   |       | Nine Months Ended September 30,
|                                                                    |  |                                    |       |                                
|                                                                    |  |                                    |       |                                 |  | Percent of |    |         |  |      |       | Percent of |  |      |    |         |  | Percent of |        |  |  |  |    | Percent of
|                                                                    |  | 2003                               |       | Revenue                         |  | 2002       |    | Revenue |  | 2003 |       | Revenue    |  | 2002 |    | Revenue
|                                                                    |  |                                    |       |                                 |  |            |    |         |  |      |       |            |  |      |    |        
|Product development                                                 |  | $                                  | 1,343 |                                 |  |            | 21 | %       |  | $    | 1,615 |            |  |      | 20 | %       |  | $          | 4,233  |  |  |  | 22 | %          |  | $ | 4,060  |  |  |  | 15 | %
|Sales and marketing                                                 |  |                                    | 2,332 |                                 |  |            | 36 | %       |  |      | 3,435 |            |  |      | 42 | %       |  |            | 7,812  |  |  |  | 41 | %          |  |   | 10,411 |  |  |  | 39 | %
|General and administrative                                          |  |                                    | 1,723 |                                 |  |            | 27 | %       |  |      | 1,318 |            |  |      | 16 | %       |  |            | 6,003  |  |  |  | 31 | %          |  |   | 3,836  |  |  |  | 14 | %
|Compensation expenses and amortization
of acquired intangible asset |  |                                    | 63    |                                 |  |            | 1  | %       |  |      | 616   |            |  |      | 8  | %       |  |            | 771    |  |  |  | 4  | %          |  |   | 1,792  |  |  |  | 7  | %
|Restructuring expenses                                              |  |                                    |      |                                 |  |            | 0  | %       |  |      | 398   |            |  |      | 5  | %       |  |            |       |  |  |  | 0  | %          |  |   | 361    |  |  |  | 1  | %
|                                                                    |  |                                    |       |                                 |  |            |    |         |  |      |       |            |  |      |    |         |  |            |        |  |  |  |    |            |  |   |        |  |  |  |    |  
|Total operating expenses                                            |  | $                                  | 5,461 |                                 |  |            | 85 | %       |  | $    | 7,382 |            |  |      | 90 | %       |  | $          | 18,819 |  |  |  | 98 | %          |  | $ | 20,460 |  |  |  | 76 | %
|                                                                    |  |                                    |       |                                 |  |            |    |         |  |      |       |            |  |      |    |         |  |            |        |  |  |  |    |            |  |   |        |  |  |  |    |  

Product Development

Product development expenses include costs associated with the development
of new products, enhancements of existing products and quality assurance
activities, and consist primarily of employee salaries 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. Applix product development utilizes a total quality management
(TQM) 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 $1,343,000 for the three months
ended September 30, 2003 from $1,615,000 for the three months ended September
30, 2002. These expenses represent 21% of total revenue for the three months
ended September 30, 2003 compared to 20% of total revenue for the three months
ended September 30, 2002. For nine months ended September 30, 2003, product
development expenses were $4,233,000, or 22% of total revenues, compared to
$4,060,000, or 15% of total revenues, for the nine months ended September 30,
2002. The increases in product development expenses as a percentage of total
revenues were primarily due to the Company not capitalizing any additional
product development costs related to its software products as no costs met the
criteria for capitalization. This percentage of revenue increase was partially
offset by a reduction in product development salaries and benefits from those employees

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transferred in connection with
the sale of the CRM Business in the first quarter of 2003. The Company did not
capitalize any product development costs for the three and nine months ended
September 30, 2003 compared to $209,000 and $1,417,000, respectively, for the
three and nine months ended September 30, 2002. 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 which includes Applix TM1 Web.

Sales and Marketing

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. Sales and marketing
expenses decreased 32% to $2,332,000 for the three months ended September 30,
2003 from $3,435,000 for the three months ended September 30, 2002. For nine
months ended September 30, 2003 and 2002, sales and marketing expenses were
$7,812,000 and $10,411,000, respectively. The overall decrease in spending was
primarily attributable to the decrease in sales commissions that resulted from
a decrease in the Companys license revenues and a reduction in sales and
marketing salaries, commissions, bonuses and benefits from those employees
transferred in connection with the sale of the CRM Business in the first
quarter of 2003. Sales and marketing expenses decreased as a percentage of
total revenue to 36% for three months ended September 30, 2003 compared to 42%
for the three months ended September 30, 2002. Sales and marketing expenses
increased as a percentage of total revenue to 41% for nine months ended
September 30, 2003 compared to 39% for the nine months ended September 30,
2002. The Company expects to continue to closely monitor discretionary
expenditures and to continue its cost control initiatives.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and
benefits and occupancy costs for administrative, executive and finance,
information technology and human resource personnel. General and administrative
expenses increased $405,000, to $1,723,000, or 27% of total revenue, for the
three months ended September 30, 2003 from $1,318,000, or 16% of total revenue,
for the three months ended September 30, 2002. General and administrative
expenses increased $2,167,000 to $6,003,000, or 31% of total revenue for the
nine months ended September 30, 2003 from $3,836,000, or 14% of the total
revenue, for the nine months ended September 30, 2002. The increase was
primarily due to executive severance costs, stock compensation expenses, costs
associated with the Companys two financial restatements, costs associated with
the related SEC investigation and legal and auditing fees.

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 an acquired intangible
asset, consisting of customer relationships, associated with the acquisition.
Per the terms of the share purchase agreement, total maximum cash consideration
relating to the purchase of Dynamic Decisions was $5,150,000, payable in 10
installments over a maximum of 30 months beginning on July 1, 2001.

Of the 10 installments, two of the installments totaling
$1,267,000 were guaranteed, paid in 2001 and accounted for as purchase price.
The remaining eight installments were contingent upon the employment of the two
key employees, who were former shareholders of Dynamic Decisions, and therefore
were accounted for as compensation expenses within operating expenses. These
eight installments were expensed ratably on a straight-line basis over the key
employees employment period, which commenced on April 1, 2001 and ended on
March 31, 2003. Of these contingent payments, the Company made three cash
payments totaling $1,855,000 in 2003 and four payments totaling $2,153,000 in
2002. As of September 30, 2003, there was one remaining contingent payment
totaling $681,000, which has been accrued and is expected to be paid in the
fourth quarter of 2003.

The amortization expense for the customer relationships associated with
the Dynamic Decisions acquisition was $62,500 for each of the three months
ended September 30, 2003 and 2002, respectively and $187,500 for each of the
nine months ended September 30, 2003 and 2002, respectively.

Restructuring Expense

In 2002, the Company adopted two plans of restructuring aimed at reducing
operating costs company-wide, strengthening the Companys financial positions
and reallocating resources to pursue the Companys future operating strategies.

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In the second quarter of 2002, the Company adopted a plan of restructuring
to reduce operating costs. The plan included the reduction of headcount of five
non-management employees, four sales people and one administrative employee.
The plan also included the closure of two foreign offices. As a result of the
restructuring plan, the Company recorded a charge of $103,000 comprising of
$74,000 for workforce reduction and $29,000 for office closures. The
restructuring charge was fully paid as of December 31, 2002.

In the third quarter of 2002, the Company adopted a plan of restructuring
to further reduce operating costs. The plan included a reduction of headcount
of twenty-one non-management and three management employees, primarily
professional services, sales, marketing, and customer support personnel. The
plan also included the closure of one foreign office. As a result of the
restructuring plan, the Company recorded a charge of $398,000, which is
comprised of $372,000 for workforce reduction, $20,000 related termination
costs, and $6,000 for office closure. During the fourth quarter of 2002, the
Company recorded an adjustment to increase this charge by $20,000. In addition,
the Company adjusted the amounts within workforce, office closures and other
contractual obligations as changes in estimates but did not change the total
amount of the charge except as disclosed. These changes are not significant.
The remaining unpaid balance of $71,000 as of December 31, 2002 was paid in
full during the first quarter of 2003.

Non-Operating Income

|                                         |       |   |                                    |     |                                 |  |            |   |         |   |      |      |            |  |      |   |         |   |            |       |  |  |    |   |            |  |    |    |   |  |   |   | 
|---------------------------------------- | ----- | - | ---------------------------------- | --- | ------------------------------- |  | ---------- | - | ------- | - | ---- | ---- | ---------- |  | ---- | - | ------- | - | ---------- | ----- |  |  | -- | - | ---------- |  | -- | -- | - |  | - | - | 
|                                         |       |   | ( in thousands except percentages)
|                                         |       |   | Three Months Ended September 30,   |     | Nine Months Ended September 30,
|                                         |       |   |                                    |     |                                
|                                         |       |   |                                    |     |                                 |  | Percent of |   |         |   |      |      | Percent of |  |      |   |         |   | Percent of |       |  |  |    |   | Percent of
|                                         |       |   | 2003                               |     | Revenue                         |  | 2002       |   | Revenue |   | 2003 |      | Revenue    |  | 2002 |   | Revenue
|                                         |       |   |                                    |     |                                 |  |            |   |         |   |      |      |            |  |      |   |        
|Net gain (loss) from sale of subsidiary  |       | $ | (144                               | )   |                                 |  | -2         | % |         |   |     |      |            |  | 0    | % |         | $ | (164       | )     |  |  | -1 | % |            |  |   |    |   |  | 0 | %
|Interest and other income (expense), net |       |   | 85                                 |     |                                 |  | 1          | % |         | $ | (126 | )    |            |  | -2   | % |         |   | 710        |       |  |  | 4  | % |            |  | (9 | )  |   |  | 0 | %
|Net
gain from sale of CRM business       |       |   | (12                                | )   |                                 |  | 0          | % |         |   |     |      |            |  |     |   |         |   | 7,910      |       |  |  | 41 | % |            |  |   |    |   |  |  |  
|                                         |       |   |                                    |     |                                 |  |            |   |         |   |      |      |            |  |      |   |         |   |            |       |  |  |    |   |            |  |    |    |   |  |   |  
|                                         | Total |   | $                                  | (71 | )                               |  |            |   |         |   | $    | (126 | )          |  |      |   |         |   | $          | 8,456 |  |  |    |   |            |  | $  | (9 | ) |  |   |   | 
|                                         |       |   |                                    |     |                                 |  |            |   |         |   |      |      |            |  |      |   |         |   |            |       |  |  |    |   |            |  |    |    |   |  |   |  

Net Gain (Loss) from Sale of Subsidiary

In December 2002, the Company sold the stock of its Dutch subsidiary, a
remote sale office, for $362,000 and recorded a net gain of $141,000 on
December 31, 2002. During the third quarter of 2003, the Company recorded an
adjustment to eliminate the gain on the sale of its Dutch subsidiary.

Interest and Other Income
(Expense), Net

Interest and other income increased to $85,000 for the three months ended
September 30, 2003, compared to interest and other expense of $126,000 for the
three months ended September 30, 2002. For nine months ended September 30,
2003, interest and other income increased to $710,000 as compared to interest
and other expense of $9,000 for the same period ended September 30, 2002. The
increase is primarily attributable to foreign currency fluctuations on
intercompany balances denominated in the Companys foreign subsidiaries local
currency (British pound, Euro, Swiss Franc and Australia dollar), a decrease in
deferred financing costs relating to the Companys credit facilities, and an
increase in interest income from an increase in the average cash and cash
equivalent balance due to the funds received from the sale of the CRM Business.

Net Gain from Sale of CRM
Business

In the first quarter of 2003, the Company completed the sale of certain of
its assets relating to its customer relationship management software solutions
(the CRM Business) to iET Acquisition, LLC
(iET), an a wholly-owned subsidiary
of Platinum Equity Holdings, LLC for $5,750,000 in cash consideration, of which
$225,000 was paid back and an additional $262,000 was accrued for as
of September 30, 2003, which will be paid back to iET for
net working capital adjustments. The sale excluded approximately $2,800,000 in
net accounts receivable generated from the sale of CRM products and services.

The Company has recorded a net gain before tax of $7,910,000, which
includes net cash consideration of $5,525,000 and $3,552,000 of net liabilities
assumed by iET less transaction costs of $1,167,000. The purchase price is
subject to certain post closing

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adjustments relating to the net working capital as set forth in the Asset
Purchase Agreement between the Company and iET, dated January 21, 2003.

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 closing of
the sale of certain of the assets of the Companys Germany subsidiary, Applix
GmbH. During the period between the initial closing and completion of the
Companys Germany subsidiary closing, Applix GmbH continued to resell the CRM
software products and to provide professional services and maintenance support
under a resellers agreement between the Company and iET. CRM related license
and professional services and maintenance revenues were $0 and $3,040,000, for
the three months ended September 30, 2003 and 2002, respectively, and
$1,252,000 and $11,661,000, for the nine months ended September 30, 2003 and
2002, respectively.

(Benefit from) 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. The
Company recorded no provision for income taxes for the three months ended
September 30, 2003 as compared to an income tax benefit of $49,000 for the
three months ended September 30, 2002. For the nine months ended September 30,
2003 and 2002, provisions for income taxes were $764,000 and $111,000,
respectively. Additionally, the provision for income taxes for the nine months
ended September 30, 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 it liquidity and capital resources primarily from the
Companys cash flow from operations and from working capital. The Companys
cash and cash equivalent balance were $9,903,000 and $9,322,000 as of September
30, 2003 and December 31, 2002, respectively, which includes restricted cash of
$933,000. The Companys days sales outstanding (DSO) in accounts receivable
was 48 days as of September 30, 2003, compared with 53 days as of December 31,
2002. The Company has a non-recourse accounts receivable purchase arrangement
with a certain bank, which allows the Company from time to time to sell
qualifying accounts receivable to the bank, in an aggregate amount of up to $2
million, at a purchase price equal to the balance of the accounts less a
discount rate and a fee. The Company did not factor any accounts receivable to
the bank for the three and nine months ended September 30, 2003, compared to
$905,000 on or about December 31, 2002.

In connection with the Companys sale of its CRM Business to iET in the
first quarter of 2003, the Asset Purchase Agreement allows for post-closing
adjustments to be made based upon finalization of the net working capital as
defined by the Agreement. The Company has already paid back $225,000 of the
cash consideration received from iET and an additional $262,000 is expected to
be paid back in the fourth quarter of 2003.

The Company does not have any off-balance-sheet arrangements with
unconsolidated entities or related parties, and as such, the Companys
liquidity and capital resources are not subject to off-balance-sheet risks from
unconsolidated entities.

Cash used in the Companys operating activities was $4,586,000 for the
nine months ended September 30, 2003 compared to cash used in operating
activities of $202,000 for the same period in the prior year. The net income of
$2,659,000 for the nine months ended September 30, 2003 was primarily due to
the net gain of $7,910,000 generated from the sale of the CRM Business and was
partially offset by the decrease in operating assets of $1,944,000 and the
decrease in operating liabilities of $2,882,000.

Cash provided by investing activities totaled $5,377,000 for the nine
months ended September 30, 2003 compared to cash used in investing activities
of $1,802,000 for the same period ended September 30, 2002. The increase in
cash provided in investing activities is primarily a result of the net cash
proceeds of $5,525,000 from the sale of the CRM Business.

Cash provided by financing activities totaled $456,000 for the nine months
ended September 30, 2003, which consisted of proceeds of $693,000 from the
issuance of stock under stock plans, offset by net payments of $237,000 owed to
a certain bank from amounts outstanding at December 31, 2002 related to the
accounts receivable factoring arrangement. This compares to total cash used in
financing activities of $22,000 for the nine months ended September 30, 2002.

Cash paid for income tax by the Company of $509,000 and $0 for the nine
months ended September 30, 2003 and 2002, respectively was primarily due to
foreign taxes paid by the Companys foreign subsidiaries.

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In connection with the Companys acquisition of Dynamic Decisions, the
Company expects to pay out one remaining contingent payment totaling $681,000,
which has been accrued and is expected to be paid in the fourth quarter of
2003.

As of September 30, 2003, the Company had future cash commitments for the
payments pertaining to its obligation under its non-cancelable leases. The
Companys future minimum lease payments for its operating lease payments for
its office facilities and certain equipment are:

|                             |  |                  |        | 
|---------------------------- |  | ---------------- | ------ | 
|                             |  | Operating leases
|                             |  |                 
|                             |  | (in thousands)  
|2003                         |  | $                | 531    | 
|2004                         |  |                  | 2,017  | 
|2005                         |  |                  | 1,907  | 
|2006                         |  |                  | 1,868  | 
|2007                         |  |                  | 1,855  | 
|2008 and after               |  |                  | 10,010 | 
|                             |  |                  |        | 
|Total minimum lease payments |  | $                | 18,188 | 
|                             |  |                  |        | 

The Company is currently evaluating its space needs on a company-wide
basis and expects to attempt to sublease space at its headquarters. In the
event that space is sublet and not used by the Company, dependent on market
rates at the time, the Company could incur a loss. If all space the Company
hopes to sublease was vacated and subleased, the Company could incur a loss of
$1,900,000, which is based upon the aggregate difference over the remaining ten
and a quarter years term between the Companys committed lease rate and the
estimated market rates at September 30, 2003 of a prospective sublease
arrangement, utilizing a discount rate of 8.5% which the Company determined to
be its estimated incremental borrowing rate. In the event that market rates
change or other events occur relating to the Companys evaluation of its
options regarding its lease arrangement, the loss could be materially
different. The Company currently has full access to all its leased facilities
and has not recorded any charges related to potential lease abandonment. Such
charges will only be recorded when the Company commits to actions which will
result in vacating space.

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

The Company has incurred losses for the last several years. As of
September 30, 2003, the Company had an accumulated deficit of $43 million.
Operating losses and negative cash flows may continue because of costs and
expenses relating to brand development, marketing and other promotional
activities, continued development of the Companys information technology
infrastructure, expansion of product offerings and development of relationships
with other businesses. Managements plans include increasing revenue and
generating positive cash flows from operations. The Company currently expects
that the principal sources of funding for its operating expenses, capital
expenditures and other liquidity needs will be a combination of its available
cash balances, funds generated from operations and its available
non-recourse accounts receivable purchase arrangement with a certain bank. The Company believes that
its currently available sources of funds will be sufficient to fund its
operations for at least the next 12 months. However, there are a number of
factors that may negatively impact the Companys available sources of funds.
The amount of cash generated from operations will be dependent upon such
factors as the successful execution of the Companys business plan, the
successful market acceptance of Applix products and worldwide economic
conditions. Should the Company not meet its plans to generate sufficient
revenue or positive cash flows, it may need to raise additional capital or
reduce spending. Failure to do so could have an adverse effect on the Companys
ability to continue as a going concern.

FACTORS THAT MAY AFFECT FUTURE RESULTS

OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY SIGNIFICANT FLUCTUATIONS IN
OUR QUARTERLY RESULTS.

We expect to experience significant fluctuations in our future results of
operations due to a variety of factors, many of which are outside of our
control, including:



| |  |  | demand for and market acceptance of our products and services;
| | - |  | --------------------------------------------------------------

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| |  |  | 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 and our sales organization and our individual sales
representatives strive to meet quarterly sales targets. As a result, any delay
in anticipated sales is likely to result in the deferral of the associated
revenue beyond the end of a particular quarter, which would have a significant
effect on our operating results for that quarter. In addition, most of our
operating expenses do not vary directly with net sales and are difficult to
adjust in the short term. As a result, if net sales for a particular quarter
were below expectations, we could not proportionately reduce operating expenses
for that quarter, and, therefore, that revenue shortfall would have a
disproportionate adverse effect on our operating results for that quarter. If
our operating results are below the expectations of public market analysts and
investors, the price of our common stock may fall significantly.

OUR FUTURE SUCCESS IS DEPENDENT IN LARGE PART ON THE SUCCESS OF OUR
CURRENT PRODUCTS.

In the first quarter of 2003 we sold our CRM Business, which represented
42% of our total revenue in 2002. 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 have incurred losses from continuing operations for the last several
years. Operating losses and negative cash flows may continue because of costs
and expenses relating to brand development, marketing and other promotional
activities, continued development of our information technology infrastructure,
expansion of product offerings and development of relationships with other
businesses. Although we made progress in the first nine months of 2003 towards
achieving profitability, there can be no assurance that we will achieve a
profitable level of operations in the future.

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

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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.

We rely heavily on key personnel throughout the organization. During the
first half of 2003, we engaged a new President and Chief Executive Officer,
David Mahoney, and a new Chief Financial Officer, Milton A. Alpern. The
transition of these positions may result in the distraction of management and a
delay in our ability to execute our business strategies. The loss of any of our
members of management, or any of our staff of sales and development
professionals, could prevent us from successfully executing our business
strategies. Any such loss of technical knowledge and industry expertise could
negatively impact our success. Moreover, the loss of any critical employees or
a group thereof, particularly to a competing organization, could cause us to
lose market share, and the Applix brand could be diminished.

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

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



| |  |  | we may have difficulty managing and administering a globally-dispersed business;
| | - |  | --------------------------------------------------------------------------------
|
| |  |  | fluctuations in exchange rates may negatively affect our operating results;     

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| |  |  | 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 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 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.

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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.




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 primary foreign currency
exposures relate to its short-term intercompany balances with its 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. Relative to foreign currency exposures existing at
September 30, 2003, a 10% unfavorable movement in foreign exchange rates
related to the Euro, Australian dollar, Swiss franc and British pound would
result in approximately a $609,000 loss to earnings.




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 September 30, 2003. Based on this evaluation, the Companys chief
executive officer and chief financial officer concluded that, as of September
30, 2003, 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.

In early 2003, the Company discovered that it had improperly accounted for
revenue under two customer contracts, and the Company restated certain of its
historical financial statements to correct this improper accounting. The
Company learned in May 2003 that it had been incorrectly accounting for
contingent consideration payments relating to an acquisition made by the
Company in 2001, and the Company restated certain of its historical financial
statements to correct this improper accounting. In response to both (1) its
discovery of these accounting errors and (2) communications during 2003 from
Ernst & Young LLP, which was then serving as the Companys independent
accountants, concerning internal control issues identified by Ernst & Young,
the Company began implementing improvements to its internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) in February 2003. The implementation of these improvements was an
ongoing process that continued through August

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2003. These improvements to the Companys internal control over financial
reporting consisted of the implementation of the following policies:



| |  |  | All revenue contracts in excess of $100,000 are reviewed by and
signed by the Chief Financial Officer. Preceding the signing of these
agreements, the Chief Financial Officer reviews all significant
components of the contract and the contract terms and conditions with
the Companys Director of Operations whose responsibilities include
contract negotiations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In the event that any contract terms and arrangements are
negotiated by the Chief Financial Officer, the contract is reviewed
and signed by the Companys Chief Executive Officer.                                                                                                                                                                                    
|
| |  |  | The Companys Chief Financial Officer reviews and approves all
contract summaries, and consults the Companys independent accountants
when appropriate, to ensure the appropriate accounting conclusions are
made.                                                                                                                                                    

Except as described above, no change in the Companys internal control
over financial reporting occurred during the fiscal quarter ended September 30,
2003 that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.




PART II. OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

|        |  |                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                  
|Number  |  | Description                                                                                                                                      
|        |  |                                                                                                                                                  
|31.1    |  | Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of
1934, as amended            
|        |  |                                                                                                                                                  
|31.2    |  | Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of
1934, as amended            
|        |  |                                                                                                                                                  
|32.1    |  | Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|        |  |                                                                                                                                                  
|32.2    |  | Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K



| | 1. |  | On July 11, 2003, the Company filed Amendment No. 2 to Current Report
on Form 8-K/A dated January 21, 2003 under Item 7, Financial
Statements, Pro Forma Financial Information and Exhibits, relating to
the restatement of pro forma financial information that was filed in
connection with the sale of the Companys CRM Business.
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | On July 22, 2003, the Company filed Current Report on Form 8-K dated
July 22, 2003 under Item 9, Regulation FD Disclosure (Information
furnished pursuant to Item 12, Disclosure of Results of Operations and
Financial Condition), to furnish a press release relating to the
Companys second quarter financial results.         
|
| | 3. |  | On July 28, 2003, the Company filed Amendment No. 1 to Current Report
on Form 8-K/A dated July 22, 2003 under Item 9, Regulation FD
Disclosure (Information furnished pursuant to Item 12, Disclosure of
Results of Operations and Financial                                                                                        

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| |    |  | Condition), to correct an error on the version of the previously
furnished press release relating to the Companys second quarter financial
results.                                                                       
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 4. |  | On September 22, 2003, the Company filed a Current Report on Form 8-K
dated September 15, 2003 under Item 4, Changes in Registrants
Certifying Accountant, relating to the Companys change in its certifying
accountant.

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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:
November 12, 2003 |  | /s/ Milton A. Alpern                                              
|                        |  |                                                                   
|                        |  | Milton A. Alpern                                                  
|                        |  | Chief Financial Officer and Treasurer (Duly Authorized Officer and
|                        |  | Principal Financial
and Accounting Officer)                       

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EXHIBIT INDEX

|        |  |                                                                                                                                                  
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                  
|Number  |  | Description                                                                                                                                      
|        |  |                                                                                                                                                  
|31.1    |  | Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of
1934, as amended            
|        |  |                                                                                                                                                  
|31.2    |  | Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of
1934, as amended            
|        |  |                                                                                                                                                  
|32.1    |  | Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|        |  |                                                                                                                                                  
|32.2    |  | Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002

37