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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

For Annual and Transitional Reports Pursuant to Sections 13 or 15(d) of The Securities
Exchange Act of 1934

Commission File No. 0-25040

APPLIX, INC.
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (508) 870-0300

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.0025 par value per share

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S- K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

     On March 19, 2002, the aggregate market value of Common Stock held by non-affiliates of the registrant was $25,354,992 based on the closing price of the Common Stock on the Nasdaq National Market on March 19, 2002.

     The number of shares of Common Stock outstanding as of March 19, 2002 was 12,189,900.

Documents Incorporated By Reference

Table of Contents

APPLIX, INC.

FORM 10-K

TABLE OF CONTENTS

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

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

PART I

Item 1. Business

General

     Applix is a global provider of enterprise performance management solutions that include interactive planning, customer relationship management (CRM) and analytics and business intelligence solutions that enable companies to achieve better, faster decision-making. Applix solutions capture information from across the extended enterprise and enable continual marketplace responsiveness. Adaptable, scalable and real-time, Applix solutions support unique, complex and disparate business processes, providing analysis, planning, measurement and response to changing customer requirements and business dynamics. Headquartered in Westborough, MA, Applix has more than 2,600 customers worldwide, including many of the Fortune 500.

     Applix’s award-winning “Applix iCRM” and “Applix iTM1” solution sets are designed to easily accommodate even the most unique business processes of companies. In 2001, Applix was honored with several prestigious awards for its leading-edge technology, including Global Finance’s Top Internet Infrastructure Award, ISM’s Top (CRM) Software Solution, Cebit’s Top CRM Solution in the Wireless Category, the eWeek Excellence Award, and the Aberdeen Group’s Top Ten CRM Implementation award. Applix is one of the world’s only single-source providers of iCRM, customer analytics and business planning software and solutions.

Industry Background

     The harsh economy in 2001, and the impact from global events in the second half of the year, forced companies to adopt rigorous methods for assessing the impact that any future investments would have on their business. With limited resources, many companies were pressed to make difficult decisions as to those areas of their business in which investment spending should be increased and those in which it should be decreased, sometimes requiring a complete redesign of the business model. It is not sufficient to simply gather data at the departmental level; businesses need to gather, integrate, measure and analyze enterprise-wide data, especially key performance indicators. At the end of the day – or the year – it is becoming increasingly critical to establish closer ties between departmental and enterprise level processes and data.

     In the key markets Applix serves, companies continue to implement a variety of customer and employee-facing systems that capture, aggregate, and, equally importantly, report and analyze data from all potential “touch points,” including websites, call centers and mobile devices. By properly analyzing all of this data, companies can be proactive in assessing changing needs and addressing them with an eye towards profitability. In January 2002, Information Week reported that the two most important “business intelligence” (BI) applications today are financial analysis, at 38% of total BI applications and CRM analytics, which represents 35% of total BI applications. Growth is predicted to be especially strong in business analytics: Datamonitor expects the business intelligence market to double from the estimated 2002 level of $3 billion to $6 billion in 2004. Further, Gartner, Inc. estimates that more than 40% of Global 2000 enterprises will have implemented a corporate performance management (CPM) system by 2005. This strong projected growth rate validates Applix’s conviction that in today’s competitive corporate marketplace, companies can no longer succeed by solely automating their day-to-day transactions. As importantly, companies must also aggregate, analyze, react to key metrics such as customer retention and product profitability, and fine-tune their business processes accordingly.

     Applix is well positioned to deliver enterprise performance management solutions, as evidenced by the numerous awards won last year and the growing number of customers who have selected Applix software solutions to maximize business performance.

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Applix Solutions

     Applix’s business solutions are based on two solution sets, Applix iTM1 and Applix iCRM.

     Applix iTM1 and Applix iCRM are solution sets that can function independently and together. They allow customers to build CRM or multidimensional “On-Line Analytical Processing” (OLAP) solutions.

     In December 2001, Applix announced the combination of iCRM and iTM1 as a new integrated product, which will provide enterprise-wide workflow within an enabled business planning solution. Applix Integra combines the strengths of Applix's two product lines and provides the analytics solutions for both the back- and front-office. In fact, Applix believes it will be one of the first single-source vendors of an iCRM solution and an OLAP solution, and the first to develop customer analytics solutions that rely on a formal integration between two such solution sets.

     Applix’s analytics solutions enable companies to turn from reactive to predictive when interacting with their customers and prospective customers. Applix enables companies with even the most commoditized products to reduce their customer defection rates, and create greater customer loyalty, all by delivering the high degree of service that more and more customers are beginning to expect.

     Applix iCRM and Applix iTM1 owe their adaptability to the robust “Applix iEnterprise” and “Applix iTM1” technology platforms that power them. Applix continues to enhance these platforms and the integration between them, in order to continue providing software that best supports companies’ unique, competitive business processes.

Applix Integra

     The recently announced Applix Integra integrates the planning, analytics, business workflow, collaboration, exception alerting and forecasting functions of the Applix iTM1 and Applix iCRM solutions. Development efforts during the year are expected to result in commercial availability of Applix Integra in 2002. Applix Integra will provide customers with immediate visibility into their operational and financial data, in a single view, enabling the decision makers to take advantage of unforeseen opportunities and quickly stabilize fluctuations that threaten financial targets. Applix Integra will integrate disparate data from multiple applications in real time and seamlessly – and provide a clear picture of the status of the company’s operations. Decision makers will be able to foresee trends, respond quickly to changing customer needs, detect deviating business indicators and alert managers with actionable analytics, collaboratively manage the budget process and optimize service delivery a host of high-level capabilities previously unavailable in real time. In addition to the benefit of real-time, enterprise-spanning intelligence, Applix Integra also means lower cost of ownership for the business with an adaptable, upgradeable, low-support system and a proven technology with proven results.

Planned components of Applix Integra include:

	•		Real-time planning and analytics. With these capabilities, businesses can not only view the current situation at an enterprise level, but can perform what-if analyses against the data and receive the answers in real time, without having to wait for lengthy, back-office batch processes to answer hours or even days later.
	•		Dynamic business workflow. This enables a business to map its processes with Applix Integra’s escalation, notification, detection, and workflow capabilities. Easy-to-use “wizards” conform to complex business rules so that users can stay ahead of opportunities and issues.
	•		Complex business modeling. Applix Integra’s unique architecture of multi-cubes, rules, a real-time engine, and workflow allow a business to manage its complex business models.
	•		Actionable alerts. Timely alerts generated from a company’s analyses and business processes enable it to be proactive to its business environment.
	•		Integrated application and deployment platform. Blending the best of Applix iEnterprise and Applix iTM1 platforms means that a business can easily develop and deploy Applix Integra solutions. Using the Development Studio, a company can develop complex solutions with simple drag-and-drop objects.

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Applix iTM1 Solution

     Applix iTM1 enables budgeting/financial planning, business forecasting and management reporting solutions to be developed for the entire enterprise. Its unique real-time approach to consolidating, viewing and even editing vast volumes of multidimensional data is an undisputable differentiator in the OLAP market. With over 30,000 users in over 70% of the Fortune-50 companies and over 50% of the Fortune-500 companies, Applix iTM1 has been one of the leading multi-dimensional databases for highly complex business and financial analytical applications for over fifteen years.

     Applix iTM1 solutions expand the scope of business planning processes to continuously support changing customer demands, operational requirements, and evolving eBusiness models in the new economy. It also allows for the quick and effortless integration of information from CRM, enterprise resource planning (ERP), financial systems, human resources, and other “legacy” databases in order to allow a business to run according to supply resources and customer demand. Using Applix iTM1, the back office and the front office staff can work together seamlessly to manage the demand chain on a real-time basis.

     Applix iTM1 allows business users to access their critical data via a desktop browser, Microsoft Excel or the Web. With its powerful client-server database engine and an elegant, easy-to-use interface, users are able to spend more time analyzing information and less time maintaining data.

     The Applix iTM1 approach provides the following benefits:

	•		Instantaneous response times: Because of Applix iTM1’s ability to quickly load vast data sets into memory, it avoids other products’ drawbacks that result from having to pre-calculate all consolidations and derived values before anyone can view them.
	•		Real-time what-if analyses: Because of Applix iTM1’s memory-based approach, users can instantly view the results of any what-if analyses and updates they perform to ad hoc analyses of vast data sets.
	•		Scalability: Applix iTM1’s 64-bit capability, combined with its ability to support multiple servers, multiple cubes, multi-threaded processing and multi-user data updating, make it a logical choice for large-scale operations.
	•		Efficient use of system resources: Because Applix iTM1 never resorts to pre-calculating customers’ data, it requires much less hardware and processing power than other products, which suffer from a common “data explosion” predicament.
	•		Rapid deployment: Applix iTM1 typically builds complete applications for customers in a fraction of the time required by competing products.

Applix iCRM

     Applix iCRM is a suite of collaborative, Internet-based CRM solutions that streamline companies’ methods for capturing, accessing and interpreting customer data and responding to their needs from every corner of their multi-channel enterprises. The suite of software automates Web-based marketing, sales, customer service, partner service, product quality assurance and internal helpdesks. With Applix iCRM, companies can operate their entire enterprise system from a central site, enabling users anywhere in a global organization to quickly and easily access and analyze corporate information.

     The Applix iCRM solution set consists of the following application modules, which are available as a fully integrated iCRM solution or on a stand-alone basis:

     Applix iSales is a comprehensive marketing and sales force automation solution that manages every phase of the sales cycle, from initial lead generation and qualification to closure, fulfillment and follow-on sales. Telemarketers, inside and outside sales representatives and managers can optimize campaigns, lead tracking, forecasting, quote generation and account management. Sales methodologies and other pre-defined application components can be adapted to suit specific needs. Applix iSales supports wireless communication, such as Web-enabled phones and personal data assistants (PDAs), so a company’s sales force can access important customer and prospect information when and where they need it.

     Applix iService is a customer service and customer support module for managing existing customers and partners and their service level agreements (SLAs). iCRM allows iService personnel to provide customer-facing services through a variety of mediums including call centers, the Web, e-mail, fax and wireless mobile links. Applix iService maintains information about customer calls, resolutions, escalation status, and notifications; provides customer feedback on product performance, function and features directly to an organization’s product development and quality assurance departments; and displays customer history so customer service representatives are always informed and ready to answer questions. Applix iService also provides Web-based self-service features that allow customers of a global organization to report problems, receive their resolutions and help themselves to a variety of knowledge bases that assist them in solving problems.

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     Applix iHelpdesk is an enterprise-wide incident management system for internal information technology (IT) support groups. Applix iHelpdesk helps manage customer problems from initial login through resource allocation, escalation, modification and resolution. With powerful features that streamline call management, problem diagnostics, caller profile management and even caller training, Applix iHelpdesk provides the tools to be responsive to customer and internal staff request. iHelpDesk features include automated load balancing and on-demand graphic and text-based reporting, combined with integration to industry-leading network management and asset management products. Like Applix iService, Applix iHelpDesk enables an organization to collect problems and access solutions, and it also provides feedback on product performance, function and features directly to an organization’s product development and quality assurance departments.

     The Applix iCRM approach provides the following benefits:

	•		Integration of complex dependencies: All Applix iCRM applications share a common data source, which ensures the consistency and integrity of a company’s data across all work groups. The interconnectedness of multiple departments is further facilitated by Applix iCRM’s rich library of configurable business rules that easily accommodate the way people want to share data and communicate with one another throughout all corners of an extended enterprise.
	•		Rapid adaptation: The Developer’s Studio provides a self-sufficient, intuitive environment for building, adapting and viewing all aspects of an iCRM implementation. Customers can accommodate all of their unique business processes without resorting to external, disconnected programming efforts.
	•		Rapid deployment: Applix iCRM’s rapid customization translates to rapid deployment. Further, its thin-client architecture allows thousands of users to run Applix iCRM applications on their Web browsers without ever installing any software on their desktop machines, thereby minimizing installation and maintenance chores throughout an enterprise.
	•		Low total cost of ownership (TCO): All of the above benefits, combined with the scalability of Web-based applications, provide an impressively low total cost of ownership.

Technology Platforms

     All of Applix’s software solutions are based on the Applix iEnterprise and Applix iTM1 technology platforms.

     Applix products owe their adaptability to the robust Applix technology platforms that power them. The platforms provide a multi-tier, highly scalable architecture featuring an XML-compliant “Developer’s Studio” development environment, a central data schema, a wizard-driven business rule generator, and other tools that drive application development.

     Applix iTM1 solutions utilize the Applix iTM1 OLAP technology, which includes 64-bit technology to analyze some of the biggest volumes of multi-dimensional data in the industry. Applix iTM1 provides a multi-tier, highly scalable engine whose efficient, in-memory methods for building multidimensional cubes and calculating their values, are fully leveraged by Applix iTM1 software solutions. Its flexible, scalable products – designed to adapt to companies’ unique and competitive business processes – provide analysis, planning, measurement and response to changing customer requirements and business dynamics, all in real time.

     By integrating Applix iCRM solutions with a solid, full-featured technology platform, Applix is able to provide straightforward methods for adapting its software to customers’ needs, rather than forcing customers to compromise their business processes by adapting to the software.

Marketing And Sales

     The Company focuses its Applix Integra, Applix iTM1, and Applix iCRM marketing efforts on Global-2000 companies committed to customer service and enhancing customer relations. The Company has focused its marketing efforts for its Applix iCRM products on the following four industry sectors: financial services, telecommunications, healthcare, and retail banking. For Applix iTM1, the Company markets to enterprises seeking applications in budgeting, forecasting, and operational planning. The Company feels that these industry sectors are, and will continue to be, some of the fastest growing sectors for its products. A key part of the Company’s marketing strategy is an emphasis on its single-sourced solution, its internet-architected product capabilities, its rapid deployment and lower total cost of ownership for customers.

     The Company strongly believes that its hybrid sales and marketing strategy, utilizing both a direct sales force and strategic resellers, is an important part of the Company’s future success. The Company plans on continuing to establish strategic marketing relationships with leading hardware and software vendors and systems integrators within targeted industry sectors. This is expected to support the Company in penetrating both new accounts within its existing markets and also entirely new market segments.

     Applix’s Integra, Applix iTM1, and Applix iCRM solutions are sold through a direct sales force and a network of value added resellers (VARs) and original equipment manufacturers (OEMs). The Company’s sales teams operate out of the Company’s offices in major metropolitan cities in the U.S. as well as its offices in the United Kingdom, Germany, Canada, The Netherlands, Japan, Singapore and Australia. These direct selling efforts are supplemented both domestically and abroad with support from strategic marketing partners. While the sales cycle for Applix products varies substantially from customer to customer, it traditionally requires three to six months.

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Customer Training, Support, and Consulting Services

     The Company believes that its superior consulting services and customer support are a critical part of the Company’s sales and marketing efforts. Many of the Company’s customers use the Company’s products to develop and support “mission critical” applications, and the Company therefore recognizes that quality training, support and consulting services are especially important to its customers.

     The Company’s in-house consultants assist in the sales process by working directly with potential customers, educating them as to the benefits of the Company’s products. In support of customers’ rapid implementation success, the Company utilizes a structured implementation methodology called “Rapid Results”. This program ensures that CRM and analytics implementations are completed on time, on budget, and meet business requirements by following four highly defined steps. In addition, the Company’s consultants work directly with customer personnel in both information technology departments and in the functional areas relevant to the application, to assist them in the planning and deploying of Applix solutions.

     Customers may elect to purchase a maintenance support plan for an annual fee that is generally 18% of the license fee for covered products. Included in the maintenance support plans are product upgrades and interim fixes to reported problems. Maintenance support plan revenues accounted for approximately 59% of the Company’s professional services and maintenance revenue from continuing operations in 2001, compared to approximately 49% of professional services and maintenance revenue from continuing operations in 2000.

Product Development

     The Company believes strongly that the path to success is predicated upon constantly being at the forefront of technology and product innovation. With a strong commitment to the future, Applix has continued its long history of investing in product research and development. In 2001, Applix invested approximately $7.7 million, or 19% of total revenues, on product research and development (including capitalized software development costs).

     The Company’s product development team includes resources in the United States and Europe.

     With the integration of the Company’s technology platforms, the Applix Integra product development has resulted in a consolidation of resources, resulting in reduced costs while maintaining, or increasing, product development productivity.

Competition

     The Company believes that it competes principally on the basis of product features and functionality (including cross-platform availability, interoperability, integration and extensibility), reliability, ease of use, supportability, and total costs of ownership (initial investment and on-going operating costs of the solution).

     The markets for the Company’s products are highly competitive and subject to rapid change. The CRM market, a very broadly defined market, is in great flux due to mergers and acquisitions that are expected to continue redefining the market as ERP and telephony vendors encroach on this space.

     Software vendors are under increasing pressure to provide solutions that are easy to map to customers’ rapidly evolving business models and that integrate with other solutions. Customers have become more methodical in their methods of evaluating vendors’ solutions, and they often require that vendors substantiate their claims with case studies that demonstrate compelling return on investment benefits.

     In the CRM market, and to a lesser degree in the business intelligence market, many of the Company’s competitors have significantly greater financial, technological, and marketing resources than the Company. No assurance can be given that the Company will be able to compete successfully against current and future competition or that the competitive pressures faced by the Company will not adversely affect its financial performance.

Proprietary Rights

     Applix relies primarily on a combination of copyright law and trade secret law to protect its proprietary technology. The Company has internal policies and systems to ensure limited access to, and the confidential treatment of, its trade secrets. The Company generally distributes its products under “shrink-wrap” software license agreements, which contain various provisions to protect the Company’s ownership and confidentiality of the underlying technology. The Company also requires its employees and other parties with access to confidential information to execute agreements prohibiting the unauthorized use or disclosure of the Company’s technology. Despite these precautions, it may be possible for a third party to misappropriate the Company’s technology or to independently develop similar technology. In addition, effective copyright and trade secret protection may not be available in every foreign country in which the Company’s products are distributed, and “shrink-wrap” licenses, which are not signed by the customer, may be unenforceable in certain jurisdictions.

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     Certain technologies used in or added onto the Company’s products are licensed from third parties. The Company generally pays royalties on such technologies on a percentage of revenue basis (the amount of which is not material to the Company). Applix believes that if the license for any such third-party technology were terminated, it would be able to develop such technology internally or license equivalent technology from another vendor without significant expense. If the Company’s right to distribute such third-party products were terminated, sales of the Company’s products could be adversely affected.

     The Company believes that, due to the rapid pace of technological innovation for software applications, the Company’s ability to establish and maintain a position of technology leadership in the industry is dependent more upon the skills of its development personnel than upon the legal protections afforded its existing technology.

     Applix is not engaged in any material disputes with other parties with respect to the ownership or use of the Company’s proprietary technology. However, there can be no assurance that other parties will not assert technology infringement claims or other claims against the Company in the future. The litigation of such a claim may involve significant expense and management time. In addition, if any such claims were successful, the Company could be required to pay monetary damages and may also be required to either refrain from distributing the infringing product or obtain a license from the party asserting the claim (which license may not be available on commercially reasonable terms).

Employees

     As of December 31, 2001, the Company had 243 total employees. Domestically, the Company had 44 employees in product research and development, 53 employees in sales and marketing, 14 employees in professional services, 8 employees in information systems, and 19 employees in finance, administration and facilities. Internationally, the Company had 105 employees, which includes 62 employees in sales and marketing, 36 employees in professional services, 3 employees in information systems, and 4 employees in finance, administration and facilities. None of the Company’s employees are represented by a labor union, and the Company believes that its employee relations are good.

Item 2.   Properties

     The Company moved into new headquarters (49,920 square feet) in November 2001, located at 289 Turnpike Road in Westboro, Massachusetts. The lease has an original twelve-year term, which will expire in November 2013, with one 5-year option to extend the term. The Company’s lease for 112-114 Turnpike Road Westborough, Massachusetts expired on December 31, 2001. The Company also leases smaller facilities in several metropolitan areas within the United States and the United Kingdom, Germany, Canada, Singapore, Japan, The Netherlands and Australia. The Company believes that its existing facilities are adequate for its current needs and that suitable additional or substitute space will be available as needed.

Item 3.   Legal Proceedings

     The Company is not party to any legal proceedings material to the Company’s business.

Item 4.   Submission of Matters to a Vote of Security Holders

     Not applicable.

Executive Officers of the Registrant

     The following table sets forth the names, ages and positions of all executive officers of the Company.

     Mr. Goldsworthy was elected President, Chief Executive Officer and a director of Applix in April 2000. Mr. Goldsworthy joined Applix in January 2000 and was elected President, eBusiness Division on January 21, 2000. Prior to joining the Company, he served as Executive Vice President and then Chief Executive Officer of CMI-Competitive Solutions, Inc. (“CSI”), a provider of enterprise resource planning (ERP) solutions, from September 1996 to December 1999. Prior to CSI, Mr. Goldsworthy worked from 1981 to 1996 at Digital Equipment Corporation, holding various sales, marketing, and operational management positions.

     Mr. Hilger was elected as Chief Financial Officer and Treasurer on September 25, 2001. Mr. Hilger joined the Company in November 1999 as the Vice President of Operations and Planning. From 1997 to 1999, Mr. Hilger was Vice President of Corporate Finance for Cahners Business Information, a billion dollar business-to-business web content company. From 1988 to 1997, he worked at Houghton-Mifflin Company, where he served as Corporate Manager of Financial Planning and Analysis and later as Divisional Business Manager.

     Mr. Cervo joined the Company in October 1992 as Vice President, Research & Development and was elected Vice President of Product Development in October of 1994 and Chief Technology Officer in March 2001.

     There are no family relationships among any of the executive officers.

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PART II

Item 5.   Market for Registrant’s Common Stock and Related Stockholder Matters

     The Company’s Common Stock is listed on the Nasdaq National Market (“Nasdaq”) under the symbol “APLX”. The table below sets forth the Nasdaq high and low sale price of its common stock during the two most recent fiscal years.

     The Company has never paid any cash dividends on its common stock. The Company currently intends to retain any earnings for future growth and therefore does not anticipate paying any cash dividends on its common stock in the foreseeable future.

     The approximately number of holder of record of the Company’s common stock on March 19, 2002 was 194. This number does not include shareholders for whom shares are held in a “nominee” or “street” name.

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Item 6.   Selected Financial Data

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

     OVERVIEW

     The Company was incorporated in 1983 to develop and market software applications for the Unix workstation market. In October 1995, the Company acquired Target Systems Corporation, which developed and marketed customer interaction software. In October 1996, the Company acquired Sinper Corporation, doing business under the name TM1, which developed and marketed software used for on-line analytical processing (OLAP). These two acquisitions enabled Applix to expand its product offerings to include customer analytics and business planning. Applix focuses on customer analytics and business planning through Applix iCRM, the Company’s solution in the customer relationship management (CRM) market and Applix iTM1, the Company’s real time multi-dimensional analysis software for business planning solutions.

     The Company acquired Veriteam, Inc., doing business as CoSource.com, in December 1999 to expand into the Linux market with an Internet accessible, collaborative open source software development web site. In April 2000, the Company announced the establishment of VistaSource, Inc. to focus on the emerging Linux and open source markets. VistaSource, Inc. was established with the assets of the Company’s Applixware product suite and CoSource.com.

     In December 2000, the board of directors decided to dispose of VistaSource. As a result of this decision, VistaSource was classified as a discontinued operation as of December 31, 2000, and the Company recorded an estimated loss of $3,605,000 which included approximately $367,000 in losses from operations for the period from January 1, 2000 through the measurement date of December 17, 2000, $2,200,000 relating to the removal of the net assets of the VistaSource business, $1,100,000 in estimated losses from operations from the measurement date through the estimated date of disposal and $1,300,000 in provisions for employee severance and benefits, transaction costs, bank fees and other contractual commitments. These losses were partially offset by proceeds of $1,300,000 received from the acquirer on March 31, 2001.

     On March 30, 2001 the Company completed the sale of the VistaSource business and received the purchase price of $1,300,000. For the twelve months ended December 31, 2001, the Company recognized a gain of $1,081,000 for discontinued operations due to a favorable liquidation of the net assets and liabilities of the VistaSource business compared to previous estimates. The reserve balance for the estimated costs associated with the disposition as of December 31, 2001 was $182,000, consisting primarily of severance costs.

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     On March 30, 2001, the Company acquired Dynamic Decisions Pty Limited of Australia in an effort to expand its customer analytics and business planning software presence in Southeast Asia. Applix is building upon Dynamic Decisions’ strong customer base and ability to offer high quality customer analytics and business planning software and support services to the Company’s customers. The total cost of the acquisition was approximately $5,867,000, consisting of up to $5,640,000 in consideration payable in cash and 100,000 shares of the Company’s common stock. The acquisition was accounted for under the purchase method of accounting, and the purchase price was allocated based on the estimated fair value of the assets acquired and liabilities assumed. An intangible asset, acquired customer base, of $1,500,000 was recorded based on its fair value. The excess of the purchase price over the fair value of the net assets acquired at the time of acquisition of $934,000 has been recorded as goodwill and has been amortized on a straight-line basis over its estimated useful life of six years.

     Of the cash portion of the purchase price, $5,150,000 is payable in installments over a maximum of 30 months beginning on July 1, 2001. As of December 31, 2001, the Company had paid $1,267,000 of the maximum cash consideration, which has been accounted for as purchase price. The remaining amount of $3,883,000 is contingent upon continued employment of two key executives of Dynamic Decisions, and will be accounted for as compensation expense.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s 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

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

Account Receivable and Bad Debt

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

Capitalized Software Development Costs

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

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Accounting For Cost Based Investments

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

Goodwill and Other Intangible Assets and Related Impairment

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

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

     Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” and is now required to analyze its goodwill for impairment during the first six months of fiscal 2002, and subsequently on an annual basis thereafter, unless facts or circumstances arise earlier which indicate impairment. Any resulting impairment loss could have a material adverse impact on financial condition and results of operations. During the year ended December 31, 2001, the Company did not record any impairment losses related to goodwill and other intangible assets.

Restructuring

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

Deferred Taxes

     The Company accounts for income taxes in accordance with Statement of Accounting Standards No. 109 (FAS 109), “Accounting for Income Taxes” which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. FAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. At December 31, 2001 and 2000, the Company’s deferred tax asset was fully reserved. In the event the Company were to determine in the future that it would be able to realize its deferred tax assets in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made.

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RESULTS OF OPERATIONS

     The following table sets forth certain items from the Company’s consolidated statements of operations as a percentage of net revenue for the period from continuing operations:

Year Ended December 31, 2001 compared to Year Ended December 31, 2000

     Total revenue from continuing operations increased to $40,303,000 in 2001 from $40,239,000 in 2000. Software license revenue in 2001 of $19,304,000 was approximately 19% lower than 2000 at $23,735,000 and represented 48% of revenue from continuing operations for 2001 and 59% of revenue from continuing operations for 2000. Domestic software license revenue from continuing operations decreased 20% to $8,789,000 in 2001 from $11,011,000 in 2000. International software license revenue from continuing operations decreased 17% to $10,515,000 in 2001 from $12,724,000 in 2000. The decreases were primarily due to the decline in the global economy and the continued slowdown in information technology spending. The Company expects software license revenue to increase as a percent of total revenue in the future primarily due to an expected increase in software license revenues through new channel partners. The Company’s three largest customers (including resellers) comprised a total of 11% of total software license revenue from continuing operations during 2001 and 9% of total software license revenue from continuing operations in 2000.

     Professional services and maintenance revenue from continuing operations increased 27% to $20,999,000 in 2001 from $16,504,000 in 2000 and represented 52% and 41% of total revenue from continuing operations for 2001 and 2000, respectively. Domestic professional services and maintenance revenue from continuing operations increased 14% to $7,199,000 in 2001 from $6,304,000 in 2000. International professional services and maintenance revenue increased 35% to $13,800,000 as compared to $10,200,000 in 2000. The increase was primarily due to increased maintenance revenue as a result of the improved renewal rates for maintenance from existing customers. The Company expects the maintenance revenue as a component of total professional service and maintenance revenue to continue to increase due to continuing improvement in maintenance renewals from existing customers. The Company expects professional service revenue to decrease as percentage of total professional services and maintenance revenue due to the Company’s increasing reliance on external consultants. The Company expects the maintenance revenue to increase as a percentage of professional services and maintenance revenue due to further increases in maintenance revenues and the decrease in consulting revenue. Maintenance revenues increased $4,340,000 to $12,387,000 in 2001 from $8,047,000 in 2000. Maintenance revenue continues to grow as a higher percentage of existing customers are choosing to extend maintenance support contracts. The Company expects overall professional services and maintenance revenue from continuing operations to decrease as a percent of total revenue as a result of the expected decrease in professional service revenues.

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     Gross margin from continuing operations increased to 63% in 2001 from 61% in 2000. Software license revenue gross margin from continuing operations decreased to 88% in 2001 from 92% in 2000. Professional services and maintenance revenue gross margin from continuing operations increased to 40% in 2001 from 17% in 2000, due to a change in revenue mix from lower margin consulting revenues to higher margin maintenance revenues.

     Selling and marketing expenses from continuing operations, which include domestic sales and marketing expenses and the cost of the Company’s international operations, decreased 15% to $21,671,000 in 2001 from $25,580,000 in 2000. Selling and marketing expenses from continuing operations decreased as a percentage of total revenue to 54% in 2001 from 64% in 2000. Decreases in selling and marketing expenses are related primarily to completion of the corporate rebranding and remarketing effort that was initiated in 2000. The decrease also reflects the declining staffing levels associated with corporate restructuring initiatives including reduction in headcount during 2001.

     Product research and development expenses from continuing operations, which consist primarily of employee salaries, benefits and related expenses, decreased 9% to $6,848,000 in 2001 from $7,502,000 in 2000. The Company’s investment in product research and development represented 17% and 19% of total revenue from continuing operations for 2001 and 2000, respectively. The Company's product research and development costs decreased slightly due to productivity gains recognized during 2001. The development costs reflect continued investments in features and functionality for the core Applix iTM1 and Applix iCRM products and the development of the product platform supporting Applix Integra.

     General and administrative expenses from continuing operations, which include the costs of the Company’s finance, human resources, and administrative functions increased 11% to $4,754,000 in 2001 from $4,292,000 in 2000. A decrease in staff costs as a result of restructuring actions was more than offset by an increase in the amortization expense from acquisition activity. General and administrative expenses from continuing operations increased as a percentage of total revenue to 12% in 2001 from 11% in 2000. The Company expects that the general and administrative costs as a percent of revenue will decrease in the future as the full benefit from the Company’s restructuring initiatives are fully realized.

     The Company initiated three restructuring actions in 2001 involving strategic decisions and continues to re-evaluate the current state of on-going businesses. Restructuring charges consisted primarily of contract terminations, severance charges and equipment charges incurred as a result of the cessation of operations of a subsidiary and actions taken at the corporate level and several remaining subsidiaries to increase operational efficiencies improve margins and further reduce expenses.

     In the second quarter of 2001, the Company adopted a plan of restructuring aimed at reducing current operating costs company-wide. In connection with this plan, 28 non-management employees; primarily sales, marketing, and administrative personnel, and 2 executive level employees were terminated. The Company’s restructuring plan also included the closure of the Company’s sales office in France. As a result of the restructuring plan, the Company recorded a restructuring charge of $512,000 for the three months ended June 30, 2001. The restructuring charge consisted of $449,000 for severance costs and $63,000 for the loss on disposal of the Company’s French subsidiary, which was sold on June 30, 2001. In connection with the sale, the Company paid $100,000 to the purchaser to account for the assumed liabilities, which is included in the restructuring charge. At December 31, 2001, $12,000 remained accrued for severance cost. As a result of these plans, the Company expects to save $4,000,000 on an annual basis.

     In the third quarter of 2001, the Company adopted a plan of restructuring to further reduce current operating costs company-wide through headcount reductions. In connection with this plan, the Company recorded an additional restructuring charge of $438,000 for severance related to the termination of 26 non-management employees, primarily sales, marketing, and administrative personnel. Subsequent to the initial recording of the charge, adjustments totaling $90,000 were recorded, reducing the charge to $348,000. At December 31, 2001, $58,000 remained accrued for severance costs. As a result of the plan, the Company expects to save $1,000,000 on an annual basis.

     In the fourth quarter of 2001, the Company adopted a plan of restructuring to further reduce current operating costs company-wide. The plan included the further reduction of headcount of one senior level executive and 16 non-management employees, primarily professional services, sales, and administrative personnel. The plan also included the closure of several domestic offices and the consolidation of space within one European office, and the abandonment of leasehold improvements and support assets associated with these locations, which were removed from service shortly after the implementation of the plan. As a result of the restructuring plan, the Company recorded a charge of $840,000, consisting of $363,000 for severance, $385,000 for office closures and contractual obligations and $92,000 for the write-off of impaired assets. At December 31, 2001, $696,000 remained accrued for severance and other costs. As a result of this plan, the Company expects to save $1,100,000 on an annual basis.

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     In December 2001, the Company determined that its cost-based investment in TurboLinux, Inc. of $1,250,000 was impaired. This assessment was based on the Company’s review of operating results for TurboLinux and the Company’s anticipated future cash flows from its investment. Accordingly, the investment was written down to its estimated net realizable value of zero.

     The operating loss, before restructuring costs of $1,700,000 in 2001 and $0 in 2000 and amortization of $374,000 in 2001 and $127,000 in 2000, improved 41% to a loss of $7,467,000 in 2001 as compared to an operating loss of $12,750,000 in 2000. Benefits from the restructuring actions resulted in lower operating expenses and led to a quarterly decline in operating losses. In the fourth quarter, the Company reported an operating profit of $136,000 excluding the restructuring charges and acquisition related amortization expense.

     Net interest income from continuing operations decreased to $376,000 in 2001 from $1,153,000 in 2000 due to lower interest rates earned on investments and a decrease in the Company’s average cash position.

     As a result of net operating losses incurred in 2001 and 2000 and after evaluating the Company’s anticipated performance over its normal planning horizon, the Company has provided a full valuation allowance for its net operating loss carryforwards and other net deferred tax assets for federal and state tax purposes as of December 31, 2001. The provision in 2000 includes $7,832,000 relating to the establishment of a valuation allowance against the deferred tax asset that was established following the decision to dispose of VistaSource and based on the Company’s historical operating losses from continuing operations. The valuation allowance was established during the fourth quarter of 2000 and reflects the reversal of the income tax benefits recognized in the first three quarters of 2000 as well as the deferred tax asset at December 31, 1999. Additionally, the Company generates taxable income in many of the foreign jurisdictions in which it transacts business. Accordingly, the Company has a recorded a tax provision of $558,000 for the year ended December 31, 2001, for state and foreign income tax liabilities, as compared to a provision of $3,583,000 for the year ended December 31, 2000, which included $582,000 for state and foreign income taxes.

     Net loss from continuing operations was $10,975,000 in 2001 compared to $15,307,000 in 2000. The decrease in net loss was attributed to declining operating expenses, lower provisions for income taxes and improved gross margin profitability. The decreases in selling and marketing operating costs ($3,909,000) were offset by restructuring charges and a loss from impaired investment ($2,950,000).

Year Ended December 31, 2000 compared to Year Ended December 31, 1999

     Total revenue from continuing operations increased to $40,239,000 in 2000 from $36,871,000 in 1999. Software license revenue in 2000 of $23,735,000 was approximately 10% higher than 1999 at $21,610,000 and represented 59% of revenue from continuing operation for both years. Domestic software license revenue from continuing operations increased 28% to $11,011,000 from $8,621,000 in 1999. International software license revenue from continuing operations decreased 2% to $12,724,000 in 2000 from $12,989,000 in 1999. The Company’s three largest customers (including resellers) comprised a total of 9% of total software license revenue from continuing operations during 2000 and 7% of total software license revenue from continuing operations in 1999.

     Professional services and maintenance revenue from continuing operations increased 8% to $16,504,000 in 2000 from $15,261,000 in 1999 and represented 41% of total revenue from continuing operations for both years.

     Gross margin from continuing operations decreased to 61% in 2000 from 65% in 1999. Software license revenue gross margin from continuing operations decreased to 92% in 2000 from 93% in 1999. Professional services and maintenance revenue gross margin from continuing operations decreased to 17% in 2000 from 25% in 1999, due to an increase in the number of support and consulting personnel and lower utilization of consulting resources in 2000 versus 1999.

     Selling and marketing expenses from continuing operations increased 28% to $25,580,000 in 2000 from $19,957,000 in 1999. Selling and marketing expenses from continuing operations increased as a percentage of total revenue to 64% from 54% in 1999. The Company invested an incremental $ 5 - $ 5.5 million in sales and marketing initiatives in 2000 to reposition and rebrand the iCRM and iTM1 solutions and expand its sales organization. The additional expenditures related primarily to these increased staffing levels associated with hiring additional sales representatives and additional spending for marketing programs.

     Research and development expenses from continuing operations increased 6% to $7,502,000 in 2000 from $7,101,000 in 1999, representing 19% of total revenue from continuing operations for both years. The increase in research and development costs was primarily due to adding thin client and distinct features and functionality to the iCRM and iTM1 solutions.

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     General and administrative expenses from continuing operations decreased 4% to $4,292,000 in 2000 from $4,485,000 in 1999, and decreased slightly as a percentage of total revenue to 11% in 2000 from 12% in 1999. The general and administrative expenses from continuing operations include corporate overhead costs, which supported continuing and discontinued operations.

     Net interest income from continuing operations increased to $1,153,000 in 2000 from $1,031,000 in 1999 due to slightly higher interest rates.

     The Company recorded a provision for income taxes of $3.6 million in 2000. This provision included $7,832,000 relating to the establishment of a valuation allowance against the deferred tax asset that was established following the decision to dispose of VistaSource and based on the Company’s historical operating losses from continuing operations. The valuation allowance was established during the fourth quarter of 2000 and reflects the reversal of the income tax benefits recognized in the first three quarters of 2000 as well as the deferred tax asset at December 31, 1999. The Company also recorded a provision for income taxes of $566,000 in 2000 in connection with taxable income in its foreign subsidiaries.

     Net loss from continuing operations was $15,307,000 compared to $4,251,000 in 1999. The increase in net loss was primarily attributed to increased sales and marketing costs of $5.6 million and the establishment of a valuation allowance on the Company’s deferred tax asset of $7.8 million. The increase in sales and marketing costs was attributed to the Company’s previous announced plans to reposition its customer analytics and business planning software business which resulted in incremental spending of $5.0 — $5.5 million.

     The net loss from discontinued operation was $367,000 compared to the net income from discontinued operation of $6,631,000 in 1999. The reduced net income from discontinued operation was attributed to lower revenue from the VistaSource business unit of $9 million and increased operating expenses associated with the repositioning of VistaSource, Inc.

     The loss on the disposal of VistaSource was $3.2 million attributed to estimate expenses of $2.4 million to operate the business through its disposition in the end of March 2001, $2.2 million relating to the removal of the net assets of VistaSource, offset by $1.3 million in the expected proceeds from the distribution.

Liquidity and Capital Resources

     The Consolidated Statements of Cash Flows for fiscal years 2000 and 1999 include the cash flows from the VistaSource segment on a fully consolidated basis and have not been restated to reflect discontinued operations. The Consolidated Statement of Cash Flows for the fiscal year 2001 includes the cash flows from the VistaSource segment as discontinued operations.

     As of December 31, 2001, the Company had cash and cash equivalents of $9,278,000, which included restricted cash of $1,050,000 that represents the security deposit for the headquarter office lease, as compared to $12,546,000 as of December 31, 2000. Cash used in the Company’s operations was $3,586,000 for the year ended December 31, 2001 compared to $8,972,000 for the year ended December 31, 2000. The net loss of $9,894,000 for 2001 was partially offset by the decrease in operating assets and liabilities of $3,472,000, which was primarily due to an increase of accounts receivable collections of $4,635,000, and an increase in deferred revenue bookings of $1,491,000.

     Cash used in investing activities totaled $2,233,000 for the year ended December 31, 2001 compared to cash provided by investing activities of $10,697,000 for the year ended December 31, 2000. The decrease in cash provided by investing activities primarily resulted from the Company’s reduced short-term investment activities in 2001 compared to 2000. This was partially offset by the proceeds received from the sale of the discontinued operation of $1,300,000, net cash payments in connection with the acquisition of Dynamic Decisions of $1,733,000, net purchase of capital equipment of $856,000, capitalized software development costs of $844,000, and a payment of $100,000 in connection with the sale of the Company’s French subsidiary.

     Cash provided from financing activities totaled $1,466,000 for the year ended December 31, 2001, which consisted of proceeds received from the exercise of incentive stock options and the Company’s employee stock purchase plan of $737,000, and net proceeds from factoring of receivables to a certain bank of $729,000. This compares to total cash provided by financing activities of $524,000 for 2000.

     In connection with the Company's acquisition of Dynamic Decisions, the Company expects to pay out additional contingent consideration of $3,883,000 in eight quarterly installments between January 1, 2002 and January 1, 2004.

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     In connection with the office lease agreement for the Company’s new corporate headquarters, the Company established a $1,050,000 irrevocable standby letter of credit on August 1, 2001. The letter of credit has been fully collateralized by a restricted cash balance of $1,050,000 as required by the issuing bank. The amount of the letter of credit and restricted cash will be reduced over the term of the lease from December 1, 2002 to December 1, 2006, provided the Company has not defaulted on the office lease agreement. The Company anticipates that it will partially utilize the credit facilities described below to obtain a new, replacement letter of credit, which will not require cash collateral. The irrevocable standby letter of credit and underlying security deposit (restricted cash) requirement of $1,050,000 will be reduced starting the first day of the second lease year as follows:

     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.

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

     The Company has secured two revolving credit facilities, providing for loans and other financial accommodations, with a bank totaling approximately $5.0 million. The first facility has an interest rate of prime plus 1.25% and is in the aggregate principal amount of up to the lesser of (i) $2.5 million and (ii) an amount based upon a percentage the Company’s qualifying domestic accounts receivable. The second facility has an interest rate of prime plus 1.00% and is in the aggregate principal amount of up to the lesser of (i) $2.5 million and (ii) an amount based upon a percentage of the Company’s qualifying foreign accounts receivable. This second facility is guaranteed by the Export-Import Bank of the United States (“EXIM Bank”) and includes certain additional obligations of the Company in favor of EXIM Bank. The obligations of the Company to SVB are guaranteed by certain of the Company’s subsidiaries and are secured by substantially all of the assets of the Company and such subsidiaries. Because the Company has not yet satisfied certain conditions precedent, covenants, and other requirements, the Company currently has no availability to borrow or receive other financial accommodations under either of the credit facilities. The facilities expire on December 5, 2002. At the time the credit facility becomes available, a default in the bank covenants could adversely affect the Company’s ability to access its existing credit facilities or obtain access to new credit facilities in the future and could increase the cost of such facilities.

     The Company has a non-recourse accounts receivable purchase arrangement with a bank, pursuant to which the Company and the bank may agree from time to time for the Company to sell qualifying accounts receivable to the bank, in an aggregate amount of up to $2 million outstanding, at a purchase price equal to the balance of the accounts less a discount rate and a fee. On or about December 31, 2001, the Company factored certain accounts receivable to the bank pursuant to the purchase arrangement in the amount of $729,000.

     In accordance with generally accepted accounting principles (GAAP), the Company recognized a sale for those accounts receivable balances for which there was not a future obligation to the customer in the amount of $361,000. The Company has concluded that these accounts have been legally isolated, and accordingly, these amounts have been removed from the Company’s accounts receivable balance at December 31, 2001. The loss from the sale of the financial assets and retained interest for cash collection were not material to the Company’s results of operations or financial position. The remainder of $368,000 did not reduce the accounts receivable balance, and has been recorded as a financing transaction and recognized as a liability at December 31, 2001. This amount is expected to be repaid by the Company to the bank during 2002. The sale of the receivables had an immaterial impact on the Company’s days sales outstanding (DSO) by reducing approximately 3 days from approximately 73 to 70 days.

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     The following summarizes the expected effect of the Company’s contractual obligations (future minimum operating lease payments of its office facilities and certain equipment) on the Company’s liquidity and cash flow in the future periods:

     The Company has incurred losses from continuing operations for the last several years. As of December 31, 2001, the Company had an accumulated deficit of $37.2 million. Operating losses and negative cash flows may continue because of costs and expenses relating to brand development, marketing and other promotional activities, continued development of the Company's information technology infrastructure, expansion of product offerings and development of relationships with other businesses. Management's plans include increasing revenue and generating positive cash flows from operations. The Company made progress during the year towards decreasing operating losses on a quarterly sequential basis. Additionally, the Company improved its fourth quarter 2001 cash flow and improved its cash position at December 31, 2001. The Company currently expects that the principal sources of funding for its operating expenses, capital expenditures and other liquidity needs will be a combination of its available cash balances, funds generated from operations and its available credit facilities. The Company believes that its currently available sources of funds will be sufficient to fund its operations for at least the next 12 months. However, there are a number of factors that may negatively impact the Company's available sources of funds. The amount of cash generated from operations will be dependent upon such factors as the successful execution of the Company's business plan, the successful introduction of Applix Integra and worldwide economic conditions. In addition, borrowings under the Company's credit facilities are dependent upon adequate borrowings base and the maintenance of certain financial covenants, which may limit the availability of borrowing. The Company does not currently anticipate the need to draw down on the two revolving credit lines for its working capital needs. 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.

     To date, inflation has not had a material adverse effect on the Company’s operating results.

Euro Conversion

     On January 1, 2002, 12 of the 15 members of the European Union established fixed conversion rates among their existing sovereign currencies and adopted the Euro as their common legal currency and eliminated their legacy currencies. The Company is currently conducting transactions in the Euro and fully converted its information systems as of January 2002. The Company does not expect the Euro conversion to have a material effect on its competitive position or financial results.

New Accounting Pronouncements

     In July 2001, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards No. 141 (FAS 141), “Business Combinations” and No. 142 (FAS 142), “Goodwill and Other Intangible Assets.” FAS 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. FAS 141 further clarifies the criteria for recognizing intangible assets separately from goodwill. The requirements of FAS 141 are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001. Under FAS 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The Company adopted FAS 142 on January 1, 2002, and is currently in the process of evaluating the impact that FAS 142 will have on its consolidated financial position and results of operations.

     In June 2001, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143 (FAS 143), “Accounting for Asset Retirement Obligations”, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It also applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and/or the normal operation of a long-lived asset, except for certain obligations of lessees. The Company is required to adopt FAS 143 in the first quarter of fiscal 2003, and the Company does not believe that the adoption of FAS 143 will have a material effect on its financial position or results of operations.

     In August 2001, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards No. 144 (FAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets”, which addresses the financial accounting and reporting for the impairment of long-lived assets. This statement supersedes Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and the accounting and reporting provisions for the disposal of a segment of a business of APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequent Occurring Events and Transactions.” The Company is required to adopt FAS 144 in the first quarter of fiscal 2002. The Company has not yet determined what effect, if any, the adoption of FAS 144 will have on its financial position and results of operations.

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RISK FACTORS

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

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

	•		demand for and market acceptance of our products and services;
	•		the size and timing of customer orders, particularly large orders, some of which represent more than 10% of total revenue during a particular quarter;
	•		introduction of products and services or enhancements by us and our competitors;
	•		competitive factors that affect our pricing;
	•		the mix of products and services we sell;
	•		the hiring and retention of key personnel;
	•		our expansion into international markets;
	•		the timing and magnitude of our capital expenditures, including costs relating to the expansion of our operations;
	•		changes in generally accepted accounting policies, especially those related to the recognition of software revenue; and
	•		new government legislation or regulation.

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

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

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

IF WE DO NOT INTRODUCE NEW PRODUCTS AND SERVICES IN A TIMELY MANNER, OUR PRODUCTS AND SERVICES WILL BECOME OBSOLETE, AND OUR OPERATING RESULTS WILL SUFFER.

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     The customer analytics and business planning software markets are characterized by rapid technological change, frequent new product enhancements, uncertain product life cycles, changes in customer demands and evolving industry standards. Our products could be rendered obsolete if products based on new technologies are introduced or new industry standards emerge.

     Enterprise computing environments are inherently complex. As a result, we cannot accurately estimate the life cycles of our products. New products and product enhancements can require long development and testing periods, which requires us to hire and retain increasingly scarce, technically competent personnel. Significant delays in new product releases or significant problems in installing or implementing new products could seriously damage our business. We have, on occasion, experienced delays in the scheduled introduction of new and enhanced products and may experience similar delays in the future.

     Our future success depends upon our ability to enhance existing products, develop and introduce new products, satisfy customer requirements and achieve market acceptance. We may not successfully identify new product opportunities and develop and bring new products to market in a timely and cost-effective manner.

FUTURE CAPITAL NEEDS.

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

ATTEMPTS TO EXPAND BY MEANS OF BUSINESS COMBINATIONS AND ACQUISITIONS MAY NOT BE SUCCESSFUL AND MAY DISRUPT OUR OPERATIONS OR HARM OUR REVENUES.

     We have in the past, and may in the future, buy businesses, products or technologies. In the event of any future purchases, we will face additional financial and operational risks, including:

	•		difficulty in assimilating the operations, technology and personnel of acquired companies;
	•		disruption in our business because of the allocation of resources to consummate these transactions and the diversion of management’s attention from our core business;
	•		difficulty in retaining key technical and managerial personnel from acquired companies;
	•		dilution of our stockholders, if we issue equity to fund these transactions;
	•		assumption of increased expenses and liabilities;
	•		our relationships with existing employees, customers and business partners may be weakened or terminated as a result of these transactions; and
	•		additional ongoing expenses associated with write-downs of goodwill and other purchased intangible assets.

WE RELY HEAVILY ON KEY PERSONNEL.

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

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

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

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

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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 CUSTOMER ANALYTICS AND BUSINESS PLANNING MARKETS ARE HIGHLY COMPETITIVE, WE MAY NOT BE ABLE TO SUCCEED.

     If we fail to compete successfully in the highly competitive and rapidly changing customer analytics and business planning markets, we may not be able to succeed. We face competition primarily from customer relationship management software firms, Internet customer interaction software vendors and computer telephony software companies. We also face competition from traditional call center technology providers, large enterprise application software vendors, independent systems integrators, consulting firms and in-house IT departments. Because barriers to entry into the software market are relatively low, we expect to face additional competition in the future.

     Many of our competitors can devote significantly more resources to the development, promotion and sale of products than we can, and many of them can respond to new technologies and changes in customer preferences more quickly than we can. Further, other companies with resources greater than ours may attempt to gain market share in the customer analytics and business planning markets by acquiring or forming strategic alliances with our competitors.

BECAUSE WE DEPEND ON THIRD-PARTY SYSTEMS INTEGRATORS TO SELL OUR PRODUCTS, OUR OPERATING RESULTS WILL LIKELY SUFFER IF WE DO NOT DEVELOP AND MAINTAIN THESE RELATIONSHIPS.

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

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

     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 7A.   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. The Company uses foreign currency forward contracts to manage the risk of exchange rate fluctuations. Most of the Company’s international sales through it subsidiaries are denominated in foreign currencies. Relative to foreign currency exposures existing at December 31, 2001, a 10% unfavorable movement in foreign exchange rates would not expose the Company to significant losses in earnings or cash flows or significantly diminish the fair value of the Company’s foreign currency financial instruments, primarily due to the short lives of the affected financial instruments. To date, foreign currency fluctuations have not had a material effect on the Company’s operating results. In all cases, the Company uses these derivative instruments to reduce its foreign exchange risk by essentially creating offsetting market exposures. The instruments that the Company holds are not leveraged and are not held for trading or speculative purposes.

     At December 30, 2001, the Company held $9,278,000 in cash equivalents, including $1,050,000 of restricted cash, consisting primarily of money market funds. Cash equivalents are classified as available for sale and carried at fair value, which approximates cost. A hypothetical 10% increase in interest rates would not have a material impact on the fair market value of these instruments due to their short maturity, and the Company’s intention that all the securities will be sold within one year. There have been no significant changes since December 31, 2001.

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Item 8.   Financial Statements and Supplementary Data

Quarterly Operating Results for 2001 and 2000

     The Company’s Consolidated Financial Statement and Supplementary Data are included under Item 14 of this Annual Report on Form 10-K are incorporated herein by reference.

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     This information has been previously reported by the Registrant in a Current Report on Form 8-K filed with the Commissioner on April 13, 2001.

PART III

Item 10.   Directors and Executive Officers of the Registrant

     The response to this item is contained in part under the caption “Executive Officers of the Company” in Part I of this Annual Report on Form 10-K, and in part in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 30, 2002 (the “2002 Proxy Statement”) in the sections entitled “Election of Directors – Members of the Board of Directors” and “Other Matters — Section 16(a) Beneficial Ownership Reporting Compliance”, which sections are incorporated herein by reference.

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Item 11.   Executive Compensation

     The response to this item is contained in the 2002 Proxy Statement in the sections entitled “Election of Directors — Compensation of Directors” and “Executive Compensation”, which sections are incorporated herein by reference.

Item 12.   Security Ownership of Certain Beneficial Owners and Management

     The response to this item is contained in the 2002 Proxy Statement in the section entitled “Beneficial Ownership of Voting Stock”, which section is incorporated herein by reference.

Item 13.   Certain Relationships and Related Transactions

     The response to this item is item is contained in the 2002 Proxy Statement in the section entitled “Certain Relationships and Related Transactions,” which is incorporated herein by reference.

PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K

	(a)		1.  Consolidated Financial Statements The consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements and Financial Statement Schedule is filed as part of this Annual Report.
			2.  Consolidated Financial Statement Schedule The consolidated financial statement schedule listed in the accompanying Index to Consolidated Financial Statement and Financial Statement Schedule is filed as part of this Annual Report.
			3.  Exhibits The Exhibits filed as a part of this Annual Report on Form 10-K are the following:

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf as of March 27, 2001 by the undersigned, thereunto duly authorized.

APPLIX, INC.

By: /s/ Alan Goldsworthy                                     Alan Goldsworthy President and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

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Item 14(a)  Index to Consolidated Financial Statements and Financial Statement Schedule

     All other schedules have been omitted since the required information is not present, or the amounts are not sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements.

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Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Applix, Inc.

     We have audited the accompanying consolidated balance sheet of Applix, Inc. as of December 31, 2001 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended. Our audit also included the financial statement schedule for the year ended December 31, 2001 listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

     We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Applix, Inc. at December 31, 2001, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for the year ended December 31, 2001, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Boston, Massachusetts
January 25, 2002, except for Note 16,
as to which the date
is February 8, 2002

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Report of Independent Accountants

To the Board of Directors and Stockholders of Applix, Inc.:

In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all material respects, the financial position of Applix, Inc. and its subsidiaries at December 31, 2000, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
January 24, 2001

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Applix, Inc.
Consolidated Balance Sheets
December 31, 2001 and 2000
(in thousands, except share amounts)

              ASSETS

See accompanying Notes to Consolidated Financial Statements.

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Applix, Inc.
Consolidated Balance Sheets (continued)
December 31, 2001 and 2000
(in thousands, except share and per share amounts)

                        LIABILITIES AND STOCKHOLDERS’ EQUITY

See accompanying Notes to Consolidated Financial Statements.

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Applix, Inc.
Consolidated Statements of Operations
Years Ended December 31, 2001, 2000 and 1999
(in thousands, except per share data)