UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2007


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-25040

APPLIX, INC.

(Exact name of registrant as specified in its charter)


MASSACHUSETTS		04-2781676

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

289 Turnpike Road, Westborough, Massachusetts 01581
(Address of principal executive offices)

(508) 870-0300
(Registrant’s telephone number)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No þ

As of May 1, 2007, the Registrant had 15,914,374 outstanding shares of common stock.

APPLIX, INC.

Form 10-Q

For the Quarterly Period Ended March 31, 2007

Table of Contents


	Page
	No.
*Part I — Financial Information*
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006		3
Condensed Consolidated Statements of Income for the three months ended March 31, 2007 and 2006		4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		17
Item 4. Controls and Procedures		18
*Part II — Other Information*
Item 1A. Risk Factors		19
Item 6. Exhibits		23
*Signature*		24
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO
EX-32.2 SECTION 906 CERTIFICATION OF CFO

Applix and TM1 are registered trademarks of Applix, Inc. TM1 Integra, TM1 Financial Reporting, TM1 Consolidations, TM1 Planning Manager, TM1 Web and Executive Viewer are trademarks of Applix, Inc. All other trademarks and company names mentioned are the property of their respective owners. All rights reserved.

Certain information contained in this Quarterly Report on Form 10-Q is forward-looking in nature. All statements included in this Quarterly Report on Form 10-Q or made by management of Applix, Inc. (“Applix” or the “Company”) and its subsidiaries, other than statements of historical facts, are forward-looking statements. Examples of forward-looking statements include statements regarding Applix’s future financial results, operations, 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. Forward-looking statements necessarily involve risks and uncertainties. Actual results could differ materially from those indicated by such forward-looking statements as a result of important factors, including those discussed in the section below entitled “Risk Factors”. Applix does not undertake an obligation to update its forward-looking statements to reflect future events or circumstances and the forward-looking statements in this document should not be relied upon as representing the Company’s views as of any date subsequent to the date of this document.

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Applix, Inc.

Condensed Consolidated Balance Sheets
(In thousands, except share and par value amounts)


	March 31,			December 31,
	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	31,025		$	23,487
Short-term investments		2,081			3,723
Accounts receivable, less allowances for doubtful accounts of $368		9,825			13,582
Other current assets		2,109			1,585
Deferred tax assets, current		658			619

Total current assets		45,698			42,996
Restricted cash		400			400
Property and equipment, net		1,222			1,313
Intangible assets, net of accumulated amortization of $2,108 and $1,853, respectively		5,222			5,477
Goodwill		13,320			13,341
Deferred tax assets, long-term		1,876			1,876
Other assets		732			684

TOTAL ASSETS	$	68,470		$	66,087

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,976		$	2,068
Accrued expenses		7,438			9,324
Accrued restructuring expenses, current portion		51			51
Current portion of debt		2,167			2,167
Deferred revenues		13,432			11,052

Total current liabilities		25,064			24,662
Accrued restructuring expenses, long-term portion		149			161
Long-term debt		3,250			3,792
Other long-term liabilities		158			122

Total liabilities		28,621			28,737

Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding		—			—
Common stock, $0.0025 par value; 30,000,000 shares authorized; 15,885,018 and 15,657,258 shares issued and outstanding, respectively		40			39
Additional paid-in capital		65,089			63,365
Accumulated deficit		(23,925	)		(24,604	)
Accumulated other comprehensive loss		(1,355	)		(1,450	)

Total stockholders’ equity		39,849			37,350

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	68,470		$	66,087

See accompanying Notes to Condensed Consolidated Financial Statements.

Applix, Inc.

Condensed Consolidated Statements of Income
(In thousands, except per share amounts)


	Three Months Ended
	March 31,
	2007			2006
Revenues:
Software license	$	7,105		$	4,427
Professional services and maintenance		6,790			4,566

Total revenues		13,895			8,993
Cost of revenues:
Software license		106			44
Professional services and maintenance		1,510			1,016
Amortization of an acquired intangible asset		93			—

Total cost of revenues		1,709			1,060

Gross margin		12,186			7,933

Operating expenses:
Sales and marketing		6,543			4,573
Product development		2,287			1,568
General and administrative		2,373			1,724
Amortization of acquired intangible assets		162			63

Total operating expenses		11,365			7,928

Operating income		821			5
Non-operating income (expense):
Interest income		304			230
Interest expense		(144	)		(11	)
Other income (expense), net		150			(115	)

Income before income taxes		1,131			109
Provision for income taxes		372			12

Net income	$	759		$	97

Net income per share, basic and diluted:
Net income per share, basic	$	0.05		$	0.01
Net income per share, diluted	$	0.04		$	0.01
Weighted average number of shares outstanding:
Basic		15,553			15,024
Diluted		17,950			16,467

See accompanying Notes to Condensed Consolidated Financial Statements.

Applix, Inc.

Condensed Consolidated Statements of Cash Flows


	Three Months Ended
	March 31,
	2007			2006
	(in thousands)
Cash flows from operating activities:
Net income	$	759		$	97
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		175			115
Amortization		255			63
Provision for doubtful accounts		(2	)		(16	)
Stock-based compensation expense		738			495
Deferred income taxes		176			—
Changes in operating assets and liabilities:
Decrease in accounts receivable		3,823			2,229
Increase in prepaids and other assets		(691	)		(52	)
Decrease in accounts payable		(137	)		(349	)
Decrease in accrued expenses		(1,767	)		(478	)
Decrease in accrued restructuring expenses		(13	)		(9	)
Increase (decrease) in other liabilities		36			(29	)
Increase in deferred revenues		2,177			458

Cash provided by operating activities		5,529			2,524

Cash flows from investing activities:
Acquisition, net of cash acquired		(51	)		—
Property and equipment expenditures		(88	)		(226	)
Decrease in restricted cash		—			100
Maturities of short-term investments		3,750			3,175
Purchases of short-term investments		(2,108	)		(1,948	)

Cash provided by investing activities		1,503			1,101

Cash flows from financing activities:
Proceeds from issuance of common stock under stock plans		933			584
Principal payments on long-term debt		(542	)		—

Cash provided by financing activities		391			584

Effect of exchange rate changes on cash		115			95

Increase in cash and cash equivalents		7,538			4,304
Cash and cash equivalents at beginning of period		23,487			20,740

Cash and cash equivalents at end of period	$	31,025		$	25,044

Supplemental disclosure of cash flow information
Cash paid for income taxes	$	258		$	192

Cash paid for interest	$	134		$	5

See accompanying Notes to Condensed Consolidated Financial Statements.

APPLIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. The Company

Applix, Inc. (the “Company”) is a global provider of Business Analytics software solutions focusing on Business Performance Management (“BPM”) and Business Intelligence (“BI”) applications based on Applix’s TM1. TM1 applications enable continuous strategic planning, management and monitoring of performance across the financial and operational functions within the enterprise. The Company’s products represent one principal business segment.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) including instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

Use of Estimates

The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions in these financial statements relate to, among other items, the useful lives of property and equipment and intangible assets, domestic and foreign income tax liabilities, valuation of deferred tax assets, stock-based compensation, the allowance for doubtful accounts, impairment of goodwill and accrued liabilities.

Reclassifications

Certain prior year financial statement items have been reclassified to conform to the current year presentation.

New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands fair value measurement disclosures. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating whether adoption of SFAS 157 will have an impact on our financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are in the process of evaluating the effect of SFAS No. 159 on our consolidated results of operations and financial position.

3. Acquisition

On June 15, 2006, the Company completed the acquisition of Temtec International B.V. (“Temtec”), a privately-held Netherlands company that is a leading provider of self-service analytic software that empowers non-technical business users to analyze and report on business-critical information in real time. The acquisition of Temtec enables the Company to provide companies with a more powerful solution set for creating, managing and delivering compelling operational performance management applications throughout the enterprise. The total purchase price for Temtec was approximately $15,378,000 and was comprised of the following (in thousands, except share amounts):


Cash	$	11,455
Common stock (330,252 shares)		2,538
Direct acquisition costs		1,385

Total	$	15,378

The Company accounted for the Temtec acquisition as a purchase, and accordingly, included the assets purchased and liabilities assumed in the consolidated balance sheet at the purchase date based upon their estimated fair values. The results of operations of Temtec are included in the consolidated financial statements beginning June 15, 2006.

4. Stock-based Compensation

The Company grants stock options and issues common stock to its employees and directors and also provides employees the right to purchase stock pursuant to stockholder approved stock option and employee stock purchase plans. Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standard No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). Under the provisions of SFAS 123R, the Company recognizes as compensation expense the fair value of share-based payment awards on a straight-line basis over the requisite service period of the individual award, which generally equals the vesting period. All of the Company’s share-based payment awards are accounted for as equity instruments, as there have been no liability awards granted.

Under the provisions of SFAS 123R, the Company recorded $738,000 and $495,000 of stock-based compensation expense in its condensed consolidated statements of income for the three months ended March 31, 2007 and 2006, respectively, which had the effect of reducing net income by $0.04 and $0.03 per diluted share, respectively. Stock-based compensation expense was included in the following expense categories (in thousands):


	Three Months Ended
	March 31,
	2007		2006
Cost of revenues	$	21	$	16
Sales and marketing		264		168
Product development		194		120
General and administrative		259		191

Total	$	738	$	495

There was no income tax benefit recognized in the Company’s condensed consolidated statements of income for the three months ended March 31, 2007 and 2006 for stock-based payments. Total unrecognized stock-based compensation expense related to unvested stock options, expected to be recognized over a weighted average period of 1.5 years, amounted to approximately $6,152,000 at March 31, 2007. Total unrecognized stock-based compensation expense will be adjusted for any future changes in estimated forfeitures, if any.

SFAS 123R requires the cash flows resulting from tax benefits relating stock-based compensation to be classified as cash flows from financing activities. For the three months ended March 31, 2007 and 2006, there was no net tax benefit from the exercises of stock options.

Information with respect to stock option activity under the various stock plans is as shown below:


	Options Outstanding
				Weighted
				Average
	Number			Exercise Price
Options outstanding at January 1, 2007		3,997,791		$	4.29
Options granted		549,250		$	12.59
Options exercised		(175,920	)	$	3.62
Options cancelled		(45,983	)	$	12.71

Options outstanding at March 31, 2007		4,325,138		$	5.28

Options exercisable at March 31, 2007		2,384,022		$	3.20

The weighted average remaining contractual term and the aggregate intrinsic value for options outstanding at March 31, 2007 were 4.5 years and $35.2 million, respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options exercisable at March 31, 2007 were 3.5 years and $24.3 million, respectively. The intrinsic value of options exercised during the three months ended March 31, 2007 was approximately $1,376,000.

The Company utilizes the Black-Scholes valuation model for estimating the fair value of the stock-based compensation granted after the adoption of SFAS 123R. The weighted-average fair values of the options granted under the stock option plans and shares subject to purchase under the employee stock purchase plan were $6.14 and $2.58, respectively, for the three months ended March 31, 2007, and $3.46 and $1.81, respectively for the three months ended March 31, 2006, assuming no dividends and using the following assumptions:


	Three Months Ended						Three Months Ended
	March 31, 2007						March 31, 2006
	Stock Option			Purchase			Stock Option			Purchase
	Plans			Plan			Plans			Plan
Expected life (years)		4.6			.5			4.6			.5
Expected stock price volatility		52.2	%		29.2	%		55.5	%		51.0	%
Risk free interest rate		4.8	%		5.2	%		4.5	%		4.2	%

Expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury rates on the date of grant for a term equivalent to the expected life of the options. The expected life was calculated using the method outlined in SEC Staff Accounting Bulletin Topic 14.D.2, “Expected Term,” as the Company’s historical experience does not provide a reasonable basis for the expected term of the option.

Based on the Company’s historical employee turnover and stock option forfeitures rates, an annualized estimated forfeiture rate of 8.5% has been used in calculating the cost for stock options. Under the true-up provisions of SFAS 123R, additional expense will be recorded if the actual forfeiture rate is lower than estimated, and a recovery of prior expense will be recorded if the actual forfeiture is higher than estimated.

5. Earnings Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Dilutive net income per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect, if any, of potential incremental common shares, determined through the application of the treasury stock method under SFAS No. 128, “Earnings Per Share”, to the stock options outstanding during the period.


	Three Months Ended
	March 31,
	2007		2006
	(In thousands, except
	per share amounts)
Numerator:
Net income	$	759	$	97

Denominator:
Denominator for basic net income per share — Weighted shares outstanding		15,553		15,024
Dilutive effect of assumed exercise of stock options and contingently returnable shares		2,397		1,443

Denominator for diluted net income per share		17,950		16,467


Basic net income per share	$	0.05	$	0.01

Diluted net income per share	$	0.04	$	0.01

Common stock equivalents (stock options) of 262,144 and 272,613 were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2007 and 2006, respectively, because these options were anti-dilutive. However, these options could be dilutive in the future.

6. Comprehensive Income

Components of comprehensive income (loss) include net income and certain transactions that have generally been reported in the consolidated statements of stockholders’ equity. Other comprehensive income (loss) includes gains and losses from foreign currency translation adjustments and unrealized gains and losses on short-term investments.


	Three Months Ended
	March 31,
	(In thousands)
	2007		2006
Net income	$	759	$	97

Other comprehensive income items:
Foreign currency translation adjustments		94		171
Unrealized loss on short-term investments		1		—

Other comprehensive income		95		171

Total comprehensive income	$	854	$	268

7. Income Taxes

The provision for income taxes represents the Company’s federal and state income tax obligations as well as foreign tax provisions. The Company’s provision for income taxes was $372,000 and $12,000 for the three months ended March 31, 2007 and 2006, respectively. The increase in the effective tax rate during the three months ended March 31, 2007 compared to the same period of the prior year was primarily due to the full valuation allowance that was recorded against the Company’s domestic deferred tax assets during the three months ended March 31, 2006. At December 31, 2006, the Company reversed of a portion of the valuation allowance on the Company’s domestic deferred tax assets, mainly comprised of federal and state net operating loss carryforwards.

The Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), on January 1, 2007. The purpose of FIN 48 is to clarify and set forth consistent rules for accounting for uncertain tax positions in accordance with SFAS 109, “Accounting for Income Taxes” by requiring the application of a “more likely than not” threshold for the recognition and derecognition of tax positions. As a result of applying the provisions of FIN 48, the Company recognized an increase of approximately $1.9 million in the liability for unrecognized tax benefits, of which $80,000 was recorded as an increase to accumulated deficit and the remaining $1.8 million as a reduction to deferred tax assets, primarily federal and state research tax credits, and its corresponding portion of the valuation allowance, as of January 1, 2007. The Company’s unrecognized tax benefits totaled approximately $2.3 million at January 1, 2007, which included $88,000 of estimated interest and penalties. Included in the balance at January 1, 2007 are approximately $527,000 of tax positions, the disallowance of which would affect the annual effective income tax rate.

The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During the three months ended March 31, 2007, potential interest and penalties associated with uncertain tax positions did not have a material impact of the Company’s financial statements.

The Company files U.S., state and foreign income returns in jurisdictions with varying statutes of limitation. The 1999 through 2006 tax years generally remain subject to examination by federal and most state tax authorities. The 2002 through 2006 tax years generally remain subject to examination by the tax authorities in the Company’s major foreign tax jurisdictions.

8. Commitments and Contingencies

Contingencies

From time to time, the Company is subject to routine litigation and proceedings in the ordinary course of business. The Company is not aware of any pending litigation to which the Company is or may become a party, that the Company believes could have a material adverse impact on its consolidated results of operations or financial condition.

9. Restructuring Expenses

In the second quarter of 2004, the Company adopted a plan of restructuring to reduce operating costs. Under this plan, the Company made the determination that it had no future use for or benefit from, certain space pertaining to its UK office lease. In June 2004, the Company entered into a sublease agreement with a subtenant for a portion of the Company’s UK office lease. In July 2004, upon exiting the space, the Company recorded a restructuring charge of approximately $604,000. The restructuring charge was primarily comprised of the difference between the Company’s contractual lease rate for the subleased space and the anticipated sublease rate to be realized over the remaining term of the original lease, discounted by a credit adjusted risk rate of 8%. The restructuring charge also consisted of other related professional services, including legal fees, broker fees and certain build-out costs, incurred in connection with the exiting of the facility. The Company expects to make payments relating to this restructuring until the lease expires in March 2010.

Restructuring charges accrued and unpaid at March 31, 2007, including current and long term portions of $51,000 and $149,000, respectively, were as follows:


	Facility
	Exit Costs
Balance at January 1, 2007	$	212,000
Payments		(13,000	)
Foreign currency translation adjustments		1,000

Balance at March 31, 2007	$	200,000

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW OF THE COMPANY’S OPERATIONS

The Company is a global provider of Business Analytics software solutions focusing on Business Performance Management (“BPM”) and Business Intelligence (“BI”) applications based on Applix’s TM1 that enable continuous strategic planning, management and monitoring of performance across the financial and operational functions within the enterprise.

The Company sells its products through both a direct sales force and an expanding network of partners, both domestically and internationally. These partners provide additional implementation resources, domain expertise and complementary applications using the Company’s software products. The Company continues to focus its efforts selling and marketing the licensing and maintenance of its products while increasing the engagement of partners to provide consulting services on the implementation and integration of its products.

On June 15, 2006, the Company completed the acquisition of Temtec International B.V. (“Temtec”), a privately-held Netherlands company that is a leading provider of self-service analytic software that empowers non-technical business users to analyze and report on business-critical information in real time. The acquisition of Temtec enables the Company to provide companies with a more powerful solution set for creating, managing and delivering compelling operational performance management applications throughout the enterprise. The Company accounted for the Temtec acquisition as a purchase, and accordingly, recorded the assets purchased and liabilities assumed at the purchase date based upon their estimated fair values.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

	•		Revenue Recognition

	•		Allowance for Doubtful Accounts

	•		Goodwill and Other Intangible Assets and Related Impairment

	•		Stock-based Compensation

	•		Restructuring

	•		Income Taxes

There have been no changes in our critical accounting policies or significant accounting estimates as disclosed in our 2006 Annual Report on Form 10-K other than the implementation of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (see Note 7 in the Notes to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q). For more information regarding the Company’s critical accounting policies, the Company refers the reader to the discussion contained in Item 7 under the heading “Critical Accounting Policies and Estimates” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, to Note 2 to the consolidated financial statements for the year ended December 31, 2006, contained within the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, and to Note 2 to the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2007 and 2006

Revenues


	(In thousands, except percentages)
	Three Months Ended March 31,
			Percent					Percent
			of					of
	2007		Revenue			2006		Revenue
Software License Revenues	$	7,105		51	%	$	4,427		49	%

Professional Services Revenues		1,075		8	%		431		5	%
Maintenance Revenues		5,715		41	%		4,135		46	%

Total Professional Services and Maintenance Revenues		6,790		49	%		4,566		51	%

Total Revenues	$	13,895		100	%	$	8,993		100	%

Total revenues for the three months ended March 31, 2007 increased $4,902,000, or 55%, to $13,895,000 from $8,993,000 for the three months ended March 31, 2006. The increase in total revenues from the prior year period was comprised of increases of $2,678,000 in software license revenues and $2,224,000 in professional services and maintenance revenues. Included in the first quarter of 2007 total revenues was approximately $1.2 million of revenues relating to the sale of Temtec products and services. When expressed at constant foreign currency exchange rates, total revenues increased 47% for the three months ended March 31, 2007 compared to the same period in the prior year.

Software License Revenues

Software license revenues increased by $2,678,000 to $7,105,000 for the three months ended March 31, 2007 from $4,427,000 for the three months ended March 31, 2006. The increase in software license revenues was largely due to the Company expanding its customer base, domestically and internationally, and successfully competing in broader and higher value deals resulting from the strengthening of the Company’s worldwide field operations as well as the continued development and enhancements to the Company’s product offerings, including those obtained in the Temtec acquisition in June 2006. A measure the Company uses to evaluate revenue performance is deal size given the relative importance of gross margin within the software industry. The number of transactions resulting in software license revenue in excess of $100,000 was 12 for the three months ended March 31, 2007 compared to 9 in the same period in the prior year.

Domestic software license revenue increased 41% to $2,492,000 for the three months ended March 31, 2007 from $1,769,000 for the three months ended March 31, 2006. International software license revenue increased 74% to $4,613,000 for the three months ended March 31, 2007 from $2,658,000 for the three months ended March 31, 2006.

The Company markets its products through its direct sales force and indirect partners. The Company continues to focus on complementing its direct sales force with indirect channel partners, which consist of value added resellers, independent distributors, sales agents and original equipment manufacturers.

Professional Services and Maintenance

Professional services and maintenance revenues increased by 49% to $6,790,000 for the three months ended March 31, 2007 as compared to $4,566,000 for the three months ended March 31, 2006. During the three months ended March 31, 2007, maintenance revenues increased $1,580,000 to $5,715,000, compared to $4,135,000 for the three months ended March 31, 2006, and professional services revenues increased to $1,075,000 for the three months ended March 31, 2007, compared to $431,000 for the three months ended March 31, 2006. The increase in maintenance revenue was primarily attributable to the sale of software licenses to new customers coupled with high rates of renewals of annual maintenance contracts from the sale of licenses in prior periods. The increase in professional services revenues was primarily due to increased training and consulting revenues resulting from

increased license revenues. The Company will continue to rely primarily on its partners to provide consulting services, including BPM/BI product implementations, as the Company focuses on maintenance services, which include telephonic support, unspecified product upgrades, and bug fixes and patches. The Company expects maintenance revenues to continue to increase due to strong customer maintenance renewal rates.

Cost of Revenues


	Three Months Ended March 31,
	(In thousands, except percentages)
	2007				2006
Cost of Software License Revenues	$	106			$	44

Cost of Professional Services and Maintenance Revenues:
Cost of Professional Services Revenues		784				411
Cost of Maintenance Revenues		726				605

Total		1,510				1,016

Amortization of an acquired intangible asset		93				—

Total Cost of Revenues	$	1,709			$	1,060

Gross Margin (A):
Software License (B)	$	6,906	97	%	$	4,383	99	%

Professional Services and Maintenance:
Professional Services		290	27	%		20	5	%
Maintenance		4,990	87	%		3,530	85	%

Total		5,280	78	%		3,550	78	%

Total Gross Margin	$	12,186	88	%	$	7,933	88	%


(A)		Gross margins calculated as a percentage of related revenues.

(B)		Software license gross margin calculated net of cost of software license revenues and amortization of an acquired intangible asset.

Cost of Software License Revenues

Cost of software license revenues consists primarily of third-party software royalties and the cost of product packaging and documentation material. Cost of software license revenues as a percentage of software license revenues was 1% for the three months ended March 31, 2007 and less than 1% for the three months ended March 31, 2006. The dollar increase in the cost of license revenues was primarily due an increase in third-party royalties associated with the sales of certain products.

Cost of Professional Services and Maintenance Revenues

The cost of professional services and maintenance revenues consists primarily of personnel salaries and benefits, third-party consultants, facilities and information system costs incurred to provide consulting, training and customer support, and payments to indirect channel partners to provide first level support to end-user customers. Cost of professional services and maintenance revenues increased by $494,000 to $1,510,000 for the three months ended March 31, 2007 from $1,016,000 for the three months ended March 31, 2006. The increase in the cost of professional services and maintenance revenues was primarily due to an increase in customer support and professional services employees, including employees gained from the Company’s acquisition of Temtec.

Amortization of an Acquired Intangible Asset

Amortization expense for the acquired intangible asset, existing technology, associated with the Temtec acquisition in June 2006, was $93,000 for the three months ended March 31, 2007. The amortization expense of this intangible asset will continue to be ratably amortized through the second quarter of 2011.

Operating Expenses


	Three Months Ended March 31,
	(In thousands, except percentages)
			Percent of					Percent of
	2007		Revenues			2006		Revenues
Sales and marketing	$	6,543		47	%	$	4,573		51	%
Product development		2,287		17	%		1,568		17	%
General and administrative		2,373		17	%		1,724		19	%
Amortization of acquired intangible assets		162		1	%		63		1	%

Total operating expenses	$	11,365		82	%	$	7,928		88	%

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries and benefits, commissions and bonuses for the Company’s sales and marketing personnel, field office expenses, travel and entertainment, promotional and advertising expenses. Sales and marketing expenses increased $1,970,000 to $6,543,000 for the three months ended March 31, 2007 from $4,573,000 for the three months ended March 31, 2006. The increase in sales and marketing expenses was primarily due to an increase in staffing in sales and marketing personnel, including the additional employees gained from the acquisition of Temtec in the second quarter of 2006, as well as higher sales commission expense based on increased revenues. These resulted in an increase of approximately $1,254,000 in sales and marketing expenses compared to the same period of 2006. In addition, the Company increased its investment in marketing programs, advertising and lead generation activities by approximately $291,000 for the three months ended March 31, 2007 compared to the same period in the prior year.

Product Development Expenses

Product development expenses include costs associated with the development of new products, enhancements of existing products and quality assurance activities, and consist primarily of employee salaries and benefits, consulting costs, as well as the cost of software development tools. Product development expenses increased $719,000 to $2,287,000 for the three months ended March 31, 2007 from $1,568,000 for the three months ended March 31, 2006. The increase in product development expenses was primarily due to an increase in headcount from 34 at March 31, 2006 to 54 at March 31, 2007, including employees gained from the Company’s acquisition of Temtec in June 2006. The Company anticipates that it will continue to devote substantial resources to the development of new products and new versions of its existing products, including Applix TM1 and related applications.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and occupancy costs for executive, administrative, finance, information technology, and human resource personnel, as well as accounting and legal costs. General and administrative expenses increased $649,000 to $2,373,000 for the three months ended March 31, 2007 from $1,724,000 for the three months ended March 31, 2006. The increase in professional services fees incurred in connection with compliance efforts, primarily associated with preparation for its management report and auditor attestation relating to its internal control over financial reporting, contributed to the higher general and administrative expenses during the three months ended March 31, 2007 compared to the same period of 2006. The increase of general and administrative expenses was also due to additional costs incurred related to the acquisition of Temtec in June 2006. The Company will continue to closely monitor general and administrative costs.

Amortization of Acquired Intangible Assets

Amortization expense for the acquired intangible asset, customer relationships, associated with the Dynamic Decisions acquisition in March 2001, was $63,000 for the three months ended March 31, 2007 and 2006, respectively. The amortization expense relating to the Dynamic Decisions acquisition was ratably amortized through the first quarter of 2007.

Amortization expense for the acquired intangible asset, customer relationships, associated with the Temtec acquisition in June 2006, was $99,000 for the three months ended March 31, 2007. The amortization of this intangible asset will continue ratably through 2016.

Non-operating Income (Expense)


	Three Months Ended March 31,
	(In thousands, except percentages)
				Percent of						Percent of
	2007			Revenues			2006			Revenues
Interest income	$	304			2	%	$	230			3	%
Interest expense		(144	)		(1	%)		(11	)		—	%
Other income (expense), net		150			1	%		(115	)		(1	%)

Total	$	310			2	%	$	104			2	%

Interest Income

Interest income increased to $304,000 for the three months ended March 31, 2007 from $230,000 from the three months ended March 31, 2006. The increase in interest income was due to higher interest rates earned on higher average cash and short-term investments balances as compared to the same period in 2006.

Interest Expense

Interest expense increased to $144,000 for the three months ended March 31, 2007 from $11,000 from the three months ended March 31, 2006. The increase was primarily due to the increase in interest expense resulting from the $6.5 million term loan entered into in June 2006 in connection with the Temtec acquisition.

Other Income (Expense), Net

Other income (expense), net represents other non-operating income and expense items, primarily consisting of gains and losses on foreign currency exchange fluctuations. Other income (expense), net increased to income of $150,000 for the three months ended March 31, 2007 from expense of $115,000 for the three months ended March 31, 2006. The change was mainly due to foreign currency exchange rate fluctuations, primarily the Euro, the British Pound, and the Australian dollar, on intercompany balances, which are considered short-term in nature and are denominated in the Company’s foreign subsidiaries’ local currencies.

Provision for Income Taxes

LIQUIDITY AND CAPITAL RESOURCES

The Company currently derives its liquidity and capital resources primarily from the Company’s cash flow from operations. The Company’s cash and cash equivalents balances were $31,025,000 and $23,487,000 as of March 31, 2007 and December 31, 2006, respectively, which excludes restricted cash of $400,000. The Company’s days sales outstanding (“DSO”) in accounts receivable was 62 days as of March 31, 2007, compared with 75 days as of December 31, 2006.

Cash provided by the Company’s operating activities was $5,529,000 for the three months ended March 31, 2007, compared to cash provided by operating activities of $2,524,000 for the three months ended March 31, 2006. Cash provided by operating activities was primarily due to a decrease in accounts receivable of $3,823,000 resulting primarily from strong cash collections during three months ended March 31, 2007, coupled with an increase in deferred revenue of $2,177,000.

Cash provided by investing activities totaled $1,503,000 for the three months ended March 31, 2007 compared to cash provided by investing activities of $1,101,000 for the three months ended March 31, 2006. Cash provided by investing activities consisted primarily of $1,642,000 of maturities, net of purchases, of short-term investments during the three months ended March 31, 2007.

Cash provided by financing activities totaled $391,000 for the three months ended March 31, 2007, which consisted of proceeds of $933,000 received from the issuance of stock under the Company’s stock plans, partially offset by $542,000 of principal payments on the Company’s term loan. Cash provided by financing activities totaled $584,000 for the three months ended March 31, 2006, which consisted of proceeds received from the issuance of stock under the Company’s stock plans.

Cash paid for income taxes by the Company was $258,000 and $192,000 for the three months ended March 31, 2007 and 2006, respectively.

The Company has contractual obligations for capital leases, operating leases and purchase obligations that were summarized in a table of Contractual Obligations set forth in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. There have been no material changes to the contractual obligations of the Company, outside of the ordinary course of the Company’s business, since December 31, 2006.

The Company does not have any off-balance sheet financing or unconsolidated special purpose entities.

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 and short-term investment balances, funds expected to be generated from operations, and funding available under the SVB credit facility. The Term Loan and availability of borrowings under the Company’s credit facility are subject to the maintenance of certain financial covenants and borrowing limits. The Company believes that the sources of funds currently available will be sufficient to fund its operations for at least the next 12 months. However, there are a number of factors that may negatively impact the Company’s available sources of funds. The amount of cash generated from or used by operations will be dependent primarily upon the successful execution of the Company’s business plan, including increasing revenues and reinvesting into its sales and marketing and product development. If the Company does not meet its plans to generate sufficient revenue or positive cash flows, it may need to raise additional capital or reduce spending.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a multinational corporation, the Company is exposed to market risk, primarily from changes in foreign currency exchange rates, in particular the British pound, the Euro and the Australian dollar. These exposures may change over time and could have a material adverse impact on the Company’s financial results. Most of the Company’s international sales through its subsidiaries are denominated in foreign currencies. Although foreign currency exchange rates have fluctuated significantly in recent years, the Company’s exposure to changes in net income, due to foreign currency exchange rates fluctuations, in the Company’s foreign subsidiaries is mitigated to some extent by expenses incurred by the foreign subsidiary in the same currency. The Company’s primary foreign currency exposures relate to its short-term intercompany balances with its foreign subsidiaries, primarily the Australian dollar. The Company’s foreign subsidiaries have functional currencies denominated in the Euro, Australian dollar, British pound and Swiss franc. Intercompany transactions denominated in these currencies are remeasured at each period end with any exchange gains or losses recorded in the Company’s consolidated statements of income. During the three months ended March 31, 2007, the Company incurred a net gain on foreign exchange of approximately $175,000, primarily due to favorable movements in the Australian dollar, Euro and British pound exchange rates. Based on foreign currency exposures existing at March 31, 2007, a hypothetical 10% unfavorable movement in foreign exchange rates related to the British pound, Euro, Australian dollar, and Swiss franc would result in an approximately $999,000 reduction to earnings. The Company is not engaged in activities to hedge these exposures.

At March 31, 2007, the Company held $31,025,000 in cash and cash equivalents, excluding $400,000 of restricted cash, consisting primarily of money market funds and $2,081,000 in short-term investments. Cash equivalents and short-term investments are classified as available for sale and carried at fair value, which approximates amortized cost. A hypothetical 10% increase in interest rates would not have a material impact on the fair market value of these instruments due to their short maturity and the Company’s intention that all the securities will be sold within one year.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2007. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures as of March 31, 2007, the Company’s chief executive officer and chief financial officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

Investors should carefully consider the risks described below before making an investment decision with respect to the common stock of the Company. There have been no material changes to the risk factors disclosed in our 2006 Annual Report on Form 10-K.

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

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

	•		demand for and market acceptance of our products and services;

	•		the size and timing of customer orders, particularly large orders;

	•		introduction of products and services or enhancements by us and our competitors;

	•		competitive factors that affect our pricing;

	•		the mix of products and services we sell;

	•		the hiring and retention of key personnel;

	•		our expansion into international markets;

	•		the timing and magnitude of our capital expenditures, including costs relating to the expansion of our operations;

	•		the acquisition and retention of key partners;

	•		changes in generally accepted accounting policies, especially those related to the recognition of software revenue and the accounting for stock-based compensation; and

	•		new government legislation or regulation.

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

BECAUSE THE BUSINESS PERFORMANCE MANAGEMENT AND BUSINESS INTELLIGENCE MARKETS ARE HIGHLY COMPETITIVE, WE MAY NOT BE ABLE TO SUCCEED.

If we fail to compete successfully in the highly competitive and rapidly changing business performance management and business intelligence markets, we may not be able to succeed. We face competition primarily from business intelligence firms. We also face competition from large enterprise application software vendors,

independent systems integrators, consulting firms and in-house IT departments. Because barriers to entry into the software market are relatively low, we expect to face additional competition in the future.

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

WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE TEMTEC INTO OUR BUSINESS AND OPERATIONS.

The integration of the business and operations of Temtec International B.V., which we acquired in June 2006, into our business and operations is a complex, time-consuming and expensive process. Before any acquisition, each company has its own business, culture, customers, employees and systems. After the acquisition, we must ensure that the companies operate as a combined organization using common communications systems, operating procedures, financial controls and human resources practices. In order to successfully integrate Temtec, we must, among other things, successfully:

	•		retain key Temtec personnel;

	•		integrate, both from an engineering and a sales and marketing perspective, Temtec’s products and services into our suite of product and service offerings;

	•		coordinate research and development efforts;

	•		train and integrate sales forces;

	•		integrate our business processes and systems; and

	•		eliminate redundant costs and consolidate redundant facilities.

There can be no assurance that we will be able to successfully integrate Temtec, and a failure to do so may materially impact our results of operations.

WE MAY NOT SUSTAIN PROFITABILITY OR BE ABLE TO FULFILL ANY FUTURE CAPITAL NEEDS.

We could incur operating losses and negative cash flows in the future because of costs and expenses relating to brand development, marketing and other promotional activities, continued development of our information technology infrastructure, expansion of product offerings and development of relationships with other businesses. There can be no assurance that we will continue to achieve a profitable level of operations in the future.

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

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

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

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

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

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

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

	•		difficulty in assimilating the operations, technology and personnel of acquired companies;

	•		disruption in our business because of the allocation of resources to consummate these transactions and the diversion of management’s attention from our core business;

	•		difficulty in retaining key technical and managerial personnel from acquired companies;

	•		dilution of our stockholders, if we issue equity to fund these transactions;

	•		assumption of increased expenses and liabilities;

	•		our relationships with existing employees, customers and business partners may be weakened or terminated as a result of these transactions; and

	•		additional ongoing expenses associated with write-downs of goodwill and other purchased intangible assets.

WE RELY HEAVILY ON KEY PERSONNEL.

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

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

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

	•		we may have difficulty managing and administering a globally-dispersed business;

	•		fluctuations in exchange rates may negatively affect our operating results;

	•		we may not be able to repatriate the earnings of our foreign operations;

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

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 operations 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.

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.

OUR FINANCIAL RESULTS MAY BE ADVERSELY IMPACTED BY HIGHER THAN EXPECTED TAX RATES OR EXPOSURE TO ADDITIONAL INCOME TAX LIABILITIES.

As a global company, our effective tax rate is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region. Applix is subject to income taxes in both the U.S. and various foreign jurisdictions, and significant judgment is required to determine worldwide tax liabilities. Applix’s effective tax rate could be adversely affected by changes in the distribution of earnings between countries with differing statutory tax rates, in the valuation of deferred tax assets, and in tax laws, which could adversely affect profitability. Further, the carrying value of deferred tax assets is dependent on Applix’s ability to generate future taxable income. In addition, the amount of income taxes paid is subject to ongoing audits in various jurisdictions, and a material assessment by a governing tax authority could affect profitability.

ITEM 6. EXHIBITS

(a) Exhibits


Exhibit
Number		Description

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.


	APPLIX, INC.
Date: May 10, 2007	/s/ Milton A. Alpern
	Milton A. Alpern
	Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit
Number		Description

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

APPLIX INC /MA/ 10-Q