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~~Quarterly ~~period~~Period ~~ended~~Ended March 31, ~~2005~~2007


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

For the transition period from to

Commission File Number 0-25040

APPLIX, INC.

(Exact name of registrant as specified in its charter)


MASSACHUSETTS		04-2781676

(State or other jurisdiction of 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 by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or ~~for~~ 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. ~~(as~~See ~~defined~~definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the ~~Securities~~ Exchange Act ~~of 1934)~~. ~~Yes~~(Check ~~o No þ~~one):

AsLarge ofaccelerated ~~May 2,~~filer ~~2005,~~o Accelerated ~~the~~filer ~~Registrant~~þ Non-accelerated ~~had~~filer ~~14,615,422 outstanding shares of common stock.~~ 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, ~~2005~~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, 2005 and December 31, 2004		3
Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006		3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004		4
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, 2005 and 2004		5
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		1210
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2217
Item 4. Controls and Procedures		2218
Part II — Other Information		23
Item 5. Other Information		23
Item 1A. Risk Factors		19
Item 6. Exhibits		23
Signature		24
Ex-10.25 First Loan Modification Agreement
EX-31.1 SECTION 302 CERTIFICATION OF CEO
Ex-10.26 Summary of 2005 Management Incentive Plan
EX-31.2 SECTION 302 CERTIFICATION OF CFO
Ex-31.1 Section 302 Certification of C.E.O.
EX-32.1 SECTION 906 CERTIFICATION OF CEO
Ex-31.2 Section 302 Certification of C.F.O.
EX-32.2 SECTION 906 CERTIFICATION OF CFO
Ex-32.1 Section 906 Certification of C.E.O.
Ex-32.2 Section 906 Certification of C.F.O.

Applix and TM1 are registered trademarks of Applix, Inc. TM1 Integra, ~~Applix~~TM1 ~~Interactive~~Financial Reporting, TM1 Consolidations, TM1 Planning Manager, ~~and~~ 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, ~~operating 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 ~~Any~~statements ~~expectations~~necessarily ~~based~~involve onrisks ~~these~~and ~~forward-looking~~uncertainties. ~~statements~~Actual ~~are~~results ~~subject~~could todiffer ~~risks~~materially ~~and~~from ~~uncertainties~~those ~~and~~indicated ~~other~~by ~~important~~such forward-looking statements as a result of important factors, including those discussed in the section below entitled “~~Factors~~Risk ~~that May Affect Future Results~~Factors”. ~~These~~Applix ~~and~~does ~~many other factors could affect~~not ~~Applix’s~~undertake ~~future~~an ~~financial~~obligation ~~and~~to ~~operating~~update ~~results,~~its ~~and~~forward-looking ~~could~~statements ~~cause~~to ~~actual~~reflect ~~results~~future toevents ~~differ~~or ~~materially~~circumstances ~~from~~and ~~expectations~~the ~~based on~~ forward-looking statements ~~made~~ in this document orshould ~~elsewhere by~~not ~~Applix~~be orrelied onupon ~~its~~as representing ~~behalf.~~the ~~Applix~~Company’s ~~does~~views ~~not~~as ~~undertake~~of anany ~~obligation~~date tosubsequent ~~update its forward-looking statements~~ to ~~reflect~~the ~~future~~date ~~events~~of orthis ~~circumstances~~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)

(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

	March 31,			December 31,
	2005			2004
ASSETS
Current assets:
Cash and cash equivalents	$	17,362		$	15,924
Short-term investments		2,976			—
Accounts receivable, less allowance for doubtful accounts of $266 and $227, respectively		4,412			6,171
Other current assets		1,217			1,207
Deferred tax assets		485			496
Total current assets		26,452			23,798
Restricted cash		400			400
Property and equipment, net		557			580
Other assets		679			687
Intangible asset, net of accumulated amortization of $1,000 and $938, respectively		500			562
Goodwill		1,158			1,158
TOTAL ASSETS	$	29,746		$	27,185
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	893		$	795
Accrued expenses		4,999			5,177
Accrued restructuring expenses, current portion		77			112
Deferred revenues		8,816			8,421
Total current liabilities		14,785			14,505
Accrued restructuring expenses, long term portion		241			261
Other long term liabilities		157			181
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued and outstanding
Common stock, $.0025 par value; 30,000,000 shares authorized; 14,615,422 and 14,290,584 shares issued and outstanding, respectively		36			36
Additional paid-in capital		56,126			54,348
Accumulated deficit		(40,062	)		(40,673	)
Accumulated other comprehensive loss		(1,537	)		(1,473	)
Total stockholders’ equity		14,563			12,238
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	29,746		$	27,185

See accompanying Notes to Condensed Consolidated Financial Statements.

~~See accompanying Notes to Condensed Consolidated Financial Statements.~~3

3 Table of Contents

~~Table~~Applix, ~~of Contents~~Inc.

~~Applix~~Condensed Consolidated Statements of Income (In thousands, ~~Inc.~~except per share amounts)

Condensed Consolidated Statements of Operations


	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

~~(In~~See ~~thousands,~~accompanying ~~except~~Notes ~~per~~to ~~share~~Condensed ~~amounts)~~Consolidated Financial Statements.

	Three Months Ended
	March 31,
	2005			2004
Revenues:
Software license	$	3,447		$	3,767
Professional services and maintenance		4,201			3,616
Total revenues		7,648			7,383
Cost of revenues		981			1,229
Gross margin		6,667			6,154
Operating expenses:
Sales and marketing		3,395			2,513
Product development		1,151			1,326
General and administrative (includes $15 of stock-based compensation for the three months ended March 31, 2005 and 2004, respectively)		1,361			1,608
Amortization of an acquired intangible asset		63			63
Total operating expenses		5,970			5,510
Operating income		697			644
Non-operating (expense) income:
Interest and other (expense) income, net		(20	)		147
Income before income taxes		677			791
Provision for income taxes		46			27
Income from continuing operations		631			764
Discontinued operations:
Loss from discontinued operations		(20	)		(26	)
Net income	$	611		$	738
Net income (loss) per share, basic and diluted:
Continuing operations, basic	$	0.04		$	0.06
Continuing operations, diluted	$	0.04		$	0.05
Discontinued operations	$	(0.00	)	$	(0.00	)
Net income per share, basic	$	0.04		$	0.05
Net income per share, diluted	$	0.04		$	0.05
Weighted average number of shares outstanding:
Basic		14,456			13,466
Diluted		16,417			15,010

SeeTable accompanyingof Notes to Condensed Consolidated Financial Statements. Contents

4Applix, Inc.

~~Table~~Condensed Consolidated Statements of ~~Contents~~Cash Flows

Applix, Inc.


	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

~~Condensed~~See ~~Consolidated~~accompanying ~~Statements~~Notes ofto ~~Cash~~Condensed ~~Flows~~Consolidated Financial Statements.

~~(In thousands)~~5

	Three Months Ended
	March 31,
	2005			2004
Cash flows from operating activities:
Net income	$	611		$	738
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		68			183
Amortization		63			195
Provision for doubtful accounts		45			41
Non-cash stock compensation expense		15			15
Changes in operating assets and liabilities:
Decrease in restricted cash		—			417
Decrease in accounts receivable		1,574			902
(Increase) decrease in prepaid and other current assets		(31	)		111
Increase (decrease) in accounts payable		117			(5	)
Decrease in accrued expenses		(47	)		(659	)
Decrease in accrued restructuring expenses		(55	)		(3,096	)
Decrease in other liabilities		(27	)		(10	)
Increase (decrease) in deferred revenues		547			(39	)
Cash provided by (used in) operating activities		2,880			(1,207	)
Cash flows from investing activities:
Property and equipment expenditures		(43	)		(25	)
Purchases of short-term investments		(2,976	)		—
Cash used in investing activities		(3,019	)		(25	)
Cash flows from financing activities:
Proceeds from issuance of common stock to affiliate		—			3,000
Proceeds from issuance of common stock under stock plans		825			1,356
Proceeds from notes receivable		892			231
Cash provided by financing activities		1,717			4,587
Effect of exchange rate changes on cash		(140	)		61
Increase in cash and cash equivalents		1,438			3,416
Cash and cash equivalents at beginning of period		15,924			9,241
Cash and cash equivalents at end of period	$	17,362		$	12,657
Supplemental disclosure of cash flow information
Cash paid for income tax	$	170		$	108

~~See~~APPLIX, ~~accompanying Notes to Condensed Consolidated Financial Statements~~INC.

5NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Table~~1. ofThe ~~Contents~~Company

~~APPLIX~~ Applix, ~~INC~~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.

~~NOTES~~2. TOSummary ~~CONDENSED~~of ~~CONSOLIDATED~~Significant ~~FINANCIAL~~Accounting ~~STATEMENTS~~Policies

1.Basis ~~The~~of ~~Company~~Presentation

~~Applix,~~The ~~Inc.~~accompanying ~~(the~~unaudited ~~“Company”)~~condensed isconsolidated afinancial ~~global~~statements ~~provider~~have ofbeen ~~Business~~prepared ~~Intelligence~~in accordance with accounting principles generally accepted in the United States of America (“BIU.S.”) for interim financial information and ~~Business~~pursuant to the rules and regulations of the Securities and ~~Performance~~Exchange ~~Management~~Commission (“~~BPM~~SEC”) ~~solutions,~~including ~~focused~~instructions onfor ~~interactive~~Form ~~planning~~10-Q and Article 10 of Regulation S-X. Accordingly, ~~budgeting~~they do not include all of the information and ~~analytics,~~footnotes required by accounting asprinciples ~~well~~generally asaccepted in the U.S. for complete financial ~~reporting~~statements. In the opinion of management, ~~which~~all ~~includes~~adjustments ~~Applix~~(consisting ~~TM1~~of ~~and~~normal ~~related~~recurring ~~modules~~entries) considered necessary for a fair presentation have been included. ~~The~~Operating ~~Company’s~~results for the three month period ended March 31, ~~products~~2007 ~~represent~~are ~~one~~not ~~principal~~necessarily ~~business~~indicative ~~segment~~of the results that may be expected for the year ending December 31, ~~which~~2007. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s ~~reports~~Annual asReport ~~its~~on ~~continuing~~Form 10-K for the year ended December ~~operations~~31, 2006.

2.Use ~~Summary~~ of ~~Significant Accounting Policies~~Estimates

~~Basis~~ The preparation of ~~Presentation~~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.

~~The accompanying unaudited condensed consolidated financial statements have been prepared in~~Reclassifications 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 accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. 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, 2004.

~~Use~~ Certain ofprior ~~Estimates~~year financial statement items have been reclassified to conform to the current year presentation.

~~The~~New ~~preparation~~Accounting ~~of financial statements and accompanying notes in conformity with accounting~~Pronouncements 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 fixed assets, capitalized software costs and their realizability, intangible assets, domestic and foreign income tax liabilities, valuation of deferred tax assets, the allowance for doubtful accounts and accrued liabilities.

~~Revenue~~ In ~~Recognition~~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.

~~The~~In ~~Company~~February 2007, ~~generates~~the ~~revenues~~FASB ~~mainly~~issued ~~from~~SFAS ~~licensing~~No. 159, ~~the~~“The ~~rights~~Fair toValue ~~use~~Option ~~its~~for ~~software~~Financial ~~products~~Assets and ~~providing~~Financial ~~services~~Liabilities-Including an amendment of FASB Statement No. 115” ~~The~~(“SFAS ~~Company~~No. 159”). ~~sells~~SFAS No. 159 ~~products~~permits ~~primarily~~entities ~~through~~to achoose ~~direct~~to ~~sales~~measure ~~force,~~many ~~indirect channel~~financial ~~partners~~instruments and ~~original~~certain ~~equipment~~other ~~manufacturers~~items ~~(“OEMs”)~~at fair value. ~~The~~SFAS ~~Company~~No. 159 ~~accounts~~is effective for ~~software revenue~~fiscal ~~transactions~~years inbeginning ~~accordance~~after ~~with~~November 15, ~~Statement~~2007. ofWe ~~Position~~are ~~(“SOP”)~~in the ~~97-2,~~process ~~“Software~~of ~~Revenue Recognition,”~~evaluating asthe ~~amended~~effect of SFAS No. 159 ~~Revenues~~on ~~from~~our ~~software~~consolidated ~~arrangements~~results ~~are~~of ~~recognized~~operations ~~when:~~and financial position.

• Persuasive evidence of an arrangement exists, which is typically when a non-cancelable sales and software license agreement has been signed, or purchase order has been received; • Delivery has occurred. If the assumption by the customer of the risks and rewards of its licensing rights occurs upon the delivery to the carrier (FOB Shipping Point), then delivery occurs upon shipment (which is typically the case). If assumption of such risks and rewards occurs upon delivery to the customer (FOB Destination), then delivery occurs upon receipt by the customer. In all instances, delivery includes electronic delivery of authorization keys to the customer; • The customer’s fee is deemed to be fixed or determinable and free of contingencies or significant uncertainties;6

6 Table of Contents

~~Table~~3. ~~of Contents~~Acquisition

• On ~~Collectibility~~June 15, 2006, the Company completed the acquisition of Temtec International B.V. (“Temtec”), a privately-held Netherlands company that is ~~probable;~~a leading provider of self-service analytic software that empowers non-technical business users to analyze and •report ~~Vendor~~on business-critical ~~specific~~information ~~objective~~in ~~evidence~~real time. The acquisition of ~~fair~~Temtec ~~value~~enables ~~exists~~the ~~for~~Company ~~all~~to provide ~~undelivered~~companies ~~elements,~~with ~~typically~~a ~~maintenance~~more powerful solution set for creating, managing and ~~professional~~delivering compelling ~~services~~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):

The Company uses the residual method under SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions”. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue, assuming all other conditions for revenue recognition have been satisfied. Substantially all of the Company’s software license revenue is recognized in this manner. If the Company cannot determine the fair value of any undelivered element included in an arrangement, the Company will defer revenue until all elements are delivered, until services are performed or until fair value of the undelivered elements can be objectively determined. In circumstances where the Company offers significant and incremental fair value discounts for future purchases of other software products or services to its customers as part of an arrangement, utilizing the residual method, the Company defers the value of the discount and recognizes such discount to revenue as the related product or service is delivered.


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

Total	$	15,378

AsThe ~~part~~Company ofaccounted anfor ~~arrangement,~~the ~~end-user~~Temtec ~~customers~~acquisition ~~typically~~as a purchase, ~~maintenance contracts~~ and ~~in certain instances~~accordingly, ~~professional~~included ~~services. Maintenance services include telephone and Web based~~the ~~support~~assets aspurchased ~~well as rights to unspecified upgrades~~ and ~~enhancements,~~liabilities ~~when~~assumed ~~and~~in if the ~~Company~~consolidated ~~makes them~~balance ~~generally~~sheet ~~available.~~at ~~Substantially all of~~ the ~~Company’s~~purchase ~~software license revenue is earned~~date ~~from~~based ~~perpetual~~upon ~~licenses~~their ofestimated ~~off-the-shelf~~fair ~~software~~values. ~~requiring~~The noresults ~~modification~~of oroperations ~~customization. Therefore,~~of ~~professional~~Temtec ~~services~~ are ~~deemed~~included toin ~~be non-essential to~~ the ~~functionality of the~~ ~~software~~consolidated ~~and~~financial ~~typically~~statements ~~are~~beginning ~~for implementation planning~~June 15, ~~loading of software, training, building simple interfaces and running test data~~2006.

In4. ~~instances~~Stock-based ~~where the services are deemed to be essential to the functionality of the~~Compensation software, both license and service revenues are recognized together on a percentage of completion basis utilizing hours incurred to date as a percentage of total estimated hours to complete the project.

~~Revenues~~The ~~from~~Company ~~maintenance~~grants ~~services~~stock ~~are~~options ~~recognized~~and ~~ratably~~issues ~~over~~common ~~the~~stock ~~term~~to ofits employees and directors and also provides employees the ~~maintenance~~right to purchase stock pursuant to stockholder approved stock option ~~contract~~and ~~period,~~employee ~~which~~stock ispurchase ~~typically~~plans. ~~one~~Effective ~~year~~January 1, ~~based~~2006, onthe ~~vendor~~Company ~~specific~~adopted ~~objective~~the ~~evidence~~provisions of ~~fair~~ ~~value~~Statement of Financial Accounting Standard No. 123 ~~Vendor~~(revised ~~specific~~2004), ~~objective~~“Share-Based ~~evidence~~Payment” (“SFAS 123R”). Under the provisions of ~~fair~~SFAS 123R, the Company recognizes as compensation expense the fair value isof share-based ~~upon~~payment awards on a straight-line basis over the ~~amount~~requisite ~~charged~~service ~~when~~period of ~~maintenance~~the isindividual ~~sold separately~~award, which isgenerally ~~typically~~equals the ~~contract~~vesting period. All of the Company’s ~~renewal~~share-based payment ~~rate~~awards are accounted for as equity instruments, as there have been no liability awards granted.

~~Revenues~~Under ~~from~~the ~~professional~~provisions ~~services~~of ~~are~~SFAS ~~generally~~123R, ~~recognized~~the ~~based~~Company onrecorded ~~vendor~~$738,000 ~~specific objective~~and ~~evidence~~$495,000 of ~~fair value when: (1) a non~~stock-~~cancelable agreement for the services has been~~based ~~signed~~compensation orexpense ain ~~customer’s~~its ~~purchase~~condensed ~~order~~consolidated ~~has~~statements ~~been~~of ~~received;~~income ~~and~~for ~~(2)~~ the ~~professional~~three ~~services~~months ~~have~~ended ~~been~~March 31, ~~delivered.~~2007 ~~Vendor~~and ~~specific~~2006, ~~objective~~respectively, ~~evidence~~which ofhad ~~fair value is based upon~~ the ~~price~~effect ~~charged when~~of ~~these~~reducing ~~services~~net ~~are~~income ~~sold~~by ~~separately~~$0.04 and ~~is typically an hourly rate for professional services~~ ~~and~~$0.03 a per ~~class~~diluted ~~rate~~share, ~~for training~~respectively. ~~Revenues~~Stock-based ~~for~~compensation ~~consulting~~expense ~~services~~was ~~are~~included ~~generally~~in ~~recognized on a~~the ~~time~~following ~~and~~expense ~~material~~categories ~~basis as services are delivered. Based upon the Company’s experience~~ (in ~~completing~~ ~~product implementations, these services are typically delivered within three months or~~thousands): ~~less subsequent to the contract signing.~~

The Company’s license arrangements with its end-user customers and indirect channel partners do not include any rights of return or price protection, nor do arrangements with indirect channel partners typically include any sell-through contingencies. In those instances where the Company has granted a customer rights to when-and-if available additional products, the Company recognizes the arrangement fee ratably over the term of the agreement.


	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

~~Generally,~~There ~~the~~was ~~Company’s~~no ~~arrangements~~income ~~with~~tax ~~end-user~~benefit ~~customers~~recognized ~~and indirect channel partners do not include any acceptance provisions. In those cases~~ in ~~which~~the ~~significant~~Company’s ~~uncertainties~~condensed ~~exist~~consolidated ~~with~~statements ~~respect~~of toincome ~~customer~~for ~~acceptance~~the orthree inmonths ~~which~~ended ~~specific customer acceptance criteria are included in the arrangement~~March 31, ~~the~~2007 ~~Company defers the entire arrangement fee~~ and ~~recognizes~~2006 ~~revenue,~~for ~~assuming~~stock-based ~~all~~payments. Total ~~other~~unrecognized ~~conditions~~stock-based ~~for~~compensation ~~revenue~~expense ~~recognition~~related ~~have~~to ~~been~~unvested ~~satisfied~~stock options, ~~when~~expected ~~the~~to ~~uncertainty regarding~~be ~~acceptance~~recognized isover ~~resolved~~a asweighted ~~generally~~average ~~evidenced~~period byof ~~written~~1.5 years, ~~acceptance~~amounted byto ~~the~~approximately ~~customer.~~$6,152,000 ~~The Company’s~~at ~~arrangements~~March 31, ~~with~~2007. ~~indirect~~Total ~~channel~~unrecognized ~~partners~~stock-based ~~and~~compensation ~~end-user~~expense ~~customers~~will dobe ~~include~~adjusted afor ~~standard~~any ~~warranty~~future ~~provision~~changes ~~whereby~~in ~~the~~estimated ~~Company~~forfeitures, ~~will~~if ~~use reasonable efforts to cure material nonconformity or~~any.

7 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.

~~Table of Contents~~7

defectsTable of the software from the Company’s published specifications. The standard warranty provision does not provide the indirect channel partners or end-user customer with the right of refund. In very limited instances, the Company has granted the right of refund for an extended period if the arrangement is terminated because the product does not meet the Company’s published technical specifications, and the Company is unable to reasonably cure the nonconformity or defect. Generally, the Company considers that this warranty provision is not an acceptance provision and therefore accounts for it as a warranty in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies”. Contents

AtInformation ~~the~~with ~~time~~respect ~~the Company enters into an arrangement, the Company assesses the probability of collection of the fee and the payment terms granted~~ to ~~the~~stock ~~customer.~~option ~~For~~activity ~~end-user~~under ~~customers and indirect channel partners,~~ the ~~Company’s~~various ~~typical~~stock ~~payment~~plans terms are due within 30 days of the invoice date. However, in those cases where payment terms are greater than 30 days, the Company does not recognize revenue from the arrangement fee unless the payment is ~~due~~as ~~within 90 days. If~~shown ~~the payment terms for the arrangement are considered extended (greater than 90 days), the Company~~below: ~~defers revenue under these arrangements and such revenue is recognized, assuming all other conditions for revenue recognition have been satisfied, when the payment of the arrangement fee becomes due.~~

In some instances, indirect channel partners provide first level maintenance services to the end-user customer and the Company provides second level maintenance support to the indirect channel partner. The Company accounts for amounts received in these arrangements in accordance with Emerging Issues Task Force 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”. When the Company receives a net fee from the indirect channel partner to provide second level support to the indirect channel partner, this amount is recorded as revenue over the term of the maintenance period at the net amount received because the Company: (1) does not collect the fees from the end-user customer (2) does not have latitude in establishing the price paid by the end-user customer for maintenance services and (3) does not have the latitude to select the supplier providing first level support. However, in circumstances where the Company renews maintenance contracts directly with the end-user customers, receives payment for the gross amount of the maintenance fee, has the ability to select the supplier for first level support, and the Company believes that it is the primary obligor for first level support to the end customer, the Company records revenue for the gross amounts received. In such circumstances, the Company remits a portion of the payment received to the indirect channel partner to provide first level support to the end-user customer, and such amounts are capitalized and amortized over the maintenance period. Revenue recorded for amounts collected by the Company and remitted to the indirect channel partners for such renewals aggregated $121,000 and $245,000 for the three months ended March 31, 2005 and 2004, respectively.


	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

~~Cash~~ The weighted average remaining contractual term and ~~Cash~~the ~~Equivalents~~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.

~~Cash~~The ~~and~~Company ~~cash~~utilizes ~~equivalents~~the ~~include~~Black-Scholes ~~all~~valuation ~~highly~~model ~~liquid~~for ~~investments,~~estimating ~~including~~the ~~money~~fair ~~market~~value of the ~~accounts,~~stock-based ~~with~~compensation agranted ~~remaining~~after ~~maturity~~the adoption of ~~three~~SFAS ~~months~~123R. orThe ~~less~~weighted-average atfair ~~time~~ values of ~~purchase.~~the ~~Cash~~options ~~and~~granted ~~cash equivalents~~under ~~are~~the ~~carried~~stock atoption ~~amortized~~plans ~~cost,~~and ~~which~~shares ~~approximates~~subject ~~their~~to ~~fair~~purchase ~~value.~~under ~~Cash equivalents~~the ~~totaled~~employee stock purchase plan were $~~17,362,000~~6.14 and $152.58,~~924~~ respectively,~~000~~ atfor the three months ended March 31, ~~2005~~2007, and ~~December~~$3.46 and $1.81, respectively for the three months ended March 31, ~~2004~~2006, ~~respectively.~~assuming no dividends and using the following assumptions:

Restricted cash of $400,000 at March 31, 2005 and December 31, 2004 represents the required collateral on the Company’s lease of its headquarters located in Westborough, Massachusetts.


	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	%

~~Short~~ 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 ~~Investments~~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.

~~Short-term~~Based ~~investments~~on ~~are~~the ~~classified~~Company’s ashistorical ~~“available~~employee ~~for~~turnover ~~sale”~~ and ~~recorded~~stock atoption ~~market~~forfeitures ~~value~~rates, an ~~using~~annualized ~~the~~estimated ~~specific~~forfeiture ~~identification~~rate ~~method~~of 8.5% ~~Unrealized~~has ~~gains~~been ~~and~~used ~~losses~~in ~~are~~calculating ~~included~~the incost ~~accumulated~~for stock ~~other~~options. ~~comprehensive~~Under ~~income~~the ~~(loss),~~true-up ~~net~~provisions of ~~tax~~SFAS ~~effects.~~123R, ~~Realized~~additional ~~gains~~expense orwill ~~losses~~be ~~are~~recorded ~~determined based~~if on the actual ~~specific~~forfeiture ~~identified~~rate ~~cost~~is oflower ~~the~~than ~~securities.~~estimated, ~~Any~~and ~~unrealized~~a ~~losses~~recovery ~~that~~of ~~are~~prior ~~considered to~~expense will be ~~“other~~recorded ~~than~~if the ~~temporary”~~actual ~~are~~forfeiture ~~charged~~is ~~immediately~~higher tothan ~~the income statement~~estimated.

~~Stock-Based~~5. ~~Compensation~~Earnings Per Share

~~The~~Basic ~~Company~~net ~~periodically~~income ~~grants~~per ~~stock~~share ~~options~~is ~~for~~computed aby ~~fixed~~dividing ~~number~~net income by the weighted average number of common shares tooutstanding ~~employees~~during ~~and directors~~the ~~with~~period. anDilutive ~~exercise~~net ~~price~~income ~~equal~~per toshare ~~the~~is ~~fair~~computed ~~market~~using ~~value~~the weighted average number of ~~the~~common shares atoutstanding during the ~~date~~period, ofplus the ~~grant.~~ ~~The~~dilutive ~~Company~~effect, if ~~accounts~~any, ~~for~~of ~~stock~~potential ~~option~~incremental ~~grants~~common toshares, ~~employees~~determined ~~and~~through ~~directors~~the ~~using~~application of the ~~intrinsic~~treasury ~~value~~stock method under SFAS No. 128, ~~Under~~“Earnings Per Share”, to the ~~intrinsic~~stock ~~value~~options ~~method,~~outstanding during the period.

compensation associated with stock awards to employees and directors is determined as the difference, if any, between the current fair value of the underlying common stock on the date compensation is measured and the price the employee or director must pay to exercise the award. The measurement date for employee awards is generally the date of grant.


	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

IfCommon stock~~-based~~ ~~compensation~~equivalents ~~expense~~(stock ~~had~~options) ~~been~~of ~~recorded~~262,144 ~~based~~and on272,613 ~~the~~were ~~fair~~excluded ~~value~~from the calculation of ~~stock~~diluted ~~awards at~~earnings ~~the~~per ~~date~~share offor ~~grant,~~ the ~~Company’s~~three ~~net~~months ~~income~~ended ~~would~~March 31, ~~have~~2007 ~~been~~and ~~adjusted~~2006, respectively, tobecause ~~the~~these ~~pro~~options ~~forma~~were ~~amounts presented~~anti-dilutive. ~~below~~However, ~~(in~~these ~~thousands,~~options ~~except~~could ~~for~~be ~~per~~dilutive in ~~share~~the ~~amounts):~~future.

	Three Months Ended
	March 31,
	2005			2004
Net income as reported	$	611		$	738
Add: Total stock-based employee compensation expense included in reported net income, net of related tax effects		15			15
Deduct: Total stock-based employee compensation expense not included in reported net income, determined under fair value based method for all awards, net of related tax effects		(448	)		(591	)
Pro forma net income	$	178		$	162
Net income per share:
Basic — as reported	$	0.04		$	0.05
Diluted — as reported	$	0.04		$	0.05
Basic — pro forma	$	0.01		$	0.01
Diluted — pro forma	$	0.01		$	0.01
Weighted average number of shares outstanding:
Basic		14,456			13,466
Diluted		15,898			14,591

6. Comprehensive Income

~~The~~Components ~~fair~~of ~~value~~comprehensive ~~for~~income ~~stock~~(loss) include ~~option~~net ~~awards~~income isand ~~estimated~~certain attransactions ~~the~~that have ~~date~~generally ofbeen reported in the ~~grant~~consolidated ~~using~~statements aof stockholders’ equity. Other ~~Black-Scholes~~comprehensive ~~option-pricing~~income ~~model,~~(loss) includes ~~assuming~~gains noand ~~dividends~~losses from foreign currency translation adjustments and ~~the~~unrealized ~~following~~gains ~~assumptions:~~and losses on short-term investments.

	2005			2004
	Three Months Ended
Expected life (years)		4			4
	March 31,
Expected stock price volatility		94.8	%		81.7	%
	(In thousands)
Risk free interest rate		3.57	%		2.77	%
	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

~~New~~7. ~~Accounting~~Income ~~Pronouncements~~Taxes

InThe ~~December 2004,~~provision ~~the~~for ~~Financial~~income ~~Accounting~~taxes ~~Standards~~represents ~~Board~~the ~~(“FASB”)~~Company’s ~~issued~~federal ~~Statement~~and ~~of Financial~~state ~~Accounting~~income ~~Standards~~tax obligations ~~No. 123R,~~as ~~Share-Based~~well ~~Payment~~as ~~(“SFAS~~foreign Notax provisions. ~~123R”).~~ ~~SFAS~~The ~~No. 123R~~Company’s isprovision ~~a revision~~for ofincome ~~SFAS~~taxes ~~No. 123~~was $372,000 ~~Accounting~~and $12,000 for ~~Stock-Based~~the ~~Compensation,~~three ~~and~~months ~~supersedes~~ended ~~Accounting Principles~~March 31, ~~Board~~2007 ~~Opinion~~and ~~No. 25~~2006, ~~Accounting~~respectively. ~~for~~The increase ~~Stock~~in ~~Issued~~the toeffective ~~Employees,~~tax ~~and~~rate ~~its~~during ~~related implementation~~the ~~guidance.~~three ~~SFAS~~months ~~No.~~ended March ~~123R~~31, ~~focuses~~2007 ~~primarily~~compared onto ~~accounting~~the same ~~for~~period ~~transactions~~of inthe ~~which~~prior ~~an entity~~year ~~obtains~~was ~~employee~~primarily ~~services~~due into ~~share-based~~the ~~payment~~full ~~transactions.~~valuation ~~SFAS~~allowance ~~No. 123R~~that ~~requires~~was recorded ~~entities~~against tothe ~~recognize~~Company’s ~~stock~~domestic ~~compensation~~deferred ~~expense~~tax ~~for~~assets ~~awards~~during ofthe ~~equity~~three ~~instruments~~months toended ~~employees~~March 31, 2006. ~~based~~At onDecember 31, 2006, the ~~grant-date~~Company ~~fair~~reversed ~~value~~ of ~~those~~a ~~awards~~portion ~~(with~~of ~~limited~~the ~~exceptions).~~valuation ~~SFAS~~allowance ~~No. 123R~~on ~~was~~the Company’s ~~effective~~domestic ~~for~~deferred ~~the~~tax ~~first~~assets, ~~interim~~mainly orcomprised ~~annual~~of ~~reporting~~federal ~~period~~and ~~beginning~~state ~~after~~net ~~June 15,~~operating ~~2005~~loss carryforwards.

OnThe ~~April 14,~~Company ~~2005,~~adopted the ~~Securities~~provisions ~~and~~of ~~Exchange~~Financial ~~Commission~~Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“~~SEC~~FIN 48”), ~~announced~~on ~~the~~January 1, ~~adoption~~2007. The purpose of aFIN ~~rule~~48 ~~that~~is ~~defers~~to ~~the~~clarify ~~required~~and ~~effective~~set ~~date~~forth ofconsistent ~~SFAS~~rules ~~No. 123R.~~for ~~The~~accounting ~~SEC~~for ~~rule~~uncertain ~~provides~~tax ~~that~~positions in accordance with SFAS ~~No.~~109, “Accounting for Income Taxes” by requiring the application of a “more ~~123R~~likely isthan ~~now~~not” ~~effective~~threshold for ~~registrants~~the asrecognition and derecognition of tax positions. As a result of applying the ~~beginning~~provisions of FIN 48, the ~~first~~Company ~~fiscal~~recognized ~~year~~an ~~beginning~~increase ~~after June~~of approximately $1.9 15million in the liability for unrecognized tax benefits, ~~2005~~of which $80,000 ~~instead~~was ofrecorded atas ~~the~~an ~~beginning~~increase ofto accumulated ~~the~~deficit ~~first~~and ~~quarter~~the ~~after~~remaining ~~June~~$1.8 15million as a reduction to deferred tax assets, ~~2005~~primarily federal and state research tax credits, ~~delaying~~and its corresponding portion of the ~~required~~ ~~change~~valuation ~~until~~allowance, as of January 1, ~~2006~~2007. The Company’s isunrecognized ~~currently~~tax ~~assessing~~benefits ~~the~~totaled ~~impact~~approximately $2.3 million at January 1, 2007, which included $88,000 of ~~SFAS~~estimated ~~No. 123R~~interest and ~~considering~~penalties. ~~the~~Included ~~valuation~~in ~~models~~the balance ~~available;~~at ~~however~~January 1, we2007 ~~anticipate~~are ~~that~~approximately $527,000 of tax positions, the ~~adoption~~disallowance ~~will~~of ~~significantly~~which ~~increase~~would ~~recorded~~affect ~~compensation~~the ~~expense~~annual effective income tax rate.

3 The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. ~~Net~~During ~~Income~~the ~~(Loss)~~three ~~Per~~months ~~Share~~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.

~~Basic~~The ~~net~~Company ~~income~~files ~~(loss) per~~U.S., ~~share~~state isand ~~computed~~foreign byincome ~~dividing~~returns ~~net~~in ~~income~~jurisdictions ~~(loss) by~~with ~~the weighted~~varying ~~average~~statutes ~~number~~ of ~~common shares outstanding during the period~~limitation. ~~Dilutive~~The ~~net~~1999 ~~income~~through ~~(loss) is computed~~2006 ~~using~~tax ~~the~~years ~~weighted~~generally ~~average~~remain ~~number~~subject ofto ~~common~~examination ~~shares outstanding during the period, plus the~~by ~~dilutive~~federal ~~effect,~~and ifmost ~~any,~~state oftax ~~potential~~authorities. ~~incremental~~The ~~common~~2002 ~~shares, determined~~ through ~~the~~2006 ~~application~~tax ofyears ~~the~~generally ~~treasury~~remain ~~stock~~subject ~~method~~to ~~under~~examination ~~SFAS~~by ~~No. 128~~the ~~“Earnings~~tax ~~Per~~authorities in ~~Share” to~~ the ~~stock~~Company’s ~~options outstanding~~major ~~during~~foreign ~~the~~tax ~~period~~jurisdictions.

	Three Months Ended
	March 31,
	2005			2004
	(In thousands, except
	per share data)
Numerator:
Income from continuing operations	$	631		$	764
Loss from discontinued operations		(20	)		(26	)
Net income	$	611		$	738
Denominator:
Denominator for basic net income per share —
Weighted shares outstanding		14,456			13,466
Dilutive effect of assumed exercise of stock options		1,961			1,544
Denominator for diluted net income (loss) per share		16,417			15,010
Basic net income (loss) per share
Continuing operations	$	0.04		$	0.06
Discontinued operations	$	(0.00	)	$	(0.00	)
Total net income per share	$	0.04		$	0.05
Diluted net income (loss) per share
Continuing operations	$	0.04		$	0.05
Discontinued operations	$	(0.00	)	$	(0.00	)
Total net income per share	$	0.04		$	0.05

8. Commitments and Contingencies

~~Common stock equivalents (stock options) of 90,119 and 635,588 were excluded from the~~Contingencies ~~calculation of diluted earnings per share for the three months ended March 31, 2005 and 2004,~~ respectively, because these options were anti-dilutive as the stock option exercise price exceeded the average market price for the respective periods. However, these options could be dilutive in the future.

4 From time to time, the Company is subject to routine litigation and proceedings in the ordinary course of business. ~~Short-Term~~The ~~Investments~~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.

~~The~~9. ~~Company’s~~Restructuring ~~short-term investments were as follows:~~Expenses

			March 31, 2005
			(In thousands)
			Unrealized		Unrealized
	Cost Basis		Gains		Losses			Fair Value
Debt securities	$	2,977	$	—	$	(1	)	$	2,976
Total	$	2,977	$	—	$	(1	)	$	2,976

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.

AsRestructuring ofcharges accrued and unpaid at March 31, ~~2005~~2007, ~~all~~including ~~short-~~current and long term portions ~~investments~~of ~~mature~~$51,000 inand ~~less~~$149,000, ~~than~~respectively, ~~one~~were ~~year.~~as follows:

5. Comprehensive Income (Loss)


	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

~~Components~~ITEM of2. ~~comprehensive income (loss) include net income and certain transactions that have generally been reported in the consolidated statements of stockholders~~MANAGEMENT’S ~~equity.~~DISCUSSION ~~Other comprehensive~~AND ~~loss~~ANALYSIS ~~includes~~OF ~~gains~~FINANCIAL ~~and~~CONDITION ~~losses~~AND ~~from~~RESULTS ~~foreign~~OF ~~currency translation adjustments and~~OPERATIONS ~~unrealized~~OVERVIEW ~~gains~~OF ~~and~~THE ~~losses~~COMPANY’S ~~on investments.~~OPERATIONS

10 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.

~~Table~~ The Company sells its products through both a direct sales force and an expanding network of partners, ~~Contents~~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.

	Three Months Ended
	March 31,
	(In thousands)
	2005			2004
Net income	$	611		$	738
Other comprehensive loss		(64	)		(61	)
Total comprehensive income	$	547		$	677

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.

~~6. Commitments and Contingencies~~10

Contingencies Table of Contents

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

OnThis ~~June 16,~~Management’s ~~2003,~~Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s ~~announced~~condensed ~~that~~consolidated itfinancial ~~was~~statements, ~~the~~which ~~subject~~have ofbeen anprepared ~~investigation~~in accordance bywith accounting principles generally accepted in the ~~SEC~~United States. The preparation of ~~related~~these financial statements requires management to make estimates and assumptions that affect the reported ~~restatement~~amounts of assets and liabilities and the ~~Company’s~~disclosure of contingent assets and liabilities at the date of the financial statements ~~for~~and ~~fiscal~~the ~~years~~reported ~~2001~~amounts of revenues and ~~2002.~~expenses during ~~The~~the ~~Company~~reporting isperiod. ~~cooperating~~Management ~~fully~~bases ~~with~~its ~~the~~estimates ~~SEC~~and inassumptions ~~this~~on ~~matter.~~expected Inor ~~connection~~known ~~with~~trends ~~this~~or ~~investigation~~events, ~~the~~historical ~~Company~~experience isand ~~subject~~various toother ~~indemnification~~factors ~~obligations~~that are believed to ~~certain~~be ~~former~~reasonable ~~executives.~~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.

~~The~~Management ~~Company~~believes ~~is currently undergoing an unclaimed abandoned property (“UAP”) audit by~~ the ~~Commonwealth~~ offollowing ~~Massachusetts.~~additional ~~During~~critical ~~the~~accounting ~~fourth quarter of 2004~~policies, ~~the~~among ~~Company recorded a provision~~others, ofinvolve ~~approximately $300,000 based on its estimated exposure relating to~~ the ~~UAP~~more ~~audit.~~significant ~~However,~~judgments itand ~~is possible~~estimates ~~that~~used ~~additional provisions may be required~~ in ~~future periods if it becomes probable that~~ the ~~actual~~preparation ~~results from the ultimate disposition~~ of ~~the~~its ~~UAP~~consolidated financial ~~audit differ from this estimate~~statements.

7.• Revenue Recognition • Allowance for Doubtful Accounts • Goodwill and Other Intangible Assets and Related Impairment • Stock-based Compensation • Restructuring ~~Expenses~~ • Income Taxes

InThere ~~the~~have ~~second~~been ~~quarter~~no ofchanges ~~2004,~~in ~~the~~our ~~Company~~critical ~~adopted~~accounting apolicies ~~plan~~or ofsignificant ~~restructuring~~accounting estimates toas ~~reduce~~disclosed ~~operating costs.~~in ~~Under~~our ~~this~~2006 ~~plan,~~Annual ~~the~~Report ~~Company~~on ~~made~~Form 10-K other than the ~~determination~~implementation ~~that~~of itFASB Interpretation ~~had~~No. 48, no“Accounting ~~future~~for ~~use~~Uncertainty ofin orIncome ~~benefit from~~Taxes,” ~~certain~~(see ~~space~~Note ~~pertaining~~7 toin ~~its~~the UKNotes ~~office~~to the ~~lease.~~Condensed InConsolidated ~~June 2004,~~Financial ~~the~~Statements ~~Company~~included ~~entered~~elsewhere ~~into~~in ~~a sublease~~this ~~agreement~~Quarterly ~~with~~Report aon ~~subtenant~~Form 10-Q). ~~for~~For amore ~~portion~~information ofregarding the Company’s UKcritical ~~office~~accounting ~~lease.~~policies, Inthe ~~July 2004,~~Company ~~upon~~refers ~~exiting~~ the ~~space,~~reader to the ~~Company~~discussion ~~recorded~~contained ain ~~restructuring~~Item 7 ~~charge~~under ofthe ~~approximately~~heading ~~$604,000.~~“Critical ~~The~~Accounting ~~restructuring~~Policies ~~charge~~and ~~was~~Estimates” ~~primarily comprised~~ of the ~~difference between the~~ Company’s ~~contractual lease~~Annual ~~rate~~Report ~~for~~on ~~the~~Form ~~subleased~~10-K ~~space~~for ~~and~~ the ~~anticipated~~year ~~sublease~~ended ~~rate~~December 31, 2006, to beNote ~~realized~~2 ~~over~~to the ~~remaining~~ ~~term~~consolidated offinancial ~~the~~statements ~~original~~for ~~lease,~~the ~~discounted~~year byended aDecember 31, ~~credit~~2006, contained ~~adjusted~~within ~~risk~~the ~~rate~~Company’s ofAnnual ~~8%.~~Report ~~The restructuring~~on ~~charge~~Form ~~also~~10-K ~~consisted~~for ofthe ~~other~~year ~~related~~ended ~~professional~~December 31, ~~services~~2006, ~~including~~and to ~~legal~~Note ~~fees, broker~~2 ~~fees~~to ~~and~~the ~~certain~~unaudited ~~build-out~~condensed ~~costs,~~consolidated ~~incurred~~financial instatements ~~connection~~contained ~~with~~in ~~the~~this ~~exiting~~Quarterly Report ofon ~~the~~Form ~~facility~~10-Q.

~~Restructuring charges accrued and unpaid at March 31, 2005, including current and long term~~11 ~~portions of $77,000 and $241,000, respectively, were as follows:~~

	Balance at							Balance at
	December 31,		Restructuring					March 31,
	2004		Expenses		Payments			2005
Facility exit costs	$	373,000		—	$	(55,000	)	$	318,000
Total	$	373,000		—	$	(55,000	)	$	318,000

8.RESULTS ~~Discontinued~~OF ~~Operations~~OPERATIONS

OnThree ~~March 31,~~Months ~~2001,~~Ended ~~the Company completed the sale of the VistaSource business, including all of its domestic and foreign operations. The Company’s results of operations for the three months ended~~ March 31, ~~2005~~2007 and ~~2004 included costs of $20,000 and $26,000, respectively. These costs~~2006 ~~primarily relate to legal and accounting costs associated with the dissolution of the VistaSource~~ ~~business in Europe.~~

11Revenues


	(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	%

9 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. ~~Bank~~The ~~Credit~~increase ~~Facility~~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.

InSoftware ~~April 2005,~~License ~~the Company renewed its credit facility, which provides for loans and other~~Revenues financial accommodations, with Silicon Valley Bank (“SVB”). The renewed credit facility is a domestic working capital line of credit with an interest rate equal to the prime interest rate and is in the aggregate principal amount of up to the lesser of: (i) $3,000,000; and (ii) an amount based upon a percentage the Company’s qualifying domestic accounts receivable. The facility will expire in March 2007.

10 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. ~~Notes~~The ~~Receivable~~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 ~~Stock~~the strengthening ~~Purchase~~of ~~Agreements~~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.

InDomestic ~~September 2000,~~software ~~the~~license ~~Company~~revenue ~~sold~~increased ~~256,002~~41% ~~shares of common stock~~ to ~~certain company executives. The purchase of such shares was funded by loans from the Company to the executives evidenced by full-recourse promissory notes due and payable on July 31~~$2, ~~2005. Interest on the promissory notes was calculated on the unpaid principal balance at a rate of 6% per year~~492, ~~compounded~~000 ~~annually~~for ~~until paid in full. In~~ the ~~event~~three ~~that~~months ~~the~~ended ~~executive sold any shares prior to~~March ~~July~~ 31, ~~2005,~~2007 ~~the net proceeds~~ from such sale would have become immediately due and payable without notice or demand. In the event the executive left the Company, voluntarily or for cause, the loan would have become immediately due and payable. Repayment terms were extended to the original maturity date for several employees who subsequently left the Company. The aggregate principal amount of the notes totaled $1,~~120~~769,000 ~~at December 31, 2002. Certain of these loans had been past due~~ for ~~some~~the ~~time,~~three ~~and~~months ~~subsequent~~ended ~~to December~~March 31, ~~2002, in connection with a severance arrangement the Company forgave one of the loans~~2006. AsInternational asoftware ~~result of the foregoing, consistent with~~license ~~EITF~~revenue ~~00-23,~~increased ~~“Issues~~74% ~~Related~~ to ~~the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation 44”~~$4, ~~for accounting purposes only~~613,000 ~~the Company has characterized all of the notes as non-recourse. In this regard, the accounting~~ for ~~these notes has been treated as a repurchase of stock and~~ the ~~issuance~~three ofmonths ~~options. During the year~~ ended ~~December~~March 31, ~~2002,~~2007 ~~the Company~~from ~~recorded a charge of~~ $~~964~~2,658,000 for ~~the difference between the amounts due on the loans,~~ ~~including accrued interest of $128,000, and~~ the ~~fair value of the underlying stock at December 31, 2002. In February 2004, the Company collected approximately $231,000 as part of the settlement of~~ three ofmonths ~~the~~ended outstanding executive loans. As of December 31, 2004 and 2003, there were no amounts reflected on the Company’s Consolidated Balance Sheets as owed on these notes for accounting purposes only. In February 2005, the Company collected approximately $892,000 as part of the repayment of the remaining outstanding executive loans. The repayment was accounted for as an option exercise in accordance with the provisions of EITF 95-16, “Accounting for Stock Compensation Arrangements with Employer Loan Features under APB Opinion No. 25.” As of March 31, ~~2005, there were no amounts outstanding for any of the executive loans~~2006.

~~ITEM~~ The 2Company markets its products through its direct sales force and indirect partners. ~~MANAGEMENT’S~~The Company ~~DISCUSSION~~continues ~~AND~~to ~~ANALYSIS~~focus OFon ~~FINANCIAL~~complementing ~~CONDITION~~its ~~AND~~direct ~~RESULTS~~sales OFforce ~~OPERATIONS~~with indirect channel partners, which consist of value added resellers, independent distributors, sales agents and original equipment manufacturers.

~~OVERVIEW~~Professional OFServices ~~THE~~and ~~COMPANY’S OPERATIONS~~Maintenance

~~The~~Professional ~~Company~~services isand amaintenance ~~global~~revenues ~~provider~~increased ofby ~~business~~49% ~~intelligence~~to ~~(“BI”)~~$6,790,000 ~~and~~for ~~business~~the ~~performance~~three ~~management~~months ~~(“BPM”)~~ended ~~solutions~~March 31, ~~focused~~2007 onas ~~interactive~~compared ~~planning,~~to ~~budgeting~~$4,566,000 ~~forecasting~~for ~~and~~the ~~analytics as~~three ~~well~~months asended ~~financial~~March 31, ~~reporting~~2006. During ~~These~~the ~~solutions~~three ~~enable~~months ~~customers~~ended March 31, 2007, maintenance revenues increased $1,580,000 to $5,715,000, ~~continuously~~compared ~~manage~~to $4,135,000 for the three months ended March 31, 2006, and ~~monitor~~professional ~~performance~~services ~~across~~revenues ~~financial~~increased ~~and~~to ~~operational~~$1,075,000 ~~functions~~for ~~within~~the three months ended March 31, 2007, compared to $431,000 for the ~~enterprise~~three months ended March 31, ~~with~~2006. The increase in maintenance revenue was primarily attributable to the ~~views~~sale of software licenses to new customers coupled with high rates of ~~past~~renewals ~~performance,~~of ~~the~~annual ~~current~~maintenance ~~state~~contracts from the sale of ~~business,~~licenses ~~and~~in ~~future~~prior ~~opportunities~~periods. The increase in professional services revenues was primarily due to increased training and consulting revenues resulting from

~~The Company sells its products through both a direct sales force and an expanding network of~~12 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.

CRITICALTable ACCOUNTINGof POLICIES AND ESTIMATES Contents

~~This~~increased ~~Management’s~~license ~~Discussion~~revenues. ~~and~~The ~~Analysis~~Company ofwill ~~Financial~~continue ~~Condition~~to ~~and~~rely ~~Results~~primarily ofon ~~Operations~~its partners to ~~discusses~~provide ~~the~~consulting ~~Company’s~~services, ~~condensed~~including ~~consolidated~~BPM/BI ~~financial~~product ~~statements~~implementations, ~~which~~as ~~have~~the ~~been~~Company ~~prepared~~focuses inon ~~accordance~~maintenance ~~with~~services, ~~accounting~~which ~~principles~~include ~~generally~~telephonic ~~accepted~~support, inunspecified ~~the~~product ~~United~~upgrades, ~~States.~~and ~~The~~bug ~~preparation of~~fixes ~~these~~and ~~financial~~patches. ~~statements~~The ~~requires~~Company ~~management~~expects tomaintenance ~~make~~revenues ~~estimates~~to ~~and~~continue ~~assumptions~~to ~~that~~increase ~~affect~~due ~~the~~to strong ~~reported~~customer ~~amounts~~maintenance ofrenewal ~~assets and liabilities and the~~rates.

12Cost 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	%

~~disclosure~~(A) ofGross ~~contingent~~margins ~~assets~~calculated ~~and~~as ~~liabilities~~a atpercentage ~~the date~~ of ~~the~~related ~~financial statements and the reported amounts of~~ revenues ~~and expenses during the reporting period~~. ~~Management~~(B) ~~bases~~Software ~~its estimates~~license ~~and~~gross ~~assumptions~~margin oncalculated ~~expected~~net orof ~~known~~cost ~~trends~~of orsoftware ~~events,~~license ~~historical~~revenues ~~experience~~ and ~~various other~~amortization ~~factors that are believed to be reasonable under the circumstances, the results~~ of ~~which~~an ~~form the~~acquired ~~basis~~intangible ~~for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources~~asset. ~~Actual results may differ from these estimates under different assumptions or conditions.~~

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

• Cost ~~Revenue~~of ~~Recognition~~software •license ~~Accounts~~revenues ~~Receivable~~consists primarily of third-party software royalties and ~~Bad~~the cost ~~Debt~~of •product ~~Goodwill~~packaging and ~~Other~~documentation ~~Intangible~~material. ~~Assets~~Cost of software license revenues as a percentage of software license revenues was 1% for the three months ended March 31, 2007 and ~~Related~~less than ~~Impairment~~1% •for ~~Restructuring~~the •three ~~Deferred~~months ~~Income~~ended ~~Taxes~~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.

~~These~~Cost policies are unchanged from those used to prepare the 2004 annual consolidated financial statements. 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~~Professional ~~Company’s~~Services Annual Report on Form 10-K for the year ended December 31, 2004, to Note 2 to the consolidated financial statements for the year ended December 31, 2004, contained within the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, and to ~~Note~~Maintenance ~~2 to the unaudited condensed consolidated financial statements contained in this Quarterly~~Revenues ~~Report on Form 10-Q.~~

~~RESULTS~~ The OFcost ~~OPERATIONS~~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.

~~Three~~Amortization ~~Months~~of ~~Ended~~an ~~March 31,~~Acquired ~~2005~~Intangible ~~and 2004~~Asset

~~Revenues~~ 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.

	Three Months Ended March 31,
			Percent					Percent
			of					of
	2005		Revenue			2004		Revenue
	(In thousands, except percentages)
Software License Revenues	$	3,447		45	%	$	3,767		51	%
Professional Services Revenues		466		6	%		465		6	%
Maintenance Revenues		3,735		49	%		3,151		43	%
Total Professional Services and Maintenance Revenues		4,201		55	%		3,616		49	%
Total Revenues	$	7,648		100	%	$	7,383		100	%

TotalTable revenues for the three months ended March 31, 2005 were $7,648,000, compared to $7,383,000 for the three months ended March 31, 2004. Total revenues for three months ended March 31, 2005 increased 4%, which includes the favorable impacts of foreign currency exchange rate fluctuations, from the same period in the prior year. When expressed at constant foreign currency exchange rates, total revenues were flat for the three months ended March 31, 2005 compared to the same period in the prior year. Contents

13Operating 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	%

~~Software~~Sales ~~License~~and ~~Revenues~~Marketing Expenses

~~Software~~Sales ~~license~~and ~~revenues~~marketing ~~decreased~~expenses byconsist ~~$320~~primarily of salaries and benefits,~~000~~ tocommissions $3and bonuses for the Company’s sales and marketing personnel,~~447~~ field office expenses,~~000~~ travel and entertainment, orpromotional ~~45%~~and ofadvertising ~~total~~expenses. ~~revenues~~Sales and marketing expenses increased $1,970,000 to $6,543,000 for the three months ended March 31, ~~2005,~~2007 from $34,~~767~~573,000, ~~or 51% of total revenues,~~ for the three months ended March 31, ~~2004~~2006. The ~~decrease~~increase in ~~software~~sales ~~license~~and ~~revenue~~marketing ~~resulted~~expenses ~~from~~was ~~several factors,~~primarily ~~including~~due ~~closure~~to ~~rates,~~an increase ~~competition~~in onstaffing ~~several~~in ~~larger~~sales ~~deals~~ and ~~the~~marketing ~~need for more extensive proofs of concept~~personnel, ~~which~~including ~~have~~ the ~~effect~~additional ofemployees ~~lengthening the sales cycles. The decrease in software license~~gained ~~revenues was also attributable to the transitional impact~~ from ~~organizational changes in~~ the ~~North American~~acquisition ~~sales~~of ~~operations~~Temtec ~~made~~ in the second ~~half~~quarter of ~~2004.~~2006, ~~The~~as ~~decrease~~well ~~was~~as ~~partially~~higher ~~offset~~sales bycommission ~~favorable~~expense ~~impacts~~based ofon ~~foreign~~increased ~~currency~~revenues. ~~exchange~~These ~~rate~~resulted ~~fluctuations~~ in ~~the~~an ~~weighted~~increase ~~average values~~ of ~~the~~ ~~British~~approximately ~~pound~~$1,254,000 ~~Euro~~in sales and ~~Australian~~marketing ~~dollar~~expenses incompared ~~relation~~ to the ~~U.S.~~same ~~dollar~~period of 2006. ~~The~~In ~~net~~addition, ~~effect~~the ofCompany ~~foreign~~increased ~~currency~~its ~~exchange~~investment ~~rate~~in ~~fluctuations~~marketing ~~was~~programs, anadvertising ~~increase~~and inlead ~~software~~generation ~~license~~activities ~~revenues of~~by approximately $~~100~~291,000 for the three months ended March 31, ~~2005~~2007 compared to the same period in the prior year.

~~Domestic~~Product ~~license~~Development ~~revenues decreased by $93,000 to $1,145,000 for the three months ended March~~Expenses 31, 2005 from $1,238,000 for the three months ended March 31, 2004. International license revenues decreased by $227,000 to $2,302,000 for the three months ended March 31, 2005 from $2,529,000 for the three months ended March 31, 2004.

~~The~~Product ~~Company~~development ~~markets~~expenses ~~its~~include costs associated with the development of new products, enhancements ~~through~~of ~~its~~existing ~~direct~~products ~~sales~~and ~~force~~quality assurance activities, and ~~indirect~~consist ~~partners.~~primarily ~~The~~of ~~Company~~employee ~~continues~~salaries and benefits, consulting costs, as well as the cost of software development tools. Product development expenses increased $719,000 to ~~focus~~$2,287,000 onfor ~~complementing~~the ~~its~~three ~~direct~~months ~~sales~~ended March 31, ~~force~~2007 ~~with~~from ~~indirect~~$1,568,000 ~~channel~~for ~~partners~~the three months ended March 31, 2006. The increase in product ~~which~~development ~~consist~~expenses ofwas ~~original~~primarily ~~equipment~~due ~~manufacturers~~to ~~(“OEMs”)~~an increase in headcount from 34 at March 31, ~~value~~2006 ~~added~~to ~~resellers~~54 at ~~(“VARs”)~~March 31, 2007, including employees gained from the Company’s acquisition of Temtec in June ~~independent~~2006. ~~distributors~~The Company anticipates that it will continue to devote substantial resources to the development of new products and ~~sales~~new ~~agents~~versions of its existing products, including Applix TM1 and related applications.

~~Professional~~General ~~Services~~ and ~~Maintenance~~Administrative Expenses

~~Professional~~General ~~services~~ and ~~maintenance~~administrative ~~revenues~~expenses ~~increased~~consist byprimarily ~~16%~~of ~~to $4~~salaries,~~201,000~~ ~~for~~benefits ~~the~~and ~~three~~occupancy ~~months~~costs ~~ended~~for ~~March 31~~executive, ~~2005~~administrative, asfinance, ~~compared~~information ~~to $3~~technology,~~616,000~~ ~~for~~and ~~the~~human ~~three~~resource ~~months ended March 31~~personnel, ~~2004.~~ ~~During~~as ~~the~~well ~~three~~as ~~months~~accounting ~~ended~~and ~~March 31,~~legal ~~2005,~~costs. ~~maintenance~~General ~~revenues~~and administrative expenses increased $~~584~~649,000 to $32,~~735~~373,000, ~~compared to $3,151,000~~ for the three months ended March 31, ~~2004,~~2007 ~~and~~from ~~professional services revenues were consistent at~~ $~~466~~1,~~000 for the three months ended March 31~~724, ~~2005 compared to $465,~~000 for the three months ended March 31, ~~2004~~2006. The increase in ~~maintenance~~professional ~~revenue~~services ~~was primarily~~fees ~~attributable~~incurred ~~to the increase~~ in ~~the~~connection ~~customer~~with ~~installed base from the sale of software~~compliance ~~licenses~~efforts, toprimarily ~~new~~associated ~~customers coupled~~ with ~~high~~preparation ~~rates~~for ofits ~~renewals~~management ofreport ~~annual~~and ~~maintenance~~auditor ~~contracts from~~attestation ~~the~~relating ~~sale~~to ofits ~~licenses~~internal incontrol ~~prior~~over ~~periods.~~financial ~~The~~reporting, ~~increase~~contributed into ~~maintenance~~the ~~revenues~~higher ~~was~~general ~~also partially due~~and toadministrative ~~favorable~~expenses ~~impacts~~during ~~of foreign currency exchange rate fluctuations in~~ the ~~weighted~~three ~~average~~months ~~values of~~ended ~~the British pound~~March 31, ~~Euro~~2007 ~~and~~compared ~~Australian dollar in relation~~ to the ~~U.S.~~same ~~dollar~~period of 2006. The ~~net~~increase ~~effect~~ of ~~foreign~~ ~~currency~~general ~~exchange~~and ~~rate~~administrative ~~fluctuations~~expenses was analso ~~increase~~due to ~~professional~~additional ~~service~~costs ~~and maintenance~~incurred ~~revenues~~related ofto ~~approximately $122,000 for~~ the ~~three~~acquisition ~~months~~of ~~ended~~Temtec ~~March 31,~~in ~~2005~~June 2006. The Company ~~expects maintenance~~will ~~revenues to~~ continue to ~~increase~~closely ~~due~~monitor general toand ~~strong~~administrative ~~customer maintenance renewal rates~~costs.

~~Cost~~Amortization of ~~Revenues~~Acquired Intangible Assets

	Three Months Ended March 31,
	2005				2004
	(In thousands, except percentages)
Cost of Software License Revenues	$	23			$	206
Cost of Professional Services Revenues and Maintenance Revenues:
Cost of Professional Services Revenues		410				347
Cost of Maintenance Revenues		548				676
Total		958				1,023
Total Cost of Revenues	$	981			$	1,229
Gross Margin:			(A	)			(A	)
Software License	$	3,424	99	%	$	3,561	95	%
Professional Services and Maintenance:
Professional Services		56	12	%		118	25	%
Maintenance		3,187	85	%		2,475	79	%
Total		3,243	77	%		2,593	72	%
Total Gross Margin	$	6,667	87	%	$	6,154	83	%

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.

14 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.

~~Table of Contents~~14

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

~~Cost~~Non-operating ofIncome ~~Software License Revenues~~(Expense)

Cost of software license revenues consist primarily of third-party software royalties, cost of product packaging and documentation materials, and amortization of capitalized software costs. Cost of software license revenues as a percentage of software license revenues was less than 1% for the three months ended March 31, 2005 and 5% for the three months ended March 31, 2004. The decrease in these percentages and corresponding improvement in software license gross margin was primarily due to a decrease of $132,000 in the amortization of capitalized software development costs and a decrease of $29,000 in third-party software royalties paid by the Company for the three months ended March 31, 2005, compared to the same period in the prior year. Capitalized software development costs were fully amortized in the second quarter of 2004.


	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	%

~~Cost~~Interest ~~of Professional Services and Maintenance Revenues~~Income

~~The~~Interest ~~cost~~income ofincreased ~~professional services and maintenance revenues consists primarily of personnel salaries and benefits, facilities and information system costs incurred~~ to provide consulting, training and customer support, and payments to indirect channel partners to provide first level support to end-user customers. These payments to indirect channel partners to provide first level support are generally amortized over the 12-month maintenance support period of the underlying contract with the end-user customer. Cost of professional services and maintenance revenues decreased by $65304,000 ~~to $958,000~~ for the three months ended March 31, ~~2005~~2007 from $1230,~~023,~~000 ~~for the~~ ~~three~~from ~~months ended March 31, 2004. Gross margin of professional services and maintenance revenues increased to 77% for~~ the three months ended March 31, ~~2005 as compared to 72% for the three months ended March 31, 2004~~2006. The ~~improvements~~increase in ~~gross~~interest ~~margins~~income ~~were~~was ~~primarily~~ due to ahigher ~~change~~interest inrates ~~revenue~~earned ~~mix~~on ~~from lower margin consulting revenues to~~ higher ~~margin~~average ~~maintenance~~cash ~~revenues. The~~and ~~Company~~short-term ~~will~~investments ~~continue~~balances toas ~~focus~~compared ~~on the utilization of partners~~ to ~~deliver consulting services~~the ~~for~~same ~~product~~period ~~implementations~~in ~~and customization of its products~~2006.

~~Operating~~Interest ~~Expenses~~Expense

	Three Months Ended March 31,
			Percent of					Percent of
	2005		Revenues			2004		Revenues
	(In thousands, except percentages)
Sales and marketing	$	3,395		44	%	$	2,513		34	%
Product development		1,151		15	%		1,326		18	%
General and administrative		1,361		18	%		1,608		22	%
Amortization of acquired intangible asset		63		1	%		63		1	%
Total operating expenses	$	5,970		78	%	$	5,510		75	%

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.

~~Sales~~Other ~~and~~Income ~~Marketing~~(Expense), ~~Expenses~~Net

~~Sales~~Other ~~and~~income ~~marketing expenses consist primarily of salaries and benefits~~(expense), ~~commissions~~net ~~and bonuses~~represents ~~for~~other ~~the~~non-operating ~~Company’s~~income ~~sales~~ and ~~marketing~~expense ~~personnel~~items, ~~field~~primarily consisting ~~office~~of ~~expenses,~~gains ~~travel~~ and ~~entertainment,~~ ~~promotional~~losses ~~and~~on ~~advertising~~foreign ~~expenses~~currency ~~and~~exchange ~~the~~fluctuations. ~~cost~~Other ofincome ~~the Company’s international operations~~(expense), net ~~which~~increased ~~are~~to ~~sales~~income ~~operations.~~of ~~Sales and marketing expenses increased~~ $~~882~~150,000 ~~to $3,395,000~~ for the three months ended March 31, ~~2005~~2007 from expense of $2115,~~513,~~000 for the three months ended March 31, ~~2004~~2006. ~~Sales~~The ~~and~~change ~~marketing~~was ~~expenses~~mainly asdue ato ~~percentage~~foreign ofcurrency exchange ~~total~~rate ~~revenues~~fluctuations, ~~were~~primarily ~~44% and 34% for~~ the ~~three months ended March 31~~Euro, ~~2005~~the ~~and~~British ~~2004~~Pound, ~~respectively. The increase in sales~~ and ~~marketing expenses for~~ the ~~three~~Australian ~~months~~dollar, ~~ended~~on intercompany ~~March 31~~balances, ~~2005~~which ~~was~~are ~~primarily~~considered ~~due~~short-term ~~to an increase~~ in ~~staffing~~nature ~~in sales~~ and ~~marketing,~~are ~~including~~denominated ~~the~~in the Company’s ~~direct~~foreign ~~sales~~subsidiaries’ ~~force~~local ~~and presales technical staff, as well as an increased investment in marketing programs, advertising and lead generation activities~~currencies.

15Provision for Income Taxes

~~Table~~ 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 ~~Contents~~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.

~~Product Development Expenses~~15

ProductTable development expenses include costs associated with the development of new products, enhancements of existing products and quality assurance activities, and consist primarily of employee salaries and benefits, consulting costs and the cost of software development tools. The Company capitalizes product development costs during the required capitalization period once the Company has reached technological feasibility through general release of its software products. The Company considers technological feasibility to be achieved when a product design and working model of the software product have been completed, and the software product is ready for initial customer testing. Capitalized software development costs are then amortized on a product-by-product basis over the estimated product life of between one to two years and are included in the cost of software license revenue. There were no software development costs that qualified for capitalization during the three months ended March 31, 2005 or 2004. Product development costs not meeting the requirements of capitalization are expensed as incurred. Contents

~~Product~~LIQUIDITY ~~development~~AND ~~expenses~~CAPITAL ~~decreased $175,000 to $1,151,000 for the three months ended March~~RESOURCES 31, 2005 from $1,326,000 for the three months ended March 31, 2004. These expenses represent 15% of total revenues for the three months ended March 31, 2005, as compared to 18% of total revenues for the three months ended March 31, 2004. The decrease in product development expenses was primarily due to a slight decrease in staffing. The Company anticipates that it will continue to devote substantial resources to the development of new products, new versions of its existing products, including Applix TM1 and related applications.

~~General~~ The Company currently derives its liquidity and ~~Administrative~~capital ~~Expenses~~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.

~~General~~Cash ~~and~~provided 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 also include legal costs (including costs under indemnification obligations to former executives) associated with the investigation by the ~~SEC related to the~~ Company’s ~~financial~~operating ~~restatements~~activities ~~for~~was ~~the fiscal years 2001 and 2002. General and administrative expenses decreased~~ $~~247~~5,~~000~~529, ~~to $1,361,~~000, ~~or 18% of total revenues,~~ for the three months ended March 31, ~~2005~~2007, ~~from~~compared ~~$1,608,000,~~to orcash ~~22%~~provided by operating activities of ~~total revenues~~$2,524,000 for the three months ended March 31, ~~2004~~2006. ~~The~~Cash ~~decrease~~provided by operating activities was primarily due to ~~lower~~a ~~legal~~decrease ~~costs~~in ~~associated~~accounts ~~with~~receivable ~~the~~of ~~SEC~~$3,823,000 ~~investigation~~resulting ~~and~~primarily afrom ~~reduction~~strong incash ~~allocated~~collections ~~rent~~during ~~expense for~~ three months ended March 31, ~~2005~~2007, ~~resulting~~coupled ~~from~~with ~~the~~an ~~Company’s~~increase ~~restructuring of its UK office lease~~ in ~~2004.~~deferred ~~The~~revenue ~~Company~~of ~~will continue to closely monitor general and administrative costs~~$2,177,000.

~~Amortization~~ 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 ~~Acquired~~$1,101,000 ~~Intangible~~for ~~Asset~~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.

~~Amortization~~Cash ~~expense~~provided by financing activities totaled $391,000 for the ~~acquired~~three ~~intangible~~months ~~asset~~ended March 31, 2007, ~~customer~~which ~~relationships~~consisted of proceeds of $933,000 ~~associated with~~received from the ~~Dynamic~~issuance ~~Decisions~~of ~~acquisition~~stock inunder ~~March 2001~~the Company’s stock plans, ~~was~~partially offset by $63542,000 of principal payments on the Company’s term loan. Cash provided by financing activities totaled $584,000 for the three months ended March 31, ~~2005~~2006, ~~and~~which ~~2004.~~consisted ~~The~~of ~~amortization~~proceeds ~~expense~~received ~~will~~from ~~continue~~the toissuance beof ~~ratably~~stock ~~amortized~~under ~~through~~ the ~~first quarter~~Company’s ~~of 2007~~stock plans.

~~Interest~~ Cash paid for income taxes by the Company was $258,000 and ~~Other~~$192,000 ~~(Expense)~~for ~~Income~~the three months ended March 31, ~~Net~~2007 and 2006, respectively.

~~Interest and other (expense) income, net consists primarily of interest income, interest~~16 ~~expense and gains and losses on foreign currency exchange fluctuations.~~

InterestTable and other (expense) income, net decreased to an expense of $20,000 for the three months ended March 31, 2005, as compared to income of $147,000 for the three months ended March 31, 2004. The decrease was mainly due to unfavorable foreign currency exchange rate fluctuations on intercompany balances denominated in the Company’s foreign subsidiaries’ local currencies, primarily the Company’s Australian intercompany balances, resulting in a net loss on foreign currency exchange of approximately $97,000 in the three months ended March 31, 2005 as compared to a net gain on foreign currency exchange of approximately $142,000 in the comparable period in 2004. This decrease was partially offset by an increase of approximately $73,000 in interest income for the three months ended March 31, 2005 as compared to the comparable period in 2004 due to higher interest rates earned on higher average cash and short-term investments balances. Contents

16 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.

~~Table~~ The ofCompany ~~Contents~~does not have any off-balance sheet financing or unconsolidated special purpose entities.

~~Provision~~ The Company currently expects that the principal sources of funding for ~~Income~~its ~~Taxes~~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.

~~The~~ITEM ~~provision for income taxes represents the Company’s federal and state income tax obligations as well as foreign tax provisions~~3. ~~For~~QUANTITATIVE ~~the~~AND ~~three~~QUALITATIVE ~~months~~DISCLOSURES ~~ended~~ABOUT ~~March 31,~~MARKET ~~2005 and 2004,~~RISK provisions for income taxes were $46,000 and $27,000, respectively. The effective tax rates were significantly less than the U.S. federal statutory rate primarily as a result of the anticipated utilization of domestic net operating loss carryforwards.

~~LIQUIDITY~~ As ~~AND~~a ~~CAPITAL~~multinational ~~RESOURCES~~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.

~~The~~At March 31, 2007, the Company ~~currently~~held ~~derives~~$31,025,000 ~~its~~in ~~liquidity~~cash and ~~capital~~cash ~~resources~~equivalents, ~~primarily~~excluding $400,000 ~~from~~of ~~the~~restricted ~~Company’s~~ cash, ~~flow~~consisting ~~from~~primarily ~~operations.~~of ~~The~~money ~~Company’s~~market ~~cash~~funds and ~~cash equivalents balances were~~ $172,~~762~~081,000 ~~and~~in ~~$16,324,000~~short-term asinvestments. ofCash ~~March 31,~~equivalents ~~2005~~and short-term investments are classified as available for sale and ~~December 31,~~carried ~~2004,~~at ~~respectively~~fair value, which ~~includes~~approximates ~~restricted cash~~amortized ofcost. ~~$400,000~~A ashypothetical of10% ~~each~~increase ~~respective~~in interest ~~period.~~rates ~~The~~would ~~Company’s~~not ~~days~~have ~~sales~~a ~~outstanding~~material ~~(“DSO”)~~impact inon ~~accounts~~the ~~receivable~~fair ~~was~~market ~~52 days as~~value of ~~March 31,~~these ~~2005,~~instruments ~~compared~~due to ~~with~~their ~~59 days~~short asmaturity ofand ~~December 31,~~the ~~2004~~Company’s intention that all the securities will be sold within one year.

~~Cash provided by the Company’s operating activities was $2,880,000 for the three months ended~~17 March 31, 2005, compared to cash used in operating activities of $1,207,000 for the three months ended March 31, 2004. Cash provided by operating activities was primarily due to net income of $611,000, coupled with strong cash collections on its accounts receivable for the three months ended March 31, 2005.

CashTable used in investing activities totaled $3,019,000 for the three months ended March 31, 2005 compared to cash used in investing activities of $25,000 for the three months ended March 31, 2004. Cash used in investing activities consisted primarily of the Company’s purchase of approximately $2,976,000 of short-term investments during the three months ended March 31, 2005. Contents

~~Cash~~ITEM provided by financing activities totaled $1,717,000 for the three months ended March 31, 2005, which consisted of $825,000 of proceeds received from the issuance of stock under the Company’s stock plans and $892,000 of proceeds from the repayment of notes receivable4. ~~This compares~~CONTROLS toAND ~~total cash provided in financing activities of $4,587,000 for the three months ended~~PROCEDURES March 31, 2004, which consisted of proceeds of $3,000,000 from the Company’s sale of its common stock, at fair market value, to a member of the Company’s Board of Directors, along with another investor who is related to the Board member, $1,356,000 from the issuance of stock under the Company’s stock plans and $231,000 from the repayment of notes.

~~Cash~~The ~~paid~~Company’s ~~for~~management, ~~income~~with ~~taxes~~the byparticipation of the Company’s ~~was~~chief ~~$170,000~~executive officer and chief ~~$108~~financial officer,~~000~~ ~~for~~evaluated the ~~three~~effectiveness ~~months~~of ~~ended~~the Company’s disclosure controls and procedures as of March 31, ~~2005~~2007. The term “disclosure controls and ~~2004~~procedures”, ~~respectively~~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. ~~The~~Disclosure ~~increase~~controls ~~was~~and ~~primarily~~procedures ~~due~~include, anwithout ~~increase~~limitation, controls and procedures designed to ensure that information required to be disclosed by a company in ~~federal~~the ~~income~~reports that it ~~taxes~~files ~~paid~~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.

InNo ~~April 2005,~~change in the Company’s ~~renewed~~internal ~~its~~control ~~credit~~over ~~facility,~~financial ~~which~~reporting ~~provides~~(as ~~for~~defined ~~loans~~in ~~and other~~Rules ~~financial~~13a-15(f) ~~accommodations,~~and ~~with Silicon Valley Bank~~ 15d-15(~~“SVB”~~f). ~~The~~under ~~renewed~~the ~~credit~~Exchange ~~facility~~Act) isoccurred ~~a domestic~~during ~~working capital line of credit with an interest rate equal to~~ the ~~prime~~fiscal ~~interest~~quarter ~~rate~~ended ~~and~~March 31, is2007 inthat ~~the~~has ~~aggregate~~materially ~~principal~~affected, ~~amount~~or ofis upreasonably likely to ~~the~~materially ~~lesser of: (i) $3~~affect,~~000,000;~~ ~~and (ii) an amount based upon a percentage~~ the Company’s internal ~~qualifying~~control ~~domestic~~over ~~accounts~~financial ~~receivable~~reporting. ~~The facility will~~ ~~expire in March 2007.~~

~~The Company has contractual obligations for capital leases, operating leases and purchase~~18 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, 2004. 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, 2004.

TheTable Companyof does not have any off-balance sheet financing or unconsolidated special purpose entities. Contents

~~For~~PART ~~the three months ended March 31, 2005 and the year ended December 31, 2004, the Company achieved operating profitability and generated positive operating cash flow~~II. ~~The~~OTHER ~~Company, however,~~INFORMATION ~~incurred operating losses and negative cash flows for the last several years prior to 2004. As of~~ March 31, 2005, the Company had an accumulated deficit of $40.1 million. Management’s plans include increasing revenues and generating positive cash flows from operations. The Company currently expects that the principal sources of funding for its operating expenses, capital expenditures and other liquidity needs will be a combination of its available cash balances, funds expected to be generated from operations, and the SVB credit facility. The availability of borrowings under the Company’s credit facility is subject to the maintenance of certain financial covenants and the borrowing limits described above. 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

17ITEM 1A. RISK FACTORS

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

~~Company’s~~OUR ~~available~~STOCK ~~sources~~PRICE ofMAY ~~funds.~~BE ~~The~~ADVERSELY ~~amount~~AFFECTED ofBY ~~cash~~SIGNIFICANT ~~generated~~FLUCTUATIONS ~~from~~IN orOUR ~~used~~QUARTERLY 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 field operationsRESULTS. ~~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.~~

~~FACTORS~~ We ~~THAT~~may ~~MAY~~experience ~~AFFECT~~significant ~~FUTURE~~fluctuations ~~RESULTS~~in our future results of operations due to a variety of factors, many of which are outside of our control, including:

~~OUR~~• ~~STOCK~~demand ~~PRICE~~for ~~MAY~~and BEmarket ~~ADVERSELY~~acceptance ~~AFFECTED~~of BYour ~~SIGNIFICANT~~products ~~FLUCTUATIONS~~and INservices; ~~OUR~~• ~~QUARTERLY~~the ~~RESULTS~~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 ~~may~~typically ~~experience~~receive ~~significant~~a ~~fluctuations~~majority of our orders in the last month of each fiscal quarter because our ~~future~~customers ~~results~~often delay purchases of ~~operations~~products ~~due~~until the end of the quarter as our sales organization and our individual sales representatives strive to meet quarterly sales targets. As a ~~variety~~result, any delay in anticipated sales is likely to result in the deferral of ~~factors,~~the ~~many~~associated revenue beyond the end of a particular quarter, which ~~are~~would ~~outside~~have a significant effect on our operating results for that quarter. In addition, most of our ~~control~~operating expenses do not vary directly with net sales and are difficult to adjust in the short term. As a result, ~~including:~~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 ~~demand~~THE ~~for~~BUSINESS ~~and~~PERFORMANCE ~~market~~MANAGEMENT ~~acceptance~~AND ofBUSINESS ~~our~~INTELLIGENCE ~~products~~MARKETS ~~and~~ARE ~~services; • the size and timing of customer orders~~HIGHLY COMPETITIVE, ~~particularly~~WE ~~large~~MAY ~~orders,~~NOT ~~during~~BE aABLE ~~particular~~TO quarter; • introduction of products and services or enhancements by us and our competitors; • competitive factors that affect our pricing; • the mix of products and services we sell; • the hiring and retention of key personnel; • our expansion into international markets; • the timing and magnitude of our capital expenditures, including costs relating to the expansion of our operations; • the acquisition and retention of key partners; • changes in generally accepted accounting policies, especially those related to the recognition of software revenue; and • new government legislation or regulationSUCCEED.

18 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,

~~Table of Contents~~19

WeTable 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. Contents

WEindependent ~~MAY~~systems ~~NOT~~integrators, BEconsulting ~~ABLE~~firms TOand ~~FULFILL~~in-house ~~ANY~~IT ~~FUTURE~~departments. ~~CAPITAL~~Because barriers ~~NEEDS~~to entry into the software market are relatively low, we expect to face additional competition in the future.

~~Although~~Many weof ~~were~~our ~~profitable~~competitors incan ~~the~~devote ~~first~~significantly ~~quarter~~more ofresources ~~2005~~to ~~and~~the ~~2004~~development, ~~we incurred losses from~~promotion ~~continuing~~and ~~operations~~sale ~~for~~of ~~the~~products ~~last~~than ~~several~~we ~~years~~can, ~~prior to 2004. We could incur operating losses~~ and ~~negative~~ ~~cash~~many ~~flows in the future because~~ of ~~costs~~them ~~and~~can ~~expenses~~respond ~~relating~~ to ~~brand~~new ~~development, marketing~~technologies and ~~other~~changes ~~promotional~~in customer ~~activities,~~preferences ~~continued~~more ~~development~~quickly ofthan ~~our~~we ~~information~~can. ~~technology infrastructure~~Further, ~~expansion~~other ofcompanies ~~product~~with ~~offerings~~resources ~~and~~greater ~~development~~than ours ofmay ~~relationships~~attempt ~~with~~to ~~other businesses.~~gain ~~There~~market ~~can~~share bein nothe ~~assurance~~customer ~~that~~analytics weand ~~will~~business ~~continue~~planning tomarkets ~~achieve~~by acquiring aor ~~profitable~~forming ~~level~~strategic ~~of operations~~alliances inwith ~~the~~our ~~future~~competitors.

WeWE ~~believe,~~MAY ~~based~~NOT ~~upon~~BE ~~our~~ABLE ~~current~~TO ~~business~~SUCCESSFULLY ~~plan,~~INTEGRATE ~~that~~TEMTEC ~~our~~INTO ~~current~~OUR ~~cash,~~BUSINESS ~~cash~~AND equivalents and short-term investments, funds expected to be generated from operations and available credit lines should be sufficient to fund our operations as planned for at least the next twelve monthsOPERATIONS. 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 The WEintegration DOof ~~NOT~~the ~~INTRODUCE~~business ~~NEW~~and ~~PRODUCTS~~operations ~~AND~~of ~~SERVICES~~Temtec INInternational AB.V., ~~TIMELY~~which ~~MANNER~~we acquired in June 2006, ~~OUR~~into ~~PRODUCTS~~our ~~AND~~business ~~SERVICES~~and operations is a complex, time-consuming and expensive process. ~~WILL~~Before ~~BECOME~~any ~~OBSOLETE~~acquisition, ~~AND~~each ~~OUR~~company ~~OPERATING~~has ~~RESULTS~~its ~~WILL~~own ~~SUFFER~~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:

~~The~~• ~~business~~retain ~~performance~~key ~~management~~Temtec ~~and~~personnel; ~~business~~• ~~intelligence markets~~integrate, ~~including interactive~~both ~~planning,~~from ~~budgeting~~an engineering and ~~analytics~~a ~~are~~sales ~~characterized~~and bymarketing ~~rapid~~perspective, ~~technological~~Temtec’s ~~change, frequent~~products ~~new~~and ~~product~~services ~~enhancements,~~into ~~uncertain~~our suite of product ~~life~~and ~~cycles,~~service ~~changes~~offerings; in• ~~customer~~coordinate ~~demands~~research and ~~evolving~~ ~~industry~~development ~~standards.~~efforts; ~~Our~~• ~~products~~train ~~could~~and beintegrate ~~rendered~~sales ~~obsolete~~forces; if• ~~products~~integrate ~~based~~our onbusiness ~~new technologies~~processes ~~are~~and ~~introduced~~systems; orand ~~new~~• ~~industry~~eliminate ~~standards~~redundant ~~emerge~~costs and consolidate redundant facilities.

~~Enterprise~~There ~~computing~~can ~~environments~~be ~~are~~no ~~inherently~~assurance ~~complex.~~that ~~As a result,~~ we ~~cannot~~will ~~accurately estimate~~be ~~the~~able ~~life~~to ~~cycles~~successfully ofintegrate ~~our~~Temtec, ~~products. New products~~ and ~~product~~a ~~enhancements can require long~~failure ~~development and testing periods, which requires us~~ to ~~hire~~do ~~and~~so ~~retain~~may ~~technically~~materially ~~competent personnel.~~impact ~~Significant delays in new product releases or significant problems in installing or implementing new products could seriously damage~~ our ~~business.~~results ~~We have, on occasion, experienced delays in the scheduled introduction~~ of ~~new and enhanced products and may experience similar delays in the future~~operations.

~~Our~~WE ~~future~~MAY ~~success~~NOT ~~depends~~SUSTAIN ~~upon~~PROFITABILITY ~~our~~OR ~~ability~~BE toABLE ~~enhance~~TO ~~existing~~FULFILL ~~products,~~ANY ~~develop~~FUTURE ~~and introduce~~CAPITAL ~~new products, satisfy customer requirements and achieve market acceptance~~NEEDS. ~~We may not~~ ~~successfully identify new product opportunities and develop and bring new products to market in a timely and cost-effective manner.~~

~~ATTEMPTS~~ We TOcould ~~EXPAND~~incur BYoperating ~~MEANS~~losses OFand ~~BUSINESS~~negative ~~COMBINATIONS~~cash ~~AND~~flows ~~ACQUISITIONS~~in ~~MAY~~the ~~NOT~~future BEbecause ~~SUCCESSFUL~~of ~~AND~~costs and ~~MAY~~expenses ~~DISRUPT~~relating ~~OUR~~to ~~OPERATIONS~~brand ORdevelopment, ~~HARM~~marketing ~~OUR~~and ~~REVENUES.~~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 ~~have~~believe, inbased ~~the~~upon ~~past~~our current business plan, that our current cash, cash equivalents and short-term ~~may~~investments, infunds expected to be generated from operations and our available credit line should be sufficient to fund our operations as planned for at least the ~~future,~~next ~~buy~~twelve ~~businesses~~months. However, ~~products~~we ormay ~~technologies.~~need Inadditional ~~the~~funds sooner than anticipated if our performance deviates ~~event~~significantly offrom ~~any~~our ~~future~~current ~~purchases,~~business plan or if there are significant changes in competitive or other market factors. If we ~~will~~elect ~~face~~to raise additional ~~financial~~operating ~~and~~funds, ~~operational~~such ~~risks~~funds, ~~including:~~whether from equity or debt financing or other sources, may not be available, or available on terms acceptable to us.

•IF ~~difficulty~~WE inDO ~~assimilating~~NOT ~~the~~INTRODUCE ~~operations,~~NEW ~~technology~~PRODUCTS ~~and~~AND ~~personnel~~SERVICES ofIN ~~acquired~~A ~~companies;~~TIMELY •MANNER, ~~disruption~~OUR inPRODUCTS ~~our~~AND ~~business~~SERVICES WILL ~~because~~BECOME ofOBSOLETE, ~~the~~AND ~~allocation~~OUR ofOPERATING ~~resources~~RESULTS toWILL ~~consummate these transactions and the diversion of management’s attention from our core business;~~SUFFER.

19 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.

~~Table of Contents~~20

•Table 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.Contents

WE Enterprise ~~RELY~~computing ~~HEAVILY~~environments ONare ~~KEY~~inherently ~~PERSONNEL~~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.

~~The~~Our ~~loss~~future ofsuccess ~~any~~depends ofupon our ~~members~~ability ofto ~~management,~~enhance orexisting ~~any~~products, ofdevelop ~~our staff of sales~~ and ~~development~~ ~~professionals,~~introduce ~~could~~new ~~prevent~~products, ussatisfy ~~from~~customer ~~successfully~~requirements ~~executing~~and ~~our~~achieve ~~business~~market ~~strategies~~acceptance. ~~Any~~We ~~such~~may ~~loss~~not ofsuccessfully ~~technical~~identify ~~knowledge~~new ~~and~~product ~~industry~~opportunities ~~expertise~~and ~~could~~develop ~~negatively~~and ~~impact~~bring ~~our~~new ~~success.~~products ~~Moreover, the loss of any critical employees or a group thereof, particularly~~ to amarket ~~competing~~in ~~organization, could~~a ~~cause~~timely ~~us to lose market share,~~ and ~~the~~cost-effective ~~Applix brand could be diminished~~manner.

WEATTEMPTS ~~MAY~~TO ~~NOT~~EXPAND BEBY ~~ABLE~~MEANS TOOF ~~MEET~~BUSINESS ~~THE~~COMBINATIONS ~~OPERATIONAL~~ AND ~~FINANCIAL~~ACQUISITIONS ~~CHALLENGES~~MAY ~~THAT~~NOT WEBE ~~ENCOUNTER~~SUCCESSFUL INAND MAY DISRUPT OUR ~~INTERNATIONAL~~ OPERATIONS OR HARM OUR REVENUES.

~~Due~~We tohave in the ~~Company’s~~past, ~~significant~~and ~~international~~may ~~operations~~in the future, webuy ~~face~~businesses, aproducts ~~number~~or oftechnologies. ~~additional~~In the ~~challenges~~event ~~associated~~of ~~with~~any ~~the~~future ~~conduct~~purchases, ofwe ~~business~~will ~~overseas.~~face ~~For~~additional ~~example~~financial and operational risks, including:

• ~~we may have~~ difficulty ~~managing and administering a globally-dispersed business; • fluctuations~~ in ~~exchange~~assimilating ~~rates may negatively affect our operating results; • we may not be able to repatriate~~ the ~~earnings of our foreign~~ operations;, •technology weand ~~have~~personnel ~~to comply with a wide variety~~ of ~~foreign~~acquired ~~laws~~companies; • wedisruption ~~may~~in ~~not be able to adequately protect~~ our ~~trademarks~~business ~~overseas~~because ~~due~~of to the ~~uncertainty~~allocation of ~~laws~~resources ~~and enforcement in certain countries relating~~ to ~~the~~consummate ~~protection~~these oftransactions ~~intellectual~~and ~~property rights; • reductions in business activity during~~ the ~~summer~~diversion ~~months in Europe and certain other parts~~ of ~~the~~management’s ~~world~~attention ~~could~~from ~~negatively impact the operating results of~~ our ~~foreign~~core ~~operations~~business; • ~~export~~difficulty ~~controls~~in ~~could~~retaining ~~prevent~~key ustechnical ~~from~~and ~~shipping~~managerial ~~our~~personnel ~~products into and~~ from ~~some~~acquired ~~markets~~companies; • ~~multiple~~dilution ~~and~~of ~~possibly~~our ~~overlapping~~stockholders, ~~tax~~if ~~structures~~we ~~could~~issue ~~significantly~~equity ~~reduce~~to ~~the~~fund ~~financial~~these ~~performance of our foreign operations~~transactions; • ~~changes~~assumption ~~in import/export duties and quotas could affect the competitive pricing~~ of ~~our~~increased ~~products~~expenses and ~~services~~liabilities; ~~and~~• ~~reduce~~ our ~~market~~relationships ~~share~~with inexisting ~~some~~employees, ~~countries;~~customers and •business ~~economic~~partners ormay ~~political~~be ~~instability~~weakened inor ~~some~~terminated ~~international~~as ~~markets~~a ~~could~~ result inof ~~the~~these ~~forfeiture~~transactions; ofand ~~some~~• ~~foreign~~additional ~~assets~~ongoing ~~and~~expenses ~~the~~associated ~~loss~~with write-downs of ~~sums~~goodwill ~~spent developing~~ and ~~marketing~~other ~~those~~purchased intangible assets.

~~BECAUSE THE BUSINESS PERFORMANCE MANAGEMENT AND BUSINESS INTELLIGENCE MARKETS ARE HIGHLY COMPETITIVE,~~ WE ~~MAY~~RELY ~~NOT~~HEAVILY BEON ~~ABLE~~KEY ~~TO SUCCEED~~PERSONNEL.

IfWe werely ~~fail~~heavily toon ~~compete~~key ~~successfully~~personnel inthroughout the ~~highly~~organization. ~~competitive~~The ~~and~~loss ~~rapidly~~of ~~changing~~any ~~business~~of our members ~~performance~~of management, ~~and~~or ~~business~~any ~~intelligence~~of ~~markets~~our staff of sales and development professionals, wecould ~~may~~prevent ~~not~~us befrom successfully ~~able~~executing toour ~~succeed~~business strategies. WeAny ~~face~~such loss of technical knowledge and industry ~~competition~~expertise ~~primarily~~could ~~from~~negatively ~~business~~impact ~~intelligence~~our ~~firms~~success. WeMoreover, ~~also~~the ~~face~~loss ~~competition~~of ~~from~~any ~~large~~critical employees or a ~~enterprise~~group ~~application~~thereof, ~~software~~particularly ~~vendors~~to a competing organization, could cause us to lose market share, and the Applix brand could be diminished.

20WE MAY NOT BE ABLE TO MEET THE OPERATIONAL AND FINANCIAL CHALLENGES THAT WE ENCOUNTER IN OUR INTERNATIONAL OPERATIONS.

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

~~independent~~• ~~systems~~we ~~integrators,~~may ~~consulting~~have ~~firms~~difficulty managing and inadministering a globally-~~house~~dispersed ITbusiness; ~~departments.~~• ~~Because barriers~~fluctuations toin ~~entry~~exchange ~~into~~rates may negatively affect our operating results; • we may not be able to repatriate the ~~software~~earnings ~~market~~of ~~are~~our ~~relatively~~foreign ~~low,~~operations; • we ~~expect~~have to ~~face~~comply ~~additional competition~~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 ~~future.~~ protection of intellectual property rights;

~~Many of our competitors can devote significantly more resources to the development, promotion~~21 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.

BECAUSETable WEof 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. Contents

We• ~~rely~~reductions in ~~part~~business onactivity ~~systems~~during ~~integrators~~the tosummer ~~promote,~~months ~~sell~~in Europe and ~~implement~~certain ~~our~~other ~~solutions.~~parts Ifof ~~we fail~~the toworld ~~maintain~~could ~~and~~negatively ~~develop~~impact ~~relationships~~the ~~with~~operating ~~systems~~results ~~integrators,~~of our ~~operating~~foreign ~~results~~operations; ~~will likely~~• ~~suffer.~~export Incontrols ~~addition,~~could ifprevent weus ~~are~~from ~~unable~~shipping toour ~~rely~~products oninto ~~systems~~and ~~integrators~~from tosome ~~install~~markets; • multiple and ~~implement~~ ~~our~~possibly ~~products,~~overlapping wetax ~~will~~structures ~~likely~~could ~~have~~significantly toreduce ~~provide~~the ~~these~~financial ~~services~~performance ~~ourselves,~~of ~~resulting~~our foreign operations; • changes in ~~increased~~ ~~costs.~~import/export Asduties aand ~~result,~~quotas ~~our~~could ~~results~~affect ofthe ~~operation~~competitive ~~may~~pricing beof ~~harmed.~~our Inproducts ~~addition,~~and ~~systems integrators~~services ~~may~~and ~~develop,~~reduce our market share in some countries; and • economic or ~~recommend~~political ~~products~~instability ~~that~~in ~~compete~~some ~~with~~international ~~our~~markets ~~products.~~could ~~Further,~~result ~~if these~~in ~~systems~~the ~~integrators~~forfeiture ~~fail~~of tosome ~~implement~~foreign ~~our~~assets ~~products~~and ~~successfully,~~the ~~our~~loss ~~reputation~~of ~~may~~sums ~~be harmed~~spent developing and marketing those assets.

BECAUSE ~~THE~~WE ~~SALES~~DEPEND ~~CYCLE~~IN ~~FOR~~PART ~~OUR~~ON ~~PRODUCTS~~THIRD-PARTY ~~CAN~~SYSTEMS BEINTEGRATORS ~~LENGTHY~~TO PROMOTE, ITSELL ISAND ~~DIFFICULT~~IMPLEMENT ~~FOR~~OUR PRODUCTS, USOUR TOOPERATING ~~PREDICT~~RESULTS ~~WHEN OR~~WILL ~~WHETHER~~LIKELY ASUFFER ~~SALE~~IF ~~WILL~~WE BEDO ~~MADE~~NOT DEVELOP AND MAINTAIN THESE RELATIONSHIPS.

~~The~~We ~~timing~~rely ofin ~~our~~part ~~revenue~~on issystems ~~difficult~~integrators to ~~predict~~promote, insell ~~large~~and ~~part~~implement ~~due~~our tosolutions. ~~the~~If ~~length and~~we ~~variability~~fail ofto ~~the~~maintain ~~sales~~and ~~cycle~~develop ~~for~~relationships ~~our~~with ~~products.~~systems ~~Companies~~integrators, ~~often~~our ~~view~~operating ~~the~~results ~~purchase~~will likely ofsuffer. ~~our~~In ~~products as~~addition, aif ~~significant~~we ~~and~~are ~~strategic~~unable ~~decision.~~to Asrely aon ~~result,~~systems ~~companies~~integrators ~~tend~~ to ~~take~~install ~~significant time~~ and ~~effort~~implement ~~evaluating~~ our products., ~~The~~we ~~amount~~will oflikely ~~time~~have ~~and~~to ~~effort~~provide ~~depends~~these inservices ~~part~~ourselves, onresulting ~~the size and the~~in ~~complexity~~increased ~~of the deployment~~costs. ~~This~~As ~~evaluation process frequently results in~~ a ~~lengthy sales cycle~~result, ~~typically~~ ~~ranging~~our ~~from~~results ~~three~~of tooperations ~~six~~may ~~months~~be harmed. ~~During~~In ~~this time~~addition, wesystems integrators may ~~incur~~develop, ~~substantial~~market ~~sales~~or ~~and marketing~~recommend ~~expenses~~products ~~and~~that ~~expend~~compete ~~significant~~with ~~management~~our ~~efforts~~products. WeFurther, ~~do not recoup~~ if these ~~investments~~systems ~~if the~~integrators ~~prospective~~fail ~~customer~~to ~~does~~implement ~~not~~our ~~ultimately~~products ~~license~~successfully, our ~~product~~reputation may be harmed.

BECAUSE THE SALES CYCLE FOR OUR ~~BUSINESS~~PRODUCTS ~~WILL~~CAN BE ~~HARMED~~LENGTHY, IFIT WEIS ~~ARE~~DIFFICULT ~~UNABLE~~FOR US TO ~~PROTECT~~PREDICT ~~OUR~~WHEN ~~TRADEMARKS~~OR WHETHER ~~FROM~~A ~~MISUSE~~SALE BYWILL ~~THIRD PARTIES~~BE MADE.

~~Our~~The ~~collection~~timing of ~~trademarks~~our revenue is ~~important~~difficult to ~~our~~predict ~~business.~~in ~~The~~large ~~protective~~part ~~steps~~due weto ~~take~~the orlength and ~~have~~variability ~~taken~~of ~~may~~the besales ~~inadequate~~cycle tofor ~~deter~~our ~~misappropriation~~products. ofCompanies ~~our~~often ~~trademark~~view ~~rights.~~the Wepurchase ~~have~~of ~~filed~~our products ~~applications~~as ~~for~~a ~~registration~~significant ofand ~~some~~strategic ofdecision. ~~our~~As ~~trademarks~~a inresult, ~~the~~companies ~~United~~tend ~~States.~~to ~~Effective~~take ~~trademark~~significant time and ~~protection~~effort ~~may~~evaluating ~~not~~our beproducts. ~~available~~The inamount ~~every~~of ~~country~~time inand ~~which~~effort wedepends ~~offer~~in orpart ~~intend~~on tothe ~~offer~~size ~~our~~and ~~products~~the ~~and~~complexity ~~services.~~of ~~Failure~~the todeployment. ~~protect~~This ~~our~~evaluation ~~trademark~~process ~~rights~~frequently ~~adequately~~results ~~could~~in ~~damage~~a ~~our~~lengthy ~~brand~~sales ~~identity~~cycle, ~~and~~typically ~~impair~~ranging ~~our~~from ~~ability~~three to ~~compete~~six ~~effectively~~months. ~~Furthermore,~~During ~~defending~~this ortime ~~enforcing~~we ~~our~~may ~~trademark~~incur substantial sales and ~~rights~~marketing ~~could~~expenses ~~result~~and inexpend significant management efforts. We do not recoup these investments if the ~~expenditure~~prospective ofcustomer ~~significant~~does ~~financial~~not ~~and~~ultimately ~~managerial~~license ~~resources~~our product.

OUR ~~PRODUCTS~~BUSINESS ~~MAY~~WILL ~~CONTAIN~~BE ~~DEFECTS~~HARMED ~~THAT~~IF ~~MAY~~WE BEARE ~~COSTLY~~UNABLE TO ~~CORRECT,~~PROTECT ~~DELAY MARKET ACCEPTANCE OF~~ OUR ~~PRODUCTS~~ ~~AND~~TRADEMARKS ~~EXPOSE~~FROM USMISUSE TOBY ~~LITIGATION~~THIRD PARTIES.

~~Despite~~Our ~~testing~~collection byof ~~Applix~~trademarks ~~and~~is ~~our~~important ~~customers,~~to ~~errors~~our ~~may~~business. beThe ~~found~~protective insteps ~~our~~we ~~products~~take ~~after~~or ~~commencement~~have oftaken ~~commercial~~may ~~shipments.~~be Ifinadequate ~~errors~~to ~~are~~deter ~~discovered,~~misappropriation weof ~~may~~our ~~have~~trademark torights. ~~make~~We ~~significant~~have filed ~~expenditures~~applications offor ~~capital~~registration toof ~~eliminate~~some ~~them~~of ~~and~~our ~~yet~~trademarks ~~may~~in ~~not~~the beUnited ~~able~~States. toEffective ~~successfully correct them in a~~trademark ~~timely~~protection ~~manner~~may ornot atbe ~~all.~~available ~~Errors~~in ~~and~~every ~~failures~~country in ~~our~~which ~~products~~we ~~could~~offer ~~result~~or inintend ato ~~loss~~offer ~~of,~~our ~~or delay~~products ~~in,~~and ~~market~~services. ~~acceptance~~Failure ofto protect our ~~products~~trademark ~~and~~rights adequately could damage our ~~reputation~~brand identity and impair our ability to ~~convince~~compete effectively. Furthermore, defending or enforcing our trademark ~~commercial~~rights ~~users~~could ofresult in the ~~benefits~~expenditure of ~~our~~significant ~~products~~financial and managerial resources.

InOUR ~~addition,~~PRODUCTS ~~failures~~MAY inCONTAIN ~~our~~DEFECTS ~~products~~THAT ~~could~~MAY ~~cause~~BE ~~system~~COSTLY ~~failures~~TO 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 claimsCORRECT, itDELAY isMARKET ~~possible~~ACCEPTANCE ~~that~~OF ~~these provisions may not be effective or~~OUR ~~enforceable~~PRODUCTS ~~under~~AND ~~the~~EXPOSE ~~laws~~US ofTO ~~some jurisdictions~~LITIGATION. ~~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.~~

21 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.

~~Table~~ 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 ~~Contents~~some jurisdictions. Our insurance policies may not adequately limit our exposure to this type of claim. These claims, even if unsuccessful, could be costly and time-consuming to defend.

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~22

AsTable 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 operations. For the three months ended March 31, 2005, the Company recorded a net loss on foreign exchange of approximately $97,000 in its Consolidated Statement of Operations, primarily due to unfavorable movements in the Australian dollar exchange rate. Based on foreign currency exposures existing at March 31, 2005, a 10% unfavorable movement in foreign exchange rates related to the British pound, Euro, Australian dollar, and Swiss franc would result in an approximately $658,000 loss to earnings. The Company has currently not engaged in activities to hedge these exposures. Contents

AtOUR ~~March 31,~~FINANCIAL ~~2005,~~RESULTS ~~the~~MAY ~~Company~~BE ~~held~~ADVERSELY ~~$17,362,000~~IMPACTED inBY ~~cash~~HIGHER ~~equivalents,~~THAN ~~excluding~~EXPECTED ~~$400,000~~TAX ~~of restricted~~RATES ~~cash,~~OR ~~consisting~~EXPOSURE ~~primarily of money market funds. Cash equivalents are classified as~~TO ~~available~~ADDITIONAL ~~for~~INCOME ~~sale~~TAX ~~and carried at fair value, which approximates cost~~LIABILITIES. ~~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~~ As 4a global company, our effective tax rate is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region. ~~CONTROLS~~Applix ~~AND~~is ~~PROCEDURES~~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.

~~The~~ITEM 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, 20056. ~~The term “disclosure controls and procedures”, as defined in Rules~~EXHIBITS 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 deigned 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, 2005, 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~~a) ~~and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March~~ ~~31, 2005 that~~Exhibits ~~has materially affected, or is reasonably likely to materially affect, the Company’s internal~~ ~~control over financial reporting.~~


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.

~~Table of Contents~~23

PARTTable II.of OTHER INFORMATION Contents

~~ITEM 5. OTHER INFORMATION~~SIGNATURE

~~Rider~~ Pursuant 23to 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.

On April 14, 2005, the Company renewed its credit facility relating to domestic working capital, which provides for loans and other financial accommodations, with Silicon Valley Bank (“SVB”). The renewed credit facility is a domestic working capital line of credit with an interest rate equal to the prime interest rate and is in the aggregate principal amount of up to the lesser of: (i) $3,000,000 and (ii) an amount based upon a percentage of the Company’s qualifying domestic accounts receivable. The facility will expire in March 2007.


	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)

~~The foregoing description of the credit facility is qualified~~24 in its entirety by reference to the First Loan Modification Agreement, which is attached hereto as Exhibit 10.25 and by by reference to the Loan and Security Agreement which is attached as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, both of which are incorporated herein by reference.

ITEMTable 6.of EXHIBITSContents

~~(a) Exhibits~~EXHIBIT INDEX

Exhibit
Number		Description
10.25		First Loan Modification Agreement, dated April 14, 2005 between the Registrant and Silicon Valley Bank.
10.26		Summary of 2005 Management Incentive Plan for Executive Officers of Applix, Inc.
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.

2325

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 16, 2005		/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
10.25		First Loan Modification Agreement, dated April 14, 2005 between the Registrant and Silicon Valley Bank.
10.26		Summary of 2005 Management Incentive Plan for Executive Officers of Applix, Inc.
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.

Filing Compare · APPLIX INC /MA/