-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IRbsOavV8UIZvl0q3CtV+wCOFy0dRcjcZjXuB7aFmIWCENJkqJD4kyiNNR5IqmIR K15hUh1ADG9RmMTYGl3M/w== 0000950135-07-001679.txt : 20070316 0000950135-07-001679.hdr.sgml : 20070316 20070316135142 ACCESSION NUMBER: 0000950135-07-001679 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070316 DATE AS OF CHANGE: 20070316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLIX INC /MA/ CENTRAL INDEX KEY: 0000932112 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 042781676 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25040 FILM NUMBER: 07699290 BUSINESS ADDRESS: STREET 1: 289 TURNPIKE ROAD CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 5088700300 10-K 1 b63668aie10vk.htm APPLIX, INC. e10vk
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Form 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
     
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2006
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 No. 0-25040
Applix, Inc.
(Exact name of registrant as specified in its charter)
 
     
Massachusetts   04-2781676
(State or other jurisdiction of
  (I.R.S. Employer
incorporation or organization)
  Identification No.)
289 Turnpike Road,
Westborough, Massachusetts
  01581-2831
(Zip Code)
(Address of principal executive offices)    
Registrant’s telephone number, including area code:
(508) 870-0300
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0025 par value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o     Accelerated filer þ     Non-accelerated filer o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
 
The aggregate market value of Common Stock held by non-affiliates of the registrant was $98,197,000 based on the closing price of the Common Stock on the NASDAQ Capital Market on June 30, 2006.
 
On February 28, 2007, the Registrant had 15,857,130 outstanding shares of common stock.
 
Documents Incorporated By Reference
 
         
Document Part
 
Form 10-K
 
 
Portions of the Registrant’s Definitive Proxy
Statement for the Annual Stockholders Meeting to
be held on June 7, 2007 to be filed with the United
States Securities and Exchange Commission
    Part III  
 

 

 
APPLIX, INC.
 
FORM 10-K
 
TABLE OF CONTENTS
 
                 
        Page
 
  Business   3
  Risk Factors   8
  Unresolved Staff Comments   12
  Properties   12
  Legal Proceedings   12
  Submission of Matters to a Vote of Security Holders   12
 
  Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   14
  Selected Financial Data   16
  Management’s Discussion and Analysis of Financial Condition and Results of Operations   17
  Quantitative and Qualitative Disclosures about Market Risk   29
  Financial Statements and Supplementary Data   30
  Changes in and Disagreements with Accountants on Accounting and Financial Disclosures   30
  Controls and Procedures   30
  Other Information   33
 
  Directors, Executive Officers and Corporate Governance   33
  Executive Compensation   33
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   33
  Certain Relationships and Related Transactions, and Director Independence   33
  Principal Accountant Fees and Services   33
 
  Exhibits   33
  36
  67
 Ex-21.1 Subsidiaries of the Registrant
 Ex-23.1 Consent of Deloitte & Touche LLP
 Ex-31.1 Section 302 Certification of the Chief Executive Officer
 Ex-31.2 Section 302 Certification of the chief Financial Office
 Ex-32.1 Section 906 Certification of the Chief Executive Officer
 Ex-32.2 Section 906 Certification of the Chief Financial Officer
 
Applix and TM1 are registered trademarks of Applix, Inc. TM1 Integra, TM1 Financial Reporting, TM1 Consolidations, TM1 Planning Manager, TM1 Web and Executive Viewer are trademarks of Applix, Inc. All other trademarks and company names mentioned are the property of their respective owners. All rights reserved.
 
Certain information contained in this Annual Report on Form 10-K is forward-looking in nature. All statements included in this Annual Report on Form 10-K or made by management of Applix, Inc. (“Applix” or the “Company”) and its subsidiaries, other than statements of historical facts, are forward-looking statements. Examples of forward-looking statements include statements regarding Applix’s future financial results, operations, business strategies, projected costs, products, competitive positions and plans and objectives of management for future operations. In some cases, forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “would”, “expect”, “plan”, “anticipates”, “intend”, “believes”, “estimates”, “predicts”, “potential”, “continue”, or the negative of these terms or other comparable terminology. Forward-looking statements necessarily involve risks and uncertainties. Actual results could differ materially from those indicated by such forward-looking statements as a result of important factors, including those discussed in the section below entitled “Risk Factors”. Applix does not undertake an obligation to update its forward-looking statements to reflect future events or circumstances and the forward-looking statements in this document should not be relied upon as representing the Company’s views as of any date subsequent to the date of this document.


2

Table of Contents

 
PART I
 
Item 1.   Business
 
General
 
Applix, Inc. (the “Company”) is a global provider of business performance management (“BPM”) and business intelligence (“BI”) applications, with Applix’s TM1 in-memory analytics engine at the core. Architected to drive decisions for agile companies that pursue leadership in their markets, Applix’s applications enable continuous strategic planning, management and monitoring of performance across the financial and operational functions within the enterprise. Approximately three thousand customers worldwide, including many Fortune 100 companies, use Applix’s adaptable, scalable and high-performance solutions to rapidly implement, modify, and expand their applications for strategic planning, sales, marketing, operations analysis and reporting.
 
With solutions based on the Applix platform, Applix’s customers have improved their business performance in numerous ways, such as achieving their business goals within 6 months of implementation on the average, freeing up personnel to concentrate on strategic planning rather than on data gathering, reducing customer defections, rapidly managing mergers and acquisitions, improving customer satisfaction, and shortening business cycles. Applix’s global network of partners delivers packaged and custom applications based on the Applix platform for specific vertical markets such as pharmaceuticals and banking, or for a specific function such as supply chain analytics or sales compensation.
 
Incorporated in 1983 and headquartered in Westborough, Massachusetts, Applix maintains offices in North America, Europe and the Pacific Rim.
 
In 2006, Applix was recognized by a variety of industry groups and publications for its leading-edge technologies, including:
 
  •  Applix improved significantly its position on Gartner Inc.’s Magic Quadrant for Corporate Performance Management Suites, 2006, with Gartner positioning Applix in the visionaries quadrant of their report.
 
  •  BPM Partners reported in its 2007 BPM Pulse Survey that Applix achieved the highest level of customer satisfaction of any of the core BPM vendors, outranking significantly larger vendors such as Business Objects, Cognos, and Hyperion.
 
  •  In The OLAP Survey 6, one of the industry’s most comprehensive independent studies, Applix once again achieved highest ratings among the leading BI vendors such as Cognos and Hyperion. The Company took top spots in goals achieved and fewest deterrents to wider deployment, and rated among the top three vendors in performance — shown by this survey to be increasingly important in the achievement of business benefits — speed of deployment, and customer satisfaction.
 
Applix maintains a website with the address www.applix.com. Applix is not including the information contained on its website as part of, or incorporating it by reference into, this Annual Report on Form 10-K. Applix makes available free of charge through its website its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to the reports, as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the Securities and Exchange Commission.
 
Industry Background
 
The economy of recent years has forced companies to adopt rigorous methods for assessing the impact that any future investments would have on their business. With reduced resources, many enterprises are pressed to make difficult decisions as to where to increase and decrease spending in their businesses. Many companies are focused on incremental investments in IT projects and reductions in plans for cutting-edge technologies and large infrastructure initiatives. However, analysts predict that the BI and BPM markets will be growth markets in 2007 and beyond.


3

Table of Contents

 
The BI market is a large and well-established market focused on leveraging the data collected in operational systems throughout an organization. BI is associated with the data warehousing market and involves the analysis of large amounts of historical data. The historical data is aggregated before it is analyzed and this aggregation process frequently requires several hours or a day or two before any analyses can be performed. Often, the analyses are performed by a few highly trained individuals within an organization.
 
The BPM market, which extends BI solutions with capabilities to define, measure, and manage performance against strategic goals, is beginning to show signs of maturing. BPM solutions tend to involve data from across an organization and involve more diverse groups of users than do BI solutions. BPM solutions tend to focus on proactive, rather than reactive, historical analyses, and they rely on recently updated or real-time data feeds.
 
Factors driving the growth in the need for BI and BPM solutions include increasingly fierce business competition, the need to rapidly develop and go to market with new products and services, the exigency for financial transparency across the enterprise, the rapid explosion of data, and more decentralized decision-making. In terms of new license revenue, Gartner projected that the BI software market would grow from $2.5 billion in 2006 to $3 billion in 2009, a compound annual growth rate of 7.4%. Gartner also notes that BPM vendors saw significant growth in 2006, with some increases in license revenue as high as 30%.
 
These strong current and projected growth rates validate Applix’s conviction that in today’s competitive corporate marketplace, companies can no longer succeed solely by automating their day-to-day transactions. To be nimble in the global environment, companies must also incorporate analytic processes into their daily operations to monitor and react to key business performance metrics such as customer retention and product profitability.
 
Applix has more than 20 years of success in the BI market, and is meeting the challenge to deliver BPM solutions, as evidenced by the growing number of customers who have selected Applix software solutions to maximize business performance. In 2006, approximately 300 new customers selected Applix BI and BPM products, and revenues increased by 41% over 2005.
 
Applix Products
 
The Applix product family helps customers automate, analyze and optimize their operational and analytical business processes throughout their extended enterprises. The Applix family of products enables solutions including:
 
  •  interactive planning, budgeting, forecasting and reporting applications;
 
  •  sales, marketing, supply chain and manufacturing and other analyses;
 
  •  human resource planning applications; and
 
  •  dashboarding, scorecarding and key performance indicators.
 
The Applix Platform
 
Applix’s performance management solution consists of:
 
  •  Applix’s core product, Applix TM1, its industry-leading analytics engine;
 
  •  Modules to accelerate deployment of performance management: planning, financial reporting, and consolidations; and
 
  •  A choice of self-service interfaces to perform analysis, view reports, and update data for non-financial and financial business users.
 
Used for planning, reporting and analysis, Applix solutions help customers improve business performance by enabling effective, immediate decision making at all organization levels. With TM1’s in-memory capabilities as the core for Applix’s on-demand approach to consolidating and viewing large volumes of multidimensional data, the Company is an undisputable leader in the BPM and BI markets. Gartner indicates that within 5 years, seventy percent of Global 100 organizations will load large amounts of detailed data into memory as the key way to


4

Table of Contents

optimize BI application performance. Applix has been one of the leading multi-dimensional analytics solutions for highly complex business and financial analytical applications for more than twenty years.
 
Applix’s modules are easily configurable and deploy rapidly with minimal IT investment:
 
  •  Applix Planning enables businesses to develop their strategic business planning collaboratively with their budgeting and forecasting. They are able to monitor performance against the key indicators of their financial and operational plans,
 
  •  With financial reporting and analysis, users report and perform analysis on any type of data, produce any type of report, and deliver those reports to across the enterprise at any time.
 
  •  Applix’s Consolidations shortens the financial close process, providing a single, centralized view of operational and financial data from any number of organizational units and any number of general ledgers.
 
Applix’s interfaces provide a single view of a business’s performance levels. Executive Viewer, obtained in the acquisition of Temtec International B.V. in June 2006, provides users with real-time web access to on-line analytical processing (“OLAP”) databases such as Microsoft Analysis Services for advanced ad-hoc analysis as well as distributed reporting. Business users can explore data from any perspective, dynamically sort, select and pivot information, create on-the-fly calculations, identify exceptions, generate graphs, and print fully formatted reports. With Applix Web and its Excel conventions, users can update their budgeting and planning Excel sheets, create their own forms, and interact with graphical reports.
 
The Applix TM1 platform and modules also enable the quick and effortless integration of information from enterprise resource planning, financial systems, customer relationship management (“CRM”), human resources, and other “legacy” databases. Applix’s low total cost of ownership enables business users to quickly achieve their goals, whether they build applications themselves or work with one of Applix’s many solution partners.
 
Applix TM1 is available on Windows and UNIX platforms. However, the majority of customers utilize Applix TM1 on Windows platforms. As a result, Applix is constantly working with Microsoft to enhance and expand its support on the Windows platform.
 
Applix solutions provide the following benefits:
 
  •  Instant response times:  Because of Applix TM1’s ability to quickly load vast data sets into memory, it is superior to other products that force the customer to pre-calculate and re-calculate consolidations and derived values before anyone can view the data. Because of Applix TM1’s memory-based approach, users can instantly view the results of any updates and what-if analyses they perform.
 
  •  Rapid deployment: Applix TM1 typically builds complete applications for customers in a fraction of the time required by competing products.
 
  •  Familiar spreadsheet interface: Users access Applix TM1 features and capabilities directly from Web or Excel interfaces.
 
  •  Scalability: Applix TM1’s 64-bit capability, combined with its ability to support multiple servers, multiple cubes, multi-threaded processing and multi-user data updating, make it a logical choice for large-scale or highly complex operations.
 
  •  Complex business modeling: Applix TM1’s unique architecture of multi-cubes, rules, a real-time engine, and workflow allow a business to manage its complex business models.
 
  •  Dynamic business workflow: This enables a business to map its processes with Applix TM1’s workflow capabilities. Easy-to-use “wizards” help ensure compliance with organizational and regulatory processes.
 
  •  Efficient use of system resources: Because Applix TM1 never resorts to pre-calculating data, it requires much less hardware and processing power than other products, which suffer from a common “data explosion” predicament.


5

Table of Contents

 
Sales and Marketing
 
The Company focuses its marketing efforts on companies committed to improving business analytics at the departmental level and business performance management at the company-wide level. The Company markets its products to mid-market and Global 2000 organizations that are focused on being highly responsive to their markets and shows particular success in the financial services, banking, healthcare, pharmaceuticals, oil and gas, retail, telecommunications, manufacturing and consumer goods industries. The Company believes that these industry sectors are, and will continue to be, some of the fastest growing sectors for its products. A key part of the Company’s marketing strategy is an emphasis on its high-performance Applix TM1 analytical engine for financial and operational business modeling, on-demand analytics and reporting; and the rapid deployment of its products.
 
Applix’s products are sold primarily through a direct sales force and a network of value added resellers and are also sold through certain original equipment manufacturers. The Company’s sales teams operate out of the Company’s offices in major metropolitan cities in North America as well as its offices in Europe and Asia Pacific. These direct selling efforts are supplemented both domestically and abroad with support from business consulting groups and strategic marketing partners. These organizations provide additional implementation resources, domain expertise and complementary applications using the Company’s software products. While the sales cycle for Applix products varies substantially from customer to customer, it traditionally requires three to six months.
 
The Company strongly believes that, going forward, its hybrid sales and marketing strategy, utilizing a direct sales force working closely with consultants and strategic resellers, is an important part of the Company’s future success. The Company also plans on continuing to establish strategic marketing relationships with leading hardware and software vendors and systems integrators within targeted industry sectors. This strategy is expected to support the Company in penetrating both new accounts within its existing markets and also entirely new market segments, while also leveraging its sales and marketing investments.
 
Financial information by geographical area may be found in Note 10 of the Notes to Consolidated Financial Statements.
 
Customer Training, Maintenance Support, and Professional Services
 
The Company believes that quality professional services and customer support are a critical part of its sales and marketing efforts. Many of the Company’s customers use its products to develop and support “mission critical” applications, and the Company therefore recognizes that quality training, support and consulting services are especially important to its customers. In addition to in-house consultants, the Company works closely with partner organizations to provide additional resources and domain expertise.
 
The Company’s in-house consultants and partners assist in the sales process by working directly with potential customers, educating them as to the benefits of the Company’s products, and often performing product demonstrations using the customers’ own data or engaging in a more extensive proof of concept project. In addition, the Company’s in-house consultants and partners work directly with customer personnel in both information technology departments and in the functional areas relevant to the application, to assist them in the planning and deploying of Applix solutions.
 
Customers may elect to purchase a maintenance support plan for an annual fee. The maintenance support plans include unspecified product upgrades and interim fixes to reported problems. Maintenance support plan revenues accounted for approximately 89% of the Company’s professional services and maintenance revenue in 2006 and 2005.
 
Software Product Development
 
The Company believes strongly that the path to success is predicated upon constantly being at the forefront of technology and product innovation. With a strong commitment to the future, Applix has continued its long history of investing in product research and development. In 2006, Applix invested approximately $7.4 million, or 14% of total revenues, in product research and development.


6

Table of Contents

 
Product development expenses were $7,374,000, $5,269,000 and $4,785,000 for 2006, 2005 and 2004, respectively.
 
Competition
 
The Company believes that it competes principally on the basis of product features and functionality (including cross-platform availability, interoperability, integration and extensibility), reliability, ease of use, ease of support, and total costs of ownership (initial investment and on-going operating costs of the solution).
 
The markets for the Company’s products are highly competitive and subject to rapid change. The companies with which Applix competes most often are Hyperion and Cognos. The Company also competes with other smaller competitors, some of whom build their product offerings on Microsoft technologies. In general, both categories of competitors are marketing and selling pre-built BPM and BI applications along with services to implement and customize the applications. Applix approaches the market differently by offering easily configured BPM and BI applications, and its partners and customers typically perform the implementation.
 
Software vendors are under increasing pressure to provide solutions that are easy to map to customers’ rapidly evolving business models and that integrate with other solutions. Customers have become more methodical in their methods of evaluating vendors’ solutions, and they often require that vendors substantiate their claims with case studies that demonstrate compelling return on investment benefits.
 
Intellectual Property and Proprietary Rights
 
Applix relies primarily on a combination of copyright law and trade secret law to protect its proprietary technology. The Company has internal policies and systems to ensure limited access to, and the confidential treatment of, its trade secrets. The Company generally distributes its products under “shrink-wrap” software license agreements, which contain various provisions to protect the Company’s ownership and confidentiality of the underlying technology. The Company also requires its employees and other parties with access to confidential information to execute agreements prohibiting the unauthorized use or disclosure of the Company’s technology. Despite these precautions, it may be possible for a third party to misappropriate the Company’s technology or to independently develop similar technology. In addition, effective copyright and trade secret protection may not be available in every foreign country in which the Company’s products are distributed, and “shrink-wrap” licenses, which are not signed by the customer, may be unenforceable in certain jurisdictions.
 
The Company resells technologies in conjunction with certain of the Company’s products and that are licensed from third parties. The Company generally pays royalties on these technologies on either a per license or a percentage of revenue basis (the amount of which is not material to the Company). Applix believes that if the licenses for these third-party technologies were terminated, it would be able to develop such technologies internally or license equivalent technologies from other vendors without significant additional expense. If the Company’s right to distribute such third-party technologies were terminated, the Company does not believe that sales of its products would be adversely affected.
 
The Company believes that, due to the rapid pace of technological innovation for software applications, the Company’s ability to establish and maintain a position of technology leadership in the industry is dependent more upon the skills of its development personnel than upon the legal protections afforded its existing technology.
 
The Company believes that its trademark “Applix” is important to the success of its business and continues to extend its value with new modules and capabilities for the Applix platform.
 
Applix is not engaged in any material disputes with other parties with respect to the ownership or use of the Company’s proprietary technology. However, there can be no assurance that other parties will not assert technology infringement claims or other claims against the Company in the future. The litigation of such a claim may involve significant expense and management time. In addition, if any such claims were successful, the Company could be required to pay monetary damages and may also be required to either refrain from distributing the infringing product or obtain a license from the party asserting the claim (which license may not be available on commercially reasonable terms).


7

Table of Contents

 
Employees
 
As of February 28, 2007, the Company had 210 employees. Domestically, the Company had 131 employees, which includes 42 employees in product research and development, 48 employees in sales and marketing, 15 employees in professional services, 6 employees in information systems and 20 employees in finance, operations, administration and facilities. Internationally, the Company had 79 employees, which includes 13 employees in product research and development, 39 employees in sales and marketing, 15 employees in professional services, 1 employee in information systems and 11 employees in finance and operations. None of the Company’s employees are represented by a labor union, and the Company believes that its employee relations are good.
 
Item 1A.   Risk Factors
 
Investors should carefully consider the risks described below before making an investment decision with respect to the common stock of the Company.
 
OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS.
 
We may experience significant fluctuations in our future results of operations due to a variety of factors, many of which are outside of our control, including:
 
  •  demand for and market acceptance of our products and services;
 
  •  the size and timing of customer orders, particularly large orders;
 
  •  introduction of products and services or enhancements by us and our competitors;
 
  •  competitive factors that affect our pricing;
 
  •  the mix of products and services we sell;
 
  •  the hiring and retention of key personnel;
 
  •  our expansion into international markets;
 
  •  the timing and magnitude of our capital expenditures, including costs relating to the expansion of our operations;
 
  •  the acquisition and retention of key partners;
 
  •  changes in generally accepted accounting policies, especially those related to the recognition of software revenue and the accounting for stock-based compensation; and
 
  •  new government legislation or regulation.
 
We typically receive a majority of our orders in the last month of each fiscal quarter because our customers often delay purchases of products until the end of the quarter as our sales organization and our individual sales representatives strive to meet quarterly sales targets. As a result, any delay in anticipated sales is likely to result in the deferral of the associated revenue beyond the end of a particular quarter, which would have a significant effect on our operating results for that quarter. In addition, most of our operating expenses do not vary directly with net sales and are difficult to adjust in the short term. As a result, if net sales for a particular quarter were below expectations, we could not proportionately reduce operating expenses for that quarter, and, therefore, that revenue shortfall would have a disproportionate adverse effect on our operating results for that quarter. If our operating results are below the expectations of public market analysts and investors, the price of our common stock may fall significantly.
 
BECAUSE THE BUSINESS PERFORMANCE MANAGEMENT AND BUSINESS INTELLIGENCE MARKETS ARE HIGHLY COMPETITIVE, WE MAY NOT BE ABLE TO SUCCEED.
 
If we fail to compete successfully in the highly competitive and rapidly changing business performance management and business intelligence markets, we may not be able to succeed. We face competition primarily from


8

Table of Contents

business intelligence firms. We also face competition from large enterprise application software vendors, independent systems integrators, consulting firms and in-house IT departments. Because barriers to entry into the software market are relatively low, we expect to face additional competition in the future.
 
Many of our competitors can devote significantly more resources to the development, promotion and sale of products than we can, and many of them can respond to new technologies and changes in customer preferences more quickly than we can. Further, other companies with resources greater than ours may attempt to gain market share in the customer analytics and business planning markets by acquiring or forming strategic alliances with our competitors.
 
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE TEMTEC INTO OUR BUSINESS AND OPERATIONS.
 
The integration of the business and operations of Temtec International B.V., which we acquired in June 2006, into our business and operations is a complex, time-consuming and expensive process. Before any acquisition, each company has its own business, culture, customers, employees and systems. After the acquisition, we must ensure that the companies operate as a combined organization using common communications systems, operating procedures, financial controls and human resources practices. In order to successfully integrate Temtec, we must, among other things, successfully:
 
  •  retain key Temtec personnel;
 
  •  integrate, both from an engineering and a sales and marketing perspective, Temtec’s products and services into our suite of product and service offerings;
 
  •  coordinate research and development efforts;
 
  •  train and integrate sales forces;
 
  •  integrate our business processes and systems; and
 
  •  eliminate redundant costs and consolidate redundant facilities.
 
There can be no assurance that we will be able to successfully integrate Temtec, and a failure to do so may materially impact our results of operations.
 
WE MAY NOT SUSTAIN PROFITABILITY OR BE ABLE TO FULFILL ANY FUTURE CAPITAL NEEDS.
 
We could incur operating losses and negative cash flows in the future because of costs and expenses relating to brand development, marketing and other promotional activities, continued development of our information technology infrastructure, expansion of product offerings and development of relationships with other businesses. There can be no assurance that we will continue to achieve a profitable level of operations in the future.
 
We believe, based upon our current business plan, that our current cash, cash equivalents and short-term investments, funds expected to be generated from operations and our available credit line should be sufficient to fund our operations as planned for at least the next twelve months. However, we may need additional funds sooner than anticipated if our performance deviates significantly from our current business plan or if there are significant changes in competitive or other market factors. If we elect to raise additional operating funds, such funds, whether from equity or debt financing or other sources, may not be available, or available on terms acceptable to us.
 
IF WE DO NOT INTRODUCE NEW PRODUCTS AND SERVICES IN A TIMELY MANNER, OUR PRODUCTS AND SERVICES WILL BECOME OBSOLETE, AND OUR OPERATING RESULTS WILL SUFFER.
 
The BPM and BI markets, including interactive planning, budgeting and analytics are characterized by rapid technological change, frequent new product enhancements, uncertain product life cycles, changes in customer demands and evolving industry standards. Our products could be rendered obsolete if products based on new technologies are introduced or new industry standards emerge.


9

Table of Contents

 
Enterprise computing environments are inherently complex. As a result, we cannot accurately estimate the life cycles of our products. New products and product enhancements can require long development and testing periods, which requires us to hire and retain technically competent personnel. Significant delays in new product releases or significant problems in installing or implementing new products could seriously damage our business. We have, on occasion, experienced delays in the scheduled introduction of new and enhanced products and may experience similar delays in the future.
 
Our future success depends upon our ability to enhance existing products, develop and introduce new products, satisfy customer requirements and achieve market acceptance. We may not successfully identify new product opportunities and develop and bring new products to market in a timely and cost-effective manner.
 
ATTEMPTS TO EXPAND BY MEANS OF BUSINESS COMBINATIONS AND ACQUISITIONS MAY NOT BE SUCCESSFUL AND MAY DISRUPT OUR OPERATIONS OR HARM OUR REVENUES.
 
We have in the past, and may in the future, buy businesses, products or technologies. In the event of any future purchases, we will face additional financial and operational risks, including:
 
  •  difficulty in assimilating the operations, technology and personnel of acquired companies;
 
  •  disruption in our business because of the allocation of resources to consummate these transactions and the diversion of management’s attention from our core business;
 
  •  difficulty in retaining key technical and managerial personnel from acquired companies;
 
  •  dilution of our stockholders, if we issue equity to fund these transactions;
 
  •  assumption of increased expenses and liabilities;
 
  •  our relationships with existing employees, customers and business partners may be weakened or terminated as a result of these transactions; and
 
  •  additional ongoing expenses associated with write-downs of goodwill and other purchased intangible assets.
 
WE RELY HEAVILY ON KEY PERSONNEL.
 
We rely heavily on key personnel throughout the organization. The loss of any of our members of management, or any of our staff of sales and development professionals, could prevent us from successfully executing our business strategies. Any such loss of technical knowledge and industry expertise could negatively impact our success. Moreover, the loss of any critical employees or a group thereof, particularly to a competing organization, could cause us to lose market share, and the Applix brand could be diminished.
 
WE MAY NOT BE ABLE TO MEET THE OPERATIONAL AND FINANCIAL CHALLENGES THAT WE ENCOUNTER IN OUR INTERNATIONAL OPERATIONS.
 
Due to the Company’s significant international operations, we face a number of additional challenges associated with the conduct of business overseas. For example:
 
  •  we may have difficulty managing and administering a globally-dispersed business;
 
  •  fluctuations in exchange rates may negatively affect our operating results;
 
  •  we may not be able to repatriate the earnings of our foreign operations;
 
  •  we have to comply with a wide variety of foreign laws;
 
  •  we may not be able to adequately protect our trademarks overseas due to the uncertainty of laws and enforcement in certain countries relating to the protection of intellectual property rights;
 
  •  reductions in business activity during the summer months in Europe and certain other parts of the world could negatively impact the operating results of our foreign operations;
 
  •  export controls could prevent us from shipping our products into and from some markets;


10

Table of Contents

 
  •  multiple and possibly overlapping tax structures could significantly reduce the financial performance of our foreign operations;
 
  •  changes in import/export duties and quotas could affect the competitive pricing of our products and services and reduce our market share in some countries; and
 
  •  economic or political instability in some international markets could result in the forfeiture of some foreign assets and the loss of sums spent developing and marketing those assets.
 
BECAUSE WE DEPEND IN PART ON THIRD-PARTY SYSTEMS INTEGRATORS TO PROMOTE, SELL AND IMPLEMENT OUR PRODUCTS, OUR OPERATING RESULTS WILL LIKELY SUFFER IF WE DO NOT DEVELOP AND MAINTAIN THESE RELATIONSHIPS.
 
We rely in part on systems integrators to promote, sell and implement our solutions. If we fail to maintain and develop relationships with systems integrators, our operating results will likely suffer. In addition, if we are unable to rely on systems integrators to install and implement our products, we will likely have to provide these services ourselves, resulting in increased costs. As a result, our results of operations may be harmed. In addition, systems integrators may develop, market or recommend products that compete with our products. Further, if these systems integrators fail to implement our products successfully, our reputation may be harmed.
 
BECAUSE THE SALES CYCLE FOR OUR PRODUCTS CAN BE LENGTHY, IT IS DIFFICULT FOR US TO PREDICT WHEN OR WHETHER A SALE WILL BE MADE.
 
The timing of our revenue is difficult to predict in large part due to the length and variability of the sales cycle for our products. Companies often view the purchase of our products as a significant and strategic decision. As a result, companies tend to take significant time and effort evaluating our products. The amount of time and effort depends in part on the size and the complexity of the deployment. This evaluation process frequently results in a lengthy sales cycle, typically ranging from three to six months. During this time we may incur substantial sales and marketing expenses and expend significant management efforts. We do not recoup these investments if the prospective customer does not ultimately license our product.
 
OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO PROTECT OUR TRADEMARKS FROM MISUSE BY THIRD PARTIES.
 
Our collection of trademarks is important to our business. The protective steps we take or have taken may be inadequate to deter misappropriation of our trademark rights. We have filed applications for registration of some of our trademarks in the United States. Effective trademark protection may not be available in every country in which we offer or intend to offer our products and services. Failure to protect our trademark rights adequately could damage our brand identity and impair our ability to compete effectively. Furthermore, defending or enforcing our trademark rights could result in the expenditure of significant financial and managerial resources.
 
OUR PRODUCTS MAY CONTAIN DEFECTS THAT MAY BE COSTLY TO CORRECT, DELAY MARKET ACCEPTANCE OF OUR PRODUCTS AND EXPOSE US TO LITIGATION.
 
Despite testing by Applix and our customers, errors may be found in our products after commencement of commercial shipments. If errors are discovered, we may have to make significant expenditures of capital to eliminate them and yet may not be able to successfully correct them in a timely manner or at all. Errors and failures in our products could result in a loss of, or delay in, market acceptance of our products and could damage our reputation and our ability to convince commercial users of the benefits of our products.
 
In addition, failures in our products could cause system failures for our customers who may assert warranty and other claims for substantial damages against us. Although our license agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims, it is possible that these provisions may not be effective or enforceable under the laws of some jurisdictions. Our insurance policies may not adequately limit our exposure to this type of claim. These claims, even if unsuccessful, could be costly and time-consuming to defend.


11

Table of Contents

 
OUR FINANCIAL RESULTS MAY BE ADVERSELY IMPACTED BY HIGHER THAN EXPECTED TAX RATES OR EXPOSURE TO ADDITIONAL INCOME TAX LIABILITIES.
 
As a global company, our effective tax rate is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region. Applix is subject to income taxes in both the U.S. and various foreign jurisdictions, and significant judgment is required to determine worldwide tax liabilities. Applix’s effective tax rate could be adversely affected by changes in the distribution of earnings between countries with differing statutory tax rates, in the valuation of deferred tax assets, and in tax laws, which could adversely affect profitability. Further, the carrying value of deferred tax assets is dependent on Applix’s ability to generate future taxable income. In addition, the amount of income taxes paid is subject to ongoing audits in various jurisdictions, and a material assessment by a governing tax authority could affect profitability.
 
Item 1B.   Unresolved Staff Comments
 
Not applicable.
 
Item 2.   Properties
 
The Company is headquartered at 289 Turnpike Road in Westborough, Massachusetts. The Company’s headquarters’ lease for 27,303 square feet has a seven-year term, which will expire on January 31, 2011. The Company also leases smaller offices in several metropolitan areas within the United States. Internationally, the Company has five office leases: 1) London, United Kingdom, 2) Munich, Germany, 3) ’S-Hertogenbosch, the Netherlands, 4) Weert, the Netherlands and 5) Sydney, Australia. The Company believes that its existing facilities are adequate for its current needs and that suitable additional or substitute space will be available as needed.
 
Item 3.   Legal Proceedings
 
From time to time, the Company is subject to routine litigation and legal proceedings in the ordinary course of business. The Company is not aware of any pending litigation to which the Company is or may become a party, that the Company believes could result in a material adverse impact on its consolidated results of operations or financial condition.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
At the Company’s Special Meeting of Stockholders held on December 1, 2006, the following proposal was adopted by the votes specified below:
 
1) Approval of the Company’s 2006 Equity Incentive Plan:
 
                         
FOR   AGAINST     ABSTAIN     BROKER NON-VOTES  
6,638,141
    2,426,541       61,198       0  
 
A description of the 2006 Equity Incentive Plan is contained in the Company’s Proxy Statement on Schedule 14A, filed with the SEC on November 1, 2006.


12

Table of Contents

 
Directors and Executive Officers of the Registrant
 
The following is a list of the Company’s directors and executive officers, their ages as of March 1, 2007 and their principal position. Executive officers are appointed and may be removed by the Board of Directors.
 
             
Name
 
Age
 
Position
 
John D. Loewenberg
  66   Chairman of the Board of Directors
Bradley D. Fire
  37   Director
Alain J. Hanover
  58   Director
Charles F. Kane
  49   Director
Peter Gyenes
  61   Director
David C. Mahoney
  62   President, Chief Executive Officer and Director
Milton A. Alpern
  55   Chief Financial Officer and Treasurer
Michael A. Morrison
  44   Chief Operating Officer
Chanchal Samanta
  53   Vice President, Research and Development
 
Mr. Loewenberg has been a director of the Company since March 2001 and Chairman of the Board of Directors since July 2002. Mr. Loewenberg has been the Managing Partner of JDL Enterprises, a consulting company, since 1996. Mr. Loewenberg is currently a director of DocuCorp International.
 
Mr. Fire has been a director of the Company since February 2003. Mr. Fire has been the owner of Peeper Ranch, an equestrian facility, since March 2000.
 
Mr. Hanover has been a director of the Company since July 1992. Mr. Hanover has been the Managing Director and CEO of Navigator Technology Ventures, a venture capital firm, since January 2002.
 
Mr. Kane has been a director of the Company since March 2001. Mr. Kane has held several leadership positions in the technology industry and is currently the Chief Financial Officer of “One Laptop per Child,” a non-profit organization founded at Massachusetts Institute of Technology that provides computers and internet access for students in the developing world. Before this, Mr. Kane served as Chief Financial Officer and Senior Vice President, Finance of RSA Security Inc., a security software and consulting company, from May 2006 until the acquisition of RSA Security Inc. by EMC Corporation in September 2006. From July 2003 to May 2006, Mr. Kane was Senior Vice President and Chief Financial Officer of Aspen Technology, Inc., a provider of process management software and implementation services. He served as President and Chief Executive Officer of Corechange, Inc., an e-business access framework software provider, from May 2001 until its sale to Open Text Corporation in February 2003. Mr. Kane also currently serves on the Board of Directors of Progress Software Corporation, an enterprise software provider.
 
Mr. Gyenes has been a director of the Company since May 2000. Mr. Gyenes served as the Chairman and Chief Executive Officer of Ascential Software Corporation (formerly known as Informix Corporation), a global provider of information management software, from July 2000 until its acquisition by IBM in April 2005. Mr. Gyenes is also a member of the Board of Trustees of the Massachusetts Technology Leadership Council. Mr. Gyenes also currently serves on the Board of Directors of Lawson Software and webMethods, Inc.
 
Mr. Mahoney was elected interim President and Chief Executive Officer of Applix on February 28, 2003 and served in that capacity until April 22, 2003 at which time he was elected President and Chief Executive Officer. Mr. Mahoney has also been a director of the Company since October 1992. Mr. Mahoney served as Chief Executive Officer of Verbind, Inc., a provider of real-time behavioral analysis and event triggering technology, from May 2001 until February 2003, following the sale of the company to SAS Institute.
 
Mr. Alpern was elected Chief Financial Officer and Treasurer on June 16, 2003. From February 2002 through March 2003, Mr. Alpern served as the Chief Financial Officer of Viisage Technology, Inc., a publicly-held provider of facial recognition and identity verification software and solutions. Prior to joining Viisage Technology, Mr. Alpern was the Chief Financial Officer of Eprise Corporation, a publicly-held provider of business Web site content management software and services, from March 1998 through February 2002.


13

Table of Contents

 
Mr. Morrison joined the Company in June 2004 as Vice President, Worldwide Field Operations and was promoted to Chief Operating Officer in February 2007. Prior to Applix, Mr. Morrison held various positions at Cognos Incorporated, a publicly-held provider of business intelligence and business performance software, from May 1993 through February 2004, including Vice President of Enterprise Planning Operations, Vice President of Finance and Administration, and Corporate Counsel.
 
Mr. Samanta joined the Company in January 2006 as Vice President, Research and Development. Prior to joining Applix, Mr. Samanta served as Vice President, Product Development at Unica Corporation, a publicly-held provider of enterprise marketing management software, from February 2002 to September 2005.
 
There are no family relationships among any of the directors or executive officers.
 
PART II
 
Item 5.   Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
The Company’s common stock is listed on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “APLX”. The table below reflects the range of high and low sales price per share of common stock, as reported on NASDAQ, for the periods indicated.
 
                 
Fiscal 2006
  High     Low  
 
First Quarter
  $ 8.57     $ 5.85  
Second Quarter
  $ 8.20     $ 6.85  
Third Quarter
  $ 9.07     $ 6.65  
Fourth Quarter
  $ 11.85     $ 8.41  
 
                 
Fiscal 2005
  High     Low  
 
First Quarter
  $ 9.25     $ 4.15  
Second Quarter
  $ 6.45     $ 4.21  
Third Quarter
  $ 7.24     $ 4.75  
Fourth Quarter
  $ 7.50     $ 6.05  
 
Dividends
 
The Company has never paid any cash dividends on its common stock. The Company intends to retain its earnings to finance future growth and therefore does not anticipate paying any cash dividends on its common stock in the foreseeable future.
 
Holders
 
The approximate number of holders of record of the Company’s common stock on February 28, 2007 was 157. This number does not include shareholders for whom shares are held in a “nominee” or “street” name.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
Information regarding the Company’s equity compensation plans and the securities authorized for issuance thereunder is set forth in Item 12 below.


14

Table of Contents

 
Comparative Stock Performance Graph
 
The following graph compares the cumulative total stockholder return on the common stock of the Company between December 31, 2001 and December 31, 2006 with the cumulative total return of (1) the CRSP Total Return Index for The NASDAQ Stock Market (U.S.) (the “NASDAQ Composite Index”) and (2) NASDAQ Computer & Data Processing Index (the “NASDAQ Computer Index”) over the same period. The Company historically included a comparison to the Standard & Poor’s Computer (Software and Services) Index (the “S&P Computer Index”), which ceased being published as of December 31, 2001. The Company selected the NASDAQ Computer Index in lieu of the S&P Computer Index. This graph assumes the investment of $100.00 on December 31, 2001 in the Company’s common stock and assumes any dividends are reinvested.
 
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG APPLIX, INC., THE NASDAQ COMPOSITE INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
 
(performance graph)
 
*  $100 invested on 12/31/01 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.


15

Table of Contents

 
Item 6.   Selected Financial Data
 
                                                 
    Years Ended December 31,        
    2006(1)(2)     2005     2004     2003(3)     2002        
    (In thousands, except per share data)        
 
Statement of Operations Data:
                                               
Software license
  $ 30,105     $ 19,488     $ 16,228     $ 13,222     $ 16,050          
Professional services and maintenance
    22,068       17,490       14,687       14,133       20,546          
Total revenues
    52,173       36,978       30,915       27,355       36,596          
Total cost of revenues
    5,446       4,005       4,039       7,120       12,029          
Gross margin
    46,727       32,973       26,876       20,235       24,567          
Sales and marketing
    24,822       15,337       10,588       10,747       15,311          
Product development
    7,374       5,269       4,785       5,512       5,699          
General and administrative
    8,793       5,095       6,217       7,653       5,249          
Contingent consideration and amortization of acquired intangible assets
    466       250       250       833       2,405          
Write down of notes receivable
    —       —       —       —       964          
Restructuring expenses
    —       —       577       3,238       381          
Operating income (loss)
    5,272       7,022       4,459       (7,748 )     (5,442 )        
Net gain from sale of CRM assets
    —       —       261       7,910       —          
Income (loss) from continuing operations
    9,430       6,838       4,808       167       (5,570 )        
Net income (loss)
    9,331       6,738       4,702       (10 )     (5,774 )        
Per Share Data:
                                               
Net income (loss) per share from continuing operations, basic
  $ 0.61     $ 0.47     $ 0.34     $ 0.01     $ (0.46 )        
Net income (loss) per share from continuing operations, diluted
  $ 0.56     $ 0.42     $ 0.31     $ 0.01     $ (0.46 )        
 
                                                 
    As of December 31,        
    2006     2005     2004     2003     2002        
    (In thousands)        
 
Balance Sheet Data:
                                               
Cash, cash equivalents and short-term investments
  $ 27,210     $ 24,938     $ 15,924     $ 9,241     $ 8,389          
Restricted cash
    400       500       400       817       933          
Working capital (deficit)
    18,334       18,312       9,293       (2,119 )     (4,457 )        
Long-term debt
    5,959       —       —       —       —          
Total assets
    66,087       38,098       27,185       21,949       23,547          
Total stockholders’ equity
    37,350       21,628       12,238       2,255       2,419          
 
(1)  In June 2006, the Company acquired all of the outstanding shares of Temtec International B.V.
 
(2)  Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123, “Share-based payment” which requires the expensing of stock options.
 
(3)  In the first quarter of 2003, the Company sold certain assets relating to its CRM software solutions.


16

Table of Contents

 
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
OVERVIEW OF THE COMPANY’S OPERATIONS
 
The Company is a global provider of Business Performance Management (“BPM”) and Business Intelligence (“BI”) applications based on Applix’s TM1 that enable continuous strategic planning, management and monitoring of performance across the financial and operational functions within the enterprise.
 
The Company sells its products through both a direct sales force and an expanding network of partners, both domestically and internationally. These partners provide additional implementation resources, domain expertise and complementary applications using the Company’s software products. The Company continues to focus its efforts selling and marketing the licensing and maintenance of its products while increasing the engagement of partners to provide consulting services on the implementation and integration of its product.
 
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. The results of operations of Temtec are included in the consolidated financial statements from the acquisition date, June 15, 2006.
 
ADOPTION OF SFAS 123R
 
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123(R), “Share-Based Payment” (“SFAS 123R”). SFAS 123R requires us to measure the grant date fair value of equity awards given to employees in exchange for services and recognize that cost over the period that such services are performed. Prior to adopting SFAS 123R, the Company accounted for stock-based compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), as permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under APB 25, the Company generally did not recognize compensation expense in connection with the grant of stock options because all options granted had an exercise price equal to the fair market value of the underlying common stock on the date of grant.
 
In transitioning from APB 25 to SFAS 123R, the Company has applied the modified prospective method. Accordingly, periods prior to adoption have not been restated and are not directly comparable to periods after adoption. Under the modified prospective method, compensation cost recognized in periods after adoption includes (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, less estimated forfeitures, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R, less estimated forfeitures.
 
Under the provisions of SFAS 123R, the Company recorded $2,270,000 of stock-based compensation in its consolidated statement of income for the year ended December 31, 2006. Stock-based compensation expense was included in the following expense categories in 2006 (in thousands):
 
         
Cost of revenues
  $ 70  
Sales and marketing
    841  
Product development
    595  
General and administrative
    764  
         
Total
  $ 2,270  
         
 
At December 31, 2006, total unrecognized stock-based compensation expense related to unvested stock options, expected to be recognized over a weighted average period of 1.4 years, amounted to approximately


17

Table of Contents

$4,174,000. Total unrecognized stock-based compensation expense will be adjusted for any future changes in estimated forfeitures, if any.
 
Prior to the adoption of SFAS 123R, the Company presented all excess tax benefits related to stock-based compensation as cash flows from operating activities in the Company’s statement of cash flows. SFAS 123R requires the cash flows resulting from these tax benefits to be classified as cash flows from financing activities. For the year ended December 31, 2006, there was no net tax benefit from the exercise of stock options. Additionally, the Company used the short form method to calculate the Additional Paid-in Capital (“APIC”) pool, the tax benefit of any resulting excess tax deduction should increase the APIC pool; any resulting tax deficiency should be deducted from the APIC pool.
 
For more information about stock-based compensation, including valuation methodology, see Note 2 of the Consolidated Financial Statements appearing in this Form 10-K and “Critical Accounting Policies and Estimates” below.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and assumptions on expected or known trends or events, historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
Management believes the following critical accounting policies, among others, involve the more significant judgments and estimates used in the preparation of its consolidated financial statements.
 
Revenue Recognition
 
Revenue from software licensing and service fees is recognized in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition”, and SOP 98-9 “Software Revenue Recognition with Respect to Certain Transactions.” Substantially all of the Company’s product license revenue is earned from the license of off-the-shelf software requiring no customization. Accordingly, the Company recognizes revenue from software licensing when all of the following criteria are met: (1) persuasive evidence of an arrangement exists via a signed agreement or purchase order; (2) delivery has occurred including authorization keys; (3) the fee is fixed or determinable representing amounts that are due unconditionally with no future obligations under customary payment terms; and (4) collectibility is probable.
 
For contracts with multiple elements (e.g., delivered and undelivered products, support obligations, consulting, and training services), the Company determines the amount of revenue to allocate to the licenses sold with services or maintenance using the “residual method” of accounting. Under the residual method, the Company allocates the total value of the arrangement first to the undelivered elements based on their vendor specific objective evidence (“VSOE”) and the remainder to the delivered element, generally the software license. The Company has determined fair value based upon prices it charges customers when these elements are sold separately. Maintenance revenue is deferred based upon VSOE, which is determined by the renewal price of the annual maintenance contract. The Company recognizes consulting and training service revenues, including those sold with license fees, as the services are performed based upon their established VSOE.
 
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 end-user customer. The Company accounts for amounts received in these arrangements in accordance with Emerging Issues Task Force 99-19, “Reporting Revenue Gross as a Principal versus Net as a Agent”. When the Company receives a net fee from the indirect


18

Table of Contents

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 suppler 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 deferred and expensed ratably over the maintenance period and reported in cost of revenues.
 
Allowance for Doubtful Accounts
 
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. The Company establishes this allowance using estimates that it makes based on factors such as the composition of the accounts receivable aging, historical bad debts, changes in payment patterns, changes to customer creditworthiness and current economic trends. If the Company used different estimates, or if the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, the Company would require additional provisions for doubtful accounts that would increase bad debt expense.
 
Goodwill and Other Intangible Assets and Related Impairment
 
In assessing the recoverability of the Company’s goodwill and other intangible assets, the Company must make assumptions regarding estimated future cash flows and other factors including legal factors, market conditions and operational performance of its acquired businesses to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets. If events change and the Company has overestimated the economic life of an intangible asset, the Company will be required to amortize the remaining unamortized carrying value of this asset over the newly estimated life, which may result in additional amortization expense.
 
Stock-based compensation
 
Under SFAS 123R, stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date, is recognized over the relevant service period, and is adjusted each period for anticipated forfeitures. The Company estimates the fair value of each stock-based award on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model incorporates the following assumptions:
 
  •  Expected volatility is based on the historical volatility of the Company’s common stock.
 
  •  The risk-free interest rate is based on the U.S. Treasury rates on the date of grant for a term equivalent to the expected life of the options.
 
  •  The expected life was calculated using the method outlined in SEC Staff Accounting Bulletin Topic 14.D.2, “Expected Term,” which represents the average of the contractual life of the stock option and its graded vesting term, as the Company’s historical experience does not provide a reasonable basis for the expected term of the option.
 
  •  No dividends payments as the Company intends to retain its earnings to finance future growth and therefore does not anticipate paying any cash dividends on its common stock in the foreseeable future.
 
Many of these assumptions are highly subjective and require the exercise of management judgment. Management must also apply judgment in developing an estimate of awards that may be forfeited, which is based on the Company’s historical employee turnover and stock option forfeitures rates. If actual results differs significantly from its estimates, management may choose to employ different assumptions in the future, and the


19

Table of Contents

stock-based compensation expense recorded in future periods may differ materially from that recorded in the current period.
 
Restructuring
 
During 2004, the Company recorded charges in connection with its restructuring programs. These charges include estimates pertaining to the settlements of contractual obligations, including the restructuring of its UK office and Westborough, Massachusetts headquarters’ leases. Although the Company does not anticipate significant changes, the actual costs may differ from these estimates, which would result in incremental charges or credits to the income statement and have cash flow ramifications.
 
Income Taxes
 
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”), which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company evaluates quarterly the realizability of its deferred tax assets by assessing its valuation allowance and by adjusting the amount of such allowance, if necessary. At December 31, 2006, the Company made an adjustment of approximately $4 million to reduce the valuation allowance of certain of its deferred tax assets, primarily relating to domestic federal and state net operating losses, based on management’s judgment that, based on available evidence, it is more likely than not such assets will be realized.
 
The Company has provided for potential amounts due in various foreign tax jurisdictions. Judgment is required in determining the Company’s worldwide income tax expense provision. In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of cost reimbursement arrangements among related entities. Although management believes its estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in the Company’s historical income tax provisions and accruals. Such differences could have a material impact on the Company’s income tax provision and operating results in the period in which such determination is made.
 
RESULTS OF OPERATIONS
 
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 
Revenues
 
                                                 
    Year Ended December 31,  
          Percent of
 		          Percent of
 		          Percent of
 		 
    2006     Revenue     2005     Revenue     2004     Revenue  
    (In thousands, except percentages)  
 
Software License Revenues
  $ 30,105       58 %   $ 19,488       53 %   $ 16,228       52 %
Professional Services Revenues
    2,417       5 %     1,937       5 %     1,413       5 %
Maintenance Revenues
    19,651       37 %     15,553       42 %     13,274       43 %
                                                 
Total Professional Services and Maintenance Revenues
    22,068       42 %     17,490       47 %     14,687       48 %
                                                 
Total Revenues
  $ 52,173       100 %   $ 36,978       100 %   $ 30,915       100 %
                                                 
 
Total revenues for the year ended December 31, 2006 increased $15,195,000, or 41%, to $52,173,000 from $36,978,000 for the year ended December 31, 2005. The increase in total revenues from the prior year was comprised of increases of $10,617,000 in software license revenues and $4,578,000 in professional services and maintenance revenues. Included in 2006 total revenues was approximately $4 million of revenues relating to the


20

Table of Contents

sale of Temtec products and services. When expressed at constant foreign currency exchange rates, total revenues increased 32% for the year ended December 31, 2006 compared to the prior year.
 
Software Licenses
 
Software license revenues increased by $10,617,000 to $30,105,000 in 2006 from $19,488,000 in 2005. The increase in software license revenues was largely due to the Company expanding its customer base, domestically and internationally, and successfully competing in broader and higher value deals resulting from the strengthening of the Company’s worldwide field operations as well as the continued development and enhancements to the Company’s product offerings, including those obtained in the Temtec acquisition. A measure the Company uses to evaluate revenue performance is deal size given the relative importance of gross margin within the software industry. The increase in deal size is reflected in the number of transactions resulting in software license revenue in excess of $100,000, which more than doubled to 67 in 2006 from 33 in 2005. Also, this significant increase in software license revenue contributed to a shift in the revenue mix between software licenses and professional services and maintenance. The sales of software licenses accounted for 58% of total revenues for the year ended December 31, 2006, compared to 53% of total revenues for the year ended December 31, 2005.
 
Domestic software license revenue increased 72% to $12,127,000 in 2006 from $7,055,000 in 2005. International software license revenue increased 45% to $17,978,000 in 2006 from $12,433,000 in 2005.
 
The Company markets its products through its direct sales force and indirect partners. The Company continues to focus on complementing its direct sales force with indirect channel partners, which consist of value added resellers, independent distributors, sales agents and original equipment manufacturers.
 
Professional Services and Maintenance
 
Professional services and maintenance revenues increased by 26% to $22,068,000 in 2006 as compared to $17,490,000 in 2005. Maintenance revenues increased 26% to $19,651,000 in 2006 compared to $15,553,000 in 2005, while professional services revenues increased 25% to $2,417,000 in 2006 compared to $1,937,000 in 2005. The increase in maintenance revenue was primarily attributable to the sale of software licenses to new customers coupled with high rates of renewals of annual maintenance contracts from the sale of licenses in prior periods. The increases in professional services were primarily due to increased training and consulting revenues resulting from increased license revenues. The increases were also attributable to approximately $1,214,000 of professional services revenues relating to Temtec professional service arrangements. The Company will continue to rely primarily on its partners to provide consulting services, including BPM/BI product implementations, as the Company focuses on maintenance services, which include telephonic support, unspecified product upgrades, and bug fixes and patches. The Company expects maintenance revenues to continue to increase due to strong customer maintenance renewal rates.


21

Table of Contents

 
Cost of Revenues
 
                                                 
    Year Ended December 31,  
    2006           2005           2004        
    (In thousands, except percentages)  
 
Cost of Software License Revenues
  $ 310             $ 117             $ 427          
Cost of Professional Services and Maintenance Revenues:
                                               
Cost of Professional Services Revenues
    2,265               1,573               1,036          
Cost of Maintenance Revenues
    2,671               2,315               2,576          
                                                 
Total
    4,936               3,888               3,612          
Amortization of an acquired intangible asset
    200               —               —          
                                                 
Total Cost of Revenues
  $ 5,446             $ 4,005             $ 4,039          
                                                 
Gross Margin(A):
                                               
Software License(B)
  $ 29,595       98%     $ 19,371       99%     $ 15,801       97%  
Professional Services and Maintenance:
                                               
Professional Services
    152       6%       364       19%       377       27%  
Maintenance
    16,980       86%       13,238       85%       10,698       81%  
                                                 
Total
    17,132       78%       13,602       78%       11,075       75%  
                                                 
Total Gross Margin
  $ 46,727       90%     $ 32,973       89%     $ 26,876       87%  
                                                 
 
 
(A) Gross margins calculated as a percentage of related revenues.
 
(B) Software license gross margin calculated net of cost of software license revenues and amortization of an acquired intangible asset.
 
Cost of Software License Revenues
 
Cost of software license revenues consists primarily of third-party software royalties and the cost of product packaging and documentation material. Cost of software license revenues as a percentage of software license revenues was 1% for the years ended December 31, 2006 and 2005. The increase in the cost of software license revenues was primarily due an increase in third-party royalties associated with the sales of certain products.
 
Cost of Professional Services and Maintenance Revenues
 
The cost of professional services and maintenance revenues consists primarily of personnel salaries and benefits, third-party consultants, facilities and information system costs incurred to provide consulting, training and customer support, and payments to indirect channel partners to provide first level support to end-user customers. Cost of professional services and maintenance revenues increased by $1,048,000 to $4,936,000 for the year ended December 31, 2006 from $3,888,000 for the year ended December 31, 2005. 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, and approximately $70,000 of stock-based compensation expense for the ended year ended December 31, 2006, due to the adoption of SFAS 123R on January 1, 2006.
 
Amortization of an Acquired Intangible Asset
 
Amortization expense for the acquired intangible asset, existing technology, associated with the Temtec acquisition in June 2006, was $200,000 for the year ended December 31, 2006. The amortization of this intangible asset will continue to be ratably amortized through the second quarter of 2011.


22

Table of Contents

 
Operating Expenses
 
                                                 
    Year Ended December 31,  
          Percent of
 		          Percent of
 		          Percent of
 		 
    2006     Revenue     2005     Revenue     2004     Revenue  
    (In thousands, except percentages)  
 
Sales and marketing
  $ 24,822       47%     $ 15,337       41%     $ 10,588       34%  
Product development
    7,374       14%       5,269       14%       4,785       15%  
General and administrative
    8,793       17%       5,095       14%       6,217       20%  
Restructuring expense
    —       —       —       —       577       2%  
Amortization of acquired intangible asset
    466       1%       250       1%       250       1%  
                                                 
Total Operating Expenses
  $ 41,455       79%     $ 25,951       70%     $ 22,417       73%  
                                                 
 
Sales and Marketing
 
Sales and marketing expenses consist primarily of salaries and benefits, commissions and bonuses for the Company’s sales and marketing personnel, field office expenses, travel and entertainment, and promotional and advertising expenses. Sales and marketing expenses increased $9,485,000 to $24,822,000 for the year ended December 31, 2006 from $15,337,000 for the year ended December 31, 2005. The increase in sales and marketing expenses was primarily due to an increase in staffing in sales and marketing personnel, including the additional employees gained from the acquisition of Temtec in the second quarter of 2006, as well as higher sales commission expense based on increased revenues. These resulted in an increase of approximately $6,747,000 in sales and marketing expenses compared to the prior year. The increase was also attributable to approximately $841,000 of stock-based compensation expense for the year ended December 31, 2006, due to the adoption of SFAS 123R on January 1, 2006. In addition, the Company increased its investment in marketing programs, advertising and lead generation activities by approximately $1,177,000 for year ended December 31, 2006 compared to 2005.
 
Product Development
 
Product development expenses include costs associated with the development of new products, enhancements of existing products and quality assurance activities, and consist primarily of employee salaries and benefits, consulting costs and the cost of software development tools. Product development expenses increased $2,105,000 to $7,374,000 for the year ended December 31, 2006 from to $5,269,000 for the year ended December 31, 2005. The increase in product development expenses was primarily due to an increase in headcount from 32 at December 31, 2005 to 53 at December 31, 2006, including employees gained from the Company’s acquisition of Temtec in June 2006. Also, the increase was partially due to approximately $595,000 of stock-based compensation expense for the year ended December 31, 2006, due to the adoption of SFAS 123R on January 1, 2006. The Company anticipates that it will continue to devote substantial resources to the development of new products and new versions of its existing products, including Applix TM1 and related applications.
 
General and Administrative
 
General and administrative expenses consist primarily of salaries, benefits and occupancy costs for executive, administrative, finance, information technology, and human resource personnel, as well as accounting and legal costs. The increase of $3,698,000 in general and administrative expenses in 2006 was partially due to higher legal fees, including those expenses related to the indemnification obligations to former executives, and consulting fees associated with the previously announced SEC investigation that was settled with respect to the Company in January 2006. These costs totaled approximately $996,000 for the year ended December 31, 2006 compared to approximately $119,000 for the year ended December 31, 2005. The increase in professional services fees resulting from activities associated with compliance efforts with the Sarbanes-Oxley Act of 2002 also contributed to the higher general and administrative expenses during 2006 compared to the same period of 2005. In addition, the increase was attributable in part to approximately $764,000 of stock-based compensation expense for the year


23

Table of Contents

ended December 31, 2006, due to the adoption of SFAS 123R on January 1, 2006, compared to $60,000 of stock-based compensation expense for year ended December 31, 2005. Finally, the increase of general and administrative expenses was also due to additional costs incurred related to the acquisition of Temtec in June 2006. The Company will continue to closely monitor general and administrative costs.
 
Amortization of Acquired Intangible Assets
 
Amortization expense for the customer relationships intangible asset associated with the Dynamic Decisions acquisition in March 2001, was $250,000 for the years ended December 31, 2006 and 2005, respectively. The amortization expense relating to the Dynamic Decisions acquisition will continue to be ratably amortized through the first quarter of 2007.
 
Amortization expense for the customer relationships intangible asset associated with the Temtec acquisition in June 2006, was $216,000 for the year ended December 31, 2006. The amortization of this intangible asset will continue ratably through 2016.
 
Non-Operating Income (Expenses)
 
                                                 
    Year Ended December 31,  
          Percent of
 		          Percent of
 		          Percent of
 		 
    2006     Revenue     2005     Revenue     2004     Revenue  
    (In thousands, except percentages)  
 
Interest income
  $ 1,048       2 %   $ 596       2 %   $ 184       1%  
Interest expense
    (388 )     (1 )%     (54 )     — %     (69 )     —%  
Other income (expense), net
    228       1 %     (369 )     (1 )%     198       1%  
Net gain from sale of CRM assets
    —       — %     —       — %     261       1%  
                                                 
Total
  $ 888       2 %   $ 173       1 %   $ 574       2%  
                                                 
 
Interest Income
 
Interest income increased by $452,000 to $1,048,000 for the year ended December 31, 2006 from $596,000 for the same period of 2005. The increase in interest income was due to higher interest rates earned on higher average cash and short-term investments balances in 2006 as compared to the year ended December 31, 2005.
 
Interest Expense
 
Interest expense increased to $388,000 for the year ended December 31, 2006 from $54,000 for the year ended December 31, 2005. The increase was primarily due to the additional interest expense resulting from the $6.5 million term loan entered into in June 2006 in connection with the Temtec acquisition.
 
Other Income (Expense), Net
 
Other income (expense), net increased to income of $228,000 for the year ended December 31, 2006 from expense of $369,000 from the year ended December 31, 2005. The increase was mainly due to foreign currency exchange rate fluctuations, primarily the Euro, the British Pound, and the Australian dollar, on intercompany balances, which are considered short-term in nature and are denominated in the Company’s foreign subsidiaries’ local currencies. In particular, the Company recorded a gain on foreign exchange of approximately $259,000 for the year ended December 31, 2006, compared to a loss of $292,000 for the year ended December 31, 2005.
 
(Benefit) Provision for Income Taxes
 
The provision for income taxes represents the Company’s federal and state income tax obligations as well as foreign tax provisions. The Company’s income tax benefit was $3,270,000 for the year ended December 31, 2006 compared to an income tax provision of $357,000 for the year ended December 31, 2005. The change was primarily due to an income tax benefit of $3,965,000 resulting from the reversal 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 at


24

Table of Contents

December 31, 2006. The effective tax rates were also significantly less than the U.S. federal statutory rate primarily as a result of the utilization of domestic net operating loss carryforwards, which have resulted in the release of a portion of the previously established valuation allowance. The Company’s effective tax rate was further decreased by the favorable resolution of a matter with tax authorities in the United Kingdom relating to transfer pricing effected in prior years. The reversal of the related tax contingency reserve resulted in a tax benefit of approximately $320,000 in 2005.
 
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 
Total revenues for the year ended December 31, 2005 increased $6,063,000, or 20%, to $36,978,000 from $30,915,000 for the year ended December 31, 2004. The increase in total revenues from the prior year was comprised of increases of $3,260,000 in software license revenues and $2,803,000 in professional services and maintenance revenues.
 
Software license revenue increased by $3,260,000 to $19,488,000, or 53% of total revenues, in 2005 from $16,228,000, or 52% of total revenues, in 2004. The increase in software license revenues was largely due to the strengthening of our worldwide field operations, resulting primarily from additions to the sales operations made in the second half of 2004 and in 2005, as well as the continued development and enhancements to the Company’s product offerings. These efforts led to the Company expanding its customer base, domestically and internationally, and successfully competing in broader and higher value deals. The increase in deal size was reflected in the number of transactions resulting in software license revenue in excess of $100,000 which nearly doubled to 33 in 2005 from 17 in 2004.
 
Professional services and maintenance revenues increased by 19% to $17,490,000 in 2005 as compared to $14,687,000 in 2004. Maintenance revenues increased 17% to $15,553,000 in 2005 compared to $13,274,000 in 2004, while professional services revenues increased 37% to $1,937,000 in 2005 compared to $1,413,000 in 2004. The increase in maintenance revenue was primarily attributable to the sale of software licenses to new customers coupled with high rates of renewals of annual maintenance contracts from the sale of licenses in prior periods. The increase in professional services represented an increase of approximately $380,000 in consulting revenues resulting primarily from two significant consulting projects as well as a $144,000 increase in training revenues.
 
Cost of software license revenues consisted 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 1% for the year ended December 31, 2005, compared to 3% for the year ended December 31, 2004. The improvement in software license gross margin was primarily due to a decrease of $265,000 in the amortization of capitalized software development costs for the year ended December 31, 2005 compared to the prior year. Capitalized software development costs were fully amortized in the second quarter of 2004.
 
The cost of professional services and maintenance revenues consisted 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. These payments to indirect channel partners to provide first level support were 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 increased by $276,000 to $3,888,000 for the year ended December 31, 2005 from $3,612,000 for the year ended December 31, 2004. Gross margin of professional services and maintenance revenues increased to 78% for the year ended December 31, 2005 from 75% for the year ended December 31, 2004. The improvement in gross margin was primarily due to lower partner maintenance fees as the Company has reduced the utilization of partners for providing the first level support to end-user customers in maintenance renewals, partially offset by an increase in professional service employees and third-party consulting fees resulting from increased training and consulting revenues.
 
Sales and marketing expenses consisted primarily of salaries and benefits, commissions and bonuses for the Company’s sales and marketing personnel, field office expenses, travel and entertainment, promotional and advertising expenses and the cost of the Company’s international operations, which are sales operations. Sales and marketing expenses increased $4,749,000 to $15,337,000 for the year ended December 31, 2005 from $10,588,000


25

Table of Contents

for the year ended December 31, 2004. Sales and marketing expenses as a percentage of total revenues were 41% and 34% for the years ended December 31, 2005 and 2004, respectively. The increase in sales and marketing expenses was primarily due to an increase in staffing in sales and marketing, including specifically an increase to headcount from 35 at December 31, 2004 to 54 at December 31, 2005 in the Company’s direct sales force and presales technical staff, as well as an increased investment in marketing programs, advertising and lead generation activities. The increase was also attributable to higher sales commission expense based on increased revenues.
 
Product development expenses included costs associated with the development of new products, enhancements of existing products and quality assurance activities, and consisted primarily of employee salaries and benefits, consulting costs and the cost of software development tools. Product development expenses increased $484,000 to $5,269,000 for the year ended December 31, 2005 from $4,785,000 for the year ended December 31, 2004. These expenses represented 14% and 15% of total revenues for the years ended December 31, 2005 and 2004, respectively. The increase in product development expenses was primarily due to costs related to the departure of the Company’s former Vice President, Product Development, including severance and stock-based compensation related to modification of certain stock awards of the terminated executive. The increase in product development expenses was also attributable to the utilization of independent consultants and contractors in certain quality assurance and product documentation activities as part of the development of new and existing products.
 
General and administrative expenses consisted 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 included legal costs (including costs under indemnification obligations to former executives) associated with the investigation by the SEC related to the Company’s financial restatements for the fiscal years 2001 and 2002. General and administrative expenses decreased $1,122,000 to $5,095,000, or 14% of total revenues, for the year ended December 31, 2005 from $6,217,000, or 20% of total revenues, for the year ended December 31, 2004. The decrease was primarily due to lower legal costs associated with the SEC investigation. The decrease from the prior year was also attributable to a reduction in allocated rent expense resulting from the Company’s restructuring of its UK office lease in 2004.
 
In the fourth quarter of 2003, the Company adopted a plan of restructuring to reduce operating costs. Under this plan, the Company had ceased to use, and made the determination that it had no future use of or benefit from, certain space pertaining to its Westborough headquarters’ office lease. The Company also commenced negotiations with its landlord to settle amounts related to its lease in general and the abandoned space in particular. These negotiations were completed in January 2004, and as a result, the Company was able to estimate the cost to exit this facility. Additionally, the Company determined that it would dispose of certain assets, which were removed from service shortly after the implementation of the plan. As a result of this restructuring plan, the Company recorded a restructuring expense of $3,238,000. Restructuring expense included a $3,000,000 fee paid to the landlord for the abandoned space, an adjustment of $162,000 to reduce the Company’s deferred rent expense, transaction costs of $350,000 for professional service fees (brokerage and legal) and $50,000 in non-cash charges relating to the disposition of certain assets. In the second quarter of 2004, the Company recorded a credit to the restructuring charge of $27,000 as a change in estimate due to lower than anticipated professional service fees. The restructuring costs were fully paid as of December 31, 2004.
 
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 of 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.
 
Interest and other income, net decreased to income of $173,000 for the year ended December 31, 2005 from income of $313,000 for the year ended December 31, 2004. The decrease was mainly due to foreign currency exchange rate fluctuations, primarily the Euro, the British Pound, and the Australian dollar, on intercompany


26

Table of Contents

balances, which are considered short-term in nature and are denominated in the Company’s foreign subsidiaries’ local currencies. In particular, the Company recorded a loss on foreign exchange of approximately $292,000 for the year ended December 31, 2005, compared to a gain of $407,000 for the year ended December 31, 2004. The decrease in interest and other income, net was partially offset by an increase in interest income due to higher interest rates earned on higher average cash and short-term investments balances.
 
During 2004, the Company reversed an accrual related to the sale of the customer relationship management software solutions assets (“CRM assets”) in the first quarter of 2003, since there were no identified remaining transaction costs or post-closing adjustments. This reversal resulted in an adjustment of approximately $261,000 to the net gain from the sale of the CRM assets. The Company does not anticipate any further adjustments relating to the sale of the CRM assets.
 
The Company’s provision for income taxes was $357,000 and $225,000 for years ended December 31, 2005 and 2004, 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, which have resulted in the release of a portion of the previously established valuation allowance. The effective tax rate was further decreased by the favorable resolution of a matter with tax authorities in the United Kingdom relating to transfer pricing effected in prior years. The reversal of the related tax contingency reserve resulted in a tax benefit of approximately $320,000 in the year ended December 31, 2005. The tax provision was also impacted by foreign deferred income tax expense (benefit) of $250,000 and $(496,000) for the years ended December 31, 2005 and 2004, respectively.
 
Liquidity and Capital Resources
 
The Company derives its liquidity and capital resources primarily from the Company’s cash flows from operations. Additionally, the Company derives its liquidity and capital resources from financing activities, including a debt borrowing and proceeds from the issuance of shares under the Company’s stock plans. The Company’s cash and cash equivalent balances were $23,487,000 and $20,740,000 as of December 31, 2006 and 2005, respectively, which excludes restricted cash of $400,000 and $500,000, respectively. The Company’s days sales outstanding in accounts receivable was 75 days as of December 31, 2006, compared with 65 days as of December 31, 2005.
 
Cash provided by the Company’s operating activities was $7,753,000 for the year ended December 31, 2006 compared to cash provided by operating activities of $7,314,000 for the prior year. Cash provided by operating activities was primarily due to net income of $9,331,000 for the year ended December 31, 2006 and an increase of accrued expenses of $1,714,000, partially offset by an increase in accounts receivable of $3,265,000.
 
Cash used in investing activities totaled $12,715,000 for the year ended December 31, 2006 compared to cash used in investing activities of $4,876,000 for the year ended December 31, 2005. Cash used in investing activities consisted primarily of $12,433,000 of net cash used in connection with the acquisition of Temtec, including direct acquisition costs.
 
Cash provided by financing activities totaled $7,306,000 for the year ended December 31, 2006, which consisted of proceeds of $6,500,000 from a term loan, net of approximately $49,000 of debt issuance costs and related principal payments of $541,000, used to partially finance the acquisition of Temtec, as well as proceeds of $1,396,000 received from the issuance of stock under the Company’s stock plans. This compares to total cash provided by financing activities of $2,616,000 for the year ended December 31, 2005, which consisted of proceeds of $1,724,000 from the issuance of stock under stock plans, coupled with cash proceeds of $892,000 from the settlement of certain executive loans.
 
Cash paid for income taxes by the Company of $483,000 and $380,000 for the years ended December 31, 2006 and 2005, respectively, was primarily due to foreign taxes paid by the Company’s foreign subsidiaries.
 
In June 2006, the Company amended its existing loan and security agreement with Silicon Valley Bank (“SVB”) in connection with the acquisition of Temtec, to provide for a term loan (the “Term Loan”) in the principal amount of $6.5 million, which the Company used to partially finance the acquisition. Debt issuance costs relating to the Term Loan totaled approximately $49,000. The Term Loan is payable in thirty-six equal monthly installments of principal commencing on October 1, 2006 through September 1, 2009, plus monthly payments of accrued interest.


27

Table of Contents

The Term Loan bears interest at a rate of prime plus 0.75% and is guaranteed by Applix Securities Corp., a wholly-owned subsidiary of the Company, and is collateralized by substantially all of the Company’s assets. There are no penalties or fees in the event that the Company prepays the Term Loan prior to its scheduled maturity date. This amendment also extended the maturity date of our credit facility with SVB from March 18, 2007 to June 18, 2007. The credit facility is a domestic working capital line of credit with an interest rate equal to the prime interest rate and under which the Company may borrow the aggregate principal amount of up to the lesser of: (i) $3,000,000; or (ii) an amount based upon a percentage the Company’s qualifying domestic accounts receivable. The availability of borrowings under the Company’s credit facility as well as the Term Loan is subject to the borrowing limits described above and maintenance of certain financial covenants, none of which are considered restrictive to the Company’s business.
 
In July 2006, the Company entered into an amendment to its lease agreement for its headquarters located at 289 Turnpike Road in Westborough, Massachusetts for an additional 2,927 square feet of office space, which commenced August 1, 2006 and will expire on January 31, 2011, which is co-terminus with the existing leased space of 24,376 square feet. The additional space will result in increased annual rent expense of approximately $42,000 through the remaining term of the lease.
 
The Company has future cash commitments pertaining to its contractual obligations under its non-cancelable leases and its Term Loan. The Company’s future minimum operating and capital lease payments for its office facilities and certain equipment as well as scheduled principal payments for the Term Loan as of December 31, 2006 are:
 
                                         
          Less Than
 		                After
 		 
    Total Years     1 Year     1-3 Years     4-5 Years     5 Years  
 
Non-cancelable operating leases
  $ 4,595,000     $ 1,341,000     $ 2,437,000     $ 817,000     $ —  
Non-cancelable capital leases
    48,000       25,000       23,000       —       —  
Accrued restructurings expenses
    212,000       51,000       148,000       13,000       —  
Term loan
    5,959,000       2,167,000       3,792,000       —       —  
                                         
Total contractual cash obligations
  $ 10,814,000     $ 3,584,000     $ 6,400,000     $ 830,000     $ —  
                                         
 
Off-Balance Sheet Arrangements
 
The Company does not have any off-balance-sheet arrangements with unconsolidated entities or related parties, and as such, the Company’s liquidity and capital resources are not subject to off-balance-sheet risks from unconsolidated entities.
 
The Company currently expects that the principal sources of funding for its operating expenses, capital expenditures and other liquidity needs will be a combination of its available cash and short-term investment balances, funds expected to be generated from operations, and funding available under the SVB credit facility. The Term Loan and availability of borrowings under the Company’s credit facility are subject to the borrowing limits described above as well as the maintenance of certain financial covenants. 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.
 
New Accounting Pronouncements
 
The Company adopted SEC’s Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Years Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 requires that companies utilize a dual-approach to assessing the quantitative effects of financial statement misstatements. The dual approach includes both


28

Table of Contents

an income statement focused and balance sheet focused assessment. The adoption of SAB 108 had no effect on our consolidated financial statements for the year ended December 31, 2006.
 
In July 2006, the FASB issued FASB Interpretation Number (FIN) No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,” which, in the case of the Company, is effective as of January 1, 2007. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes.  FIN No. 48 requires that all tax positions be evaluated using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Differences between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable or receivable, or adjustments to deferred taxes, or both. FIN No. 48 also requires expanded disclosure at the end of each annual reporting period including a tabular reconciliation of unrecognized tax benefits. In accordance with FIN No. 48, the Company will report the difference between the net amount of assets and liabilities recognized in the statement of financial position prior to and after the application of FIN No. 48 as a cumulative effect adjustment to the opening balance of retained earnings. The Company is currently evaluating the requirements of FIN No. 48 and has not yet determined the impact on its consolidating financial statements.
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands fair value measurement disclosures. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating whether adoption of SFAS 157 will have an impact on our financial statements.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are in the process of evaluating the effect of SFAS No. 159 on our consolidated results of operations and financial position.
 
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk
 
As a multinational corporation, the Company is exposed to market risk, primarily from changes in foreign 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 2006, the Company incurred a net gain on foreign exchange of approximately $259,000, primarily due to favorable movements in the Australian dollar, Euro and British pound exchange rates. Based on foreign currency exposures existing at December 31, 2006, a 10% unfavorable movement in foreign exchange rates related to the British pound, Euro, Australian dollar, and Swiss franc would result in an approximately $861,000 reduction to earnings. The Company is not engaged in activities to hedge these exposures.
 
At December 31, 2006, the Company held $23,487,000 in cash and cash equivalents, excluding $400,000 of restricted cash, consisting primarily of money market funds, and $3,723,000 in short-term investments. Cash equivalents and short-term investments are classified as available for sale and carried at fair value, which approximates amortized cost. A hypothetical 10% increase in interest rates would not have a material impact on the fair market value of these instruments due to their short maturity and the Company’s intention that all the securities will be sold within one year.


29

Table of Contents

 
Item 8.   Financial Statements and Supplementary Data
 
Supplemental Quarterly Financial Data
 
                                 
    Q1 2006     Q2 2006     Q3 2006     Q4 2006  
    (Unaudited)  
    (In thousands, except per share amounts)  
 
Revenue from continuing operations
  $ 8,993     $ 13,320     $ 13,825     $ 16,035  
Gross margin from continuing operations
  $ 7,933     $ 12,040     $ 12,415     $ 14,339  
Income from continuing operations
  $ 119     $ 2,353     $ 1,173     $ 5,785  
Loss from discontinued operations
  $ (22 )   $ (26 )   $ (26 )   $ (25 )
Net income
  $ 97     $ 2,327     $ 1,147     $ 5,760  
Net income per share, basic
  $ 0.01     $ 0.15     $ 0.07     $ 0.37  
Net income per share, diluted
  $ 0.01     $ 0.14     $ 0.07     $ 0.33  
Weighted average number of basic shares outstanding
    15,024       15,193       15,563       15,628  
Weighted average number of diluted shares outstanding
    16,467       16,702       17,073       17,632  
 
                                 
    Q1 2005     Q2 2005     Q3 2005     Q4 2005  
    (Unaudited)  
    (In thousands, except per share amounts)  
 
Revenue from continuing operations
  $ 7,648     $ 9,432     $ 8,814     $ 11,084  
Gross margin from continuing operations
  $ 6,667     $ 8,411     $ 7,816     $ 10,079  
Income from continuing operations
  $ 631     $ 1,728     $ 1,973     $ 2,506  
Loss from discontinued operations
  $ (20 )   $ (30 )   $ (20 )   $ (30 )
Net income
  $ 611     $ 1,698     $ 1,953     $ 2,476  
Net income per share, basic
  $ 0.04     $ 0.12     $ 0.13     $ 0.17  
Net income per share, diluted
  $ 0.04     $ 0.11     $ 0.12     $ 0.15  
Weighted average number of basic shares outstanding
    14,456       14,627       14,744       14,845  
Weighted average number of diluted shares outstanding
    16,417       16,129       16,534       16,672  
 
Financial Statements
 
The Company’s Consolidated Financial Statements are listed under Item 15 of this Annual Report on Form 10-K and are incorporated herein by reference.
 
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
Not applicable.
 
Item 9A.   Controls and Procedures
 
Evaluation of disclosure controls and procedures
 
The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2006. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how well designed and operated,


30

Table of Contents

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 December 31, 2006, 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.
 
Management’s Report on Internal Control Over Financial Reporting
 
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
 
  •  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
  •  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
  •  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Because we acquired Temtec International B.V. on June 15, 2006, we have not yet fully integrated Temtec into our internal control over financial reporting, and therefore have excluded Temtec from our December 31, 2006 evaluation of internal controls. Temtec will be included in our December 31, 2007 evaluation of internal control over financial reporting.
 
Based on our assessment, management concluded that, as of December 31, 2006, the Company’s internal control over financial reporting is effective based on those criteria.
 
The Company’s independent auditors have issued an audit report on our assessment of the Company’s internal control over financial reporting. This report appears below.
 
Changes in internal control over financial reporting
 
No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


31

Table of Contents

 
Report of Independent Registered Public Accounting Firm
 
 
To the Board of Directors and Stockholders of Applix, Inc.:
 
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Applix, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Temtec International B.V., which was acquired on June 15, 2006 and whose financial statements constitute 1.3 percent and 2.8 percent of net and total assets, respectively, 5.0 percent of revenues, and 0.7 percent of net income of the consolidated financial statement amounts as of and for the year ended December 31, 2006. Accordingly, our audit did not include the internal control over financial reporting at Temtec International B.V. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
 
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2006 of the Company and our report dated March 16, 2007 expressed an unqualified opinion on those financial statements and included an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards 123(R), “Share-Based Payment.”
 
/s/  DELOITTE & TOUCHE LLP
 
Boston, Massachusetts
March 16, 2007


32

Table of Contents

 
Item 9B.   Other Information
 
Not applicable.
 
PART III
 
Item 10.   Directors and Executive Officers of the Registrant
 
The response to this item is contained in part under the caption “Directors and Executive Officers of the Registrant” in Part I of this Annual Report on Form 10-K, and in part in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held on June 7, 2007 (the “2007 Proxy Statement”) in the sections entitled “Board of Directors and Corporate Governance Information — Members of the Board of Directors”, “Other Matters — Section 16(a) Beneficial Ownership Reporting Compliance”, “Board of Directors and Corporate Governance Information — Board Committees,” and “Board of Directors and Corporate Governance Information — Code of Business Conduct and Ethics,” which sections are incorporated herein by reference.
 
Item 11.   Executive Compensation
 
The response to this item is contained in the 2007 Proxy Statement in the section entitled “Executive and Director Compensation And Related Matters”, which section is incorporated herein by reference.
 
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The response to this item is contained in the 2007 Proxy Statement in the sections entitled “General Information About the Annual Meeting — Beneficial Ownership of Voting Stock”, “Executive and Director Compensation and Related Matters — Equity Compensation Plan Disclosure” and “Executive and Director Compensation and Related Matters — Potential Payments Upon Termination or Change-in-Control”, which sections are incorporated herein by reference.
 
Item 13.   Certain Relationships and Related Transactions, and Director Independence
 
The response to this item is contained in the 2007 Proxy Statement in the section entitled “Board of Directors and Corporate Governance Information — Related Person Transactions”, “Board of Directors and Corporate Governance Information — Policies and Procedures for Related Person Transactions” and “Board of Directors and Corporate Governance Information — Determination of Independence” which sections are incorporated herein by reference.
 
Item 14.   Principal Accountant Fees and Services
 
The information required by this item is contained in the 2007 Proxy Statement “Proposal 4 — Ratification of Selection of Independent Registered Public Accounting Firm — Independent Registered Public Accounting Firm’s Fees And Other Matters”, which section is incorporated herein by reference.
 
PART IV
 
Item 15.   Exhibits and Financial Statement Schedules
 
(a) The following are filed as part of this Annual Report on Form 10-K.
 
1. Consolidated Financial Statements.
 
The consolidated financial statements listed in the accompanying Index to Consolidated Financial Statements and Financial Statement Schedule are filed as a part of this Annual Report on Form 10-K.


33

Table of Contents

 
2. Consolidated Financial Statement Schedules.
 
All schedules have been omitted because the required information either is not applicable or is shown in the financial statements or notes thereto
 
3. Exhibits.
 
The exhibits filed as a part of this Annual Report on Form 10-K are as follows:
 
             
  2 .1(1)   —   Share Purchase Agreement of the Shares in the Capital of Temtec International B.V. by and among Applix, Inc., the Sellers (as defined therein) and Temtec International B.V., dated June 15, 2006.
  3 .1(2)   —   Restated Articles of Organization.
  3 .2(3)   —   Amended and Restated By-laws.
  4 .1(4)   —   Form of Rights Agreement, dated as of September 18, 2000, between the Registrant and American Stock Transfer & Trust Company, which includes as Exhibit A the terms of the Series A Junior Participating Preferred Stock, as Exhibit B the Form of Rights Certificate, and as Exhibit C the Summary of Rights to Purchase Preferred Stock.
  4 .2(5)   —   First Amendment to Form of Rights Agreement, dated February 27, 2004, between the Registrant and American Stock Transfer & Trust Company.
  10 .1(6)†   —   Applix, Inc. 1994 Equity Incentive Plan, as amended.
  10 .2(7)†   —   Applix, Inc. 2000 Director Stock Option Plan, as amended.
  10 .3(8)†   —   Applix, Inc. 2001 Employee Stock Purchase Plan.
  10 .4(9)†   —   Applix, Inc. 2003 Director Equity Plan, as amended.
  10 .5(10)†   —   Form of Stock Option Agreement for 2003 Director Equity Plan.
  10 .6(11)†   —   Applix, Inc. 2004 Equity Incentive Plan, as amended.
  10 .7(12)†   —   Applix, Inc. 2006 Stock Incentive Plan.
  10 .8(12)†   —   Form of Incentive Stock Option Agreement for the 2006 Stock Incentive Plan.
  10 .9(13)†   —   2006 Executive Officer Bonus Plan.
  10 .10(14)†   —   2007 Executive Officer Bonus Plan.
  10 .11(15)†   —   Form of Retention Agreement.
  10 .12(9)†   —   Summary of Compensation Policy for Directors of Applix, Inc.
  10 .13(16)   —   Letter Agreement between Applix, Inc. and Craig Cervo, dated October 26, 2005.
  10 .14(17)   —   Loan and Security Agreement, dated March 19, 2004 between the Registrant and Silicon Valley Bank.
  10 .15(18)   —   First Loan Modification Agreement by and between Applix, Inc. and Silicon Valley Bank, dated April 14, 2005.
  10 .16(1)   —   Second Loan Modification Agreement by and between Applix, Inc. and Silicon Valley Bank, dated June 15, 2006.
  10 .17(19)   —   Single Tenant Commercial Lease by and between Westborough Land Realty Trust and the Registrant, dated January 23, 2001.
  10 .18(17)   —   Letter of Intent Single Tenant Commercial Lease by and between Westborough Land Realty Trust and the Registrant, dated December 12, 2003.
  10 .19(17)   —   First Amendment of Single Tenant Commercial Lease by and between Westborough Land Realty Trust and the Registrant dated December 31, 2003.
  10 .20(17)   —   Second Amendment of Single Tenant Commercial Lease by and between Westborough Land Realty Trust and the Registrant dated January 22, 2004.
  21 .1   —   Subsidiaries of the Registrant.
  23 .1   —   Consent of Independent Registered Public Accounting Firm.
  31 .1   —   Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).


34

Table of Contents

             
  31 .2   —   Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
  32 .1   —   Certification Pursuant to 18 U.S.C. Section 1350 (Chief Executive Officer).
  32 .2   —   Certification Pursuant to 18 U.S.C. Section 1350 (Chief Financial Officer).
 
 
1. Incorporated by reference from the Registrant’s Current Report on Form 8-K, as filed with the Commission on June 21, 2006.
 
2. Incorporated by reference from the Registrant’s Registration Statement on Form S-1 (File No. 33-85688).
 
3. Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, as filed with the Commission on March 31, 2005.
 
4. Incorporated by reference to the Registrant’s Registration Statement on Form 8-A dated September 20, 2000.
 
5. Incorporated by reference to the Registrant’s Current Report on Form 8-K/A, as filed with the Commission on March 4, 2004.
 
6. Incorporated by reference to the Registrant’s Proxy Statement on Schedule 14A, as filed with the Commission on April 3, 2001.
 
7. Incorporated by reference to the Registrant’s Report on Form 10-Q for the fiscal quarter ended June 30, 2002, as filed with the Commission on August 14, 2002.
 
8. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001, as filed with the Commission on August 13, 2001.
 
9. Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, as filed with the Commission on March 31, 2006.
 
10. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004, as filed with the Commission on November 15, 2004.
 
11. Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on June 15, 2005.
 
12. Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on December 1, 2006.
 
13. Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on March 1, 2006.
 
14. Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on February 13, 2007.
 
15. Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on January 31, 2007.
 
16. Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on October 31, 2005.
 
17. Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, as filed with the Commission on March 30, 2004.
 
18. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2005, as filed with the Commission on May 16, 2005.

35

Table of Contents

 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf as of March 16, 2007 by the undersigned, thereunto duly authorized.
 
APPLIX, INC.
 
  By: 
/s/  David C. Mahoney
David C. Mahoney
President and Chief Executive Officer
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
 
                     
Signature
 
Title
 
Date
   
 
/s/  David C. Mahoney

David C. Mahoney 		  President and Chief Executive Officer (Principal Executive Officer)   March 16, 2007        
                 
/s/  Milton A. Alpern

Milton A. Alpern 		  Chief Financial Officer and Treasurer (Principal Financial and
Accounting Officer) 		  March 16, 2007        
                 
/s/  John D. Loewenberg

John D. Loewenberg 		  Chairman of the Board of Directors   March 16, 2007        
                 
/s/  Bradley D. Fire

Bradley D. Fire 		  Director   March 16, 2007        
                 
/s/  Peter Gyenes

Peter Gyenes 		  Director   March 16, 2007        
                 
/s/  Alain J. Hanover

Alain J. Hanover 		  Director   March 16, 2007        
                 
/s/  Charles F. Kane

Charles F. Kane 		  Director   March 16, 2007        


36

Table of Contents

Table of Contents

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of Applix, Inc.:
 
We have audited the accompanying consolidated balance sheets of Applix, Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Applix, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
 
As discussed in Note 2 to the financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment”, effective January 1, 2006.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 
/s/  Deloitte & Touche LLP
 
Boston, Massachusetts
March 16, 2007


38

Table of Contents

APPLIX, INC.
 
(In thousands, except share and par value amounts)
 
                 
    December 31,  
    2006     2005  
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 23,487     $ 20,740  
Short-term investments
    3,723       4,198  
Accounts receivable, less allowance for doubtful accounts of $368 and $231, respectively
    13,582       8,066  
Other current assets
    1,585       1,295  
Deferred tax assets, current
    619       164  
                 
Total current assets
    42,996       34,463  
Restricted cash
    400       500  
Property and equipment, net
    1,313       953  
Intangible assets, net of accumulated amortization of $1,853 and $1,188, respectively
    5,477       312  
Goodwill
    13,341       1,158  
Deferred tax assets, long-term
    1,876       —  
Other assets
    684       712  
                 
TOTAL ASSETS
  $ 66,087     $ 38,098  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 2,068     $ 1,504  
Accrued expenses
    9,324       5,460  
Accrued restructuring expenses, current portion
    51       44  
Current portion of debt
    2,167       —  
Deferred revenues
    11,052       9,143  
                 
Total current liabilities
    24,662       16,151  
Accrued restructuring expenses, long term portion
    161       186  
Long-term debt
    3,792       —  
Other long term liabilities
    122       133  
                 
Total liabilities
    28,737       16,470  
                 
Commitments and contingencies (Note 17)
               
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; 15,657,258 and 14,923,894 shares issued and outstanding, respectively
    39       37  
Additional paid-in capital
    63,365       57,178  
Accumulated deficit
    (24,604 )     (33,935 )
Accumulated other comprehensive loss
    (1,450 )     (1,652 )
                 
Total stockholders’ equity
    37,350       21,628  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 66,087     $ 38,098  
                 
 
See accompanying Notes to Consolidated Financial Statements.


39

Table of Contents

APPLIX, INC.
 
(In thousands, except per share amounts)
 
                         
    Years Ended December 31,  
    2006     2005     2004  
 
Revenues:
                       
Software license
  $ 30,105     $ 19,488     $ 16,228  
Professional services and maintenance
    22,068       17,490       14,687  
                         
Total revenues
    52,173       36,978       30,915  
                         
Cost of revenues:
                       
Software license
    310       117       427  
Professional services and maintenance (includes $70 of stock-based compensation for the year ended December 31, 2006)
    4,936       3,888       3,612  
Amortization of an acquired intangible asset
    200       —       —  
                         
Total cost of revenues
    5,446       4,005       4,039  
                         
Gross margin
    46,727       32,973       26,876  
                         
Operating expenses:
                       
Sales and marketing (includes $841 of stock-based compensation for the year ended December 31, 2006)
    24,822       15,337       10,588  
Product development (includes $595 and $155 of stock-based compensation for the years ended December 31, 2006 and 2005, respectively)
    7,374       5,269       4,785  
General and administrative (includes $764, $60 and $60 of stock-based compensation for the years ended December 31, 2006, 2005 and 2004, respectively)
    8,793       5,095       6,217  
Restructuring
    —       —       577  
Amortization of acquired intangible assets
    466       250       250  
                         
Total operating expenses
    41,455       25,951       22,417  
                         
Operating income
    5,272       7,022       4,459  
Non-operating income (expenses):
                       
Interest income
    1,048       596       184  
Interest expense
    (388 )     (54 )     (69 )
Other income (expense), net
    228       (369 )     198  
Net gain from sale of CRM assets
    —       —       261  
                         
Income before taxes
    6,160       7,195       5,033  
Benefit (provision) for income taxes
    3,270       (357 )     (225 )
                         
Income from continuing operations
    9,430       6,838       4,808  
Discontinued operations:
                       
Loss from discontinued operations
    (99 )     (100 )     (106 )
                         
Net income
  $ 9,331     $ 6,738     $ 4,702  
                         
Net income (loss) per share, basic and diluted:
                       
Continuing operations, basic
  $ 0.61     $ 0.47     $ 0.34  
Continuing operations, diluted
  $ 0.56     $ 0.42     $ 0.31  
Discontinued operations
  $ (0.01 )   $ (0.01 )   $ (0.01 )
Net income per share, basic
  $ 0.61     $ 0.46     $ 0.33  
Net income per share, diluted
  $ 0.55     $ 0.41     $ 0.30  
Weighted average number of shares outstanding:
                       
Basic
    15,348       14,669       14,038  
Diluted
    16,986       16,451       15,482  
 
See accompanying Notes to Consolidated Financial Statements.


40

Table of Contents

APPLIX, INC.
 
AND COMPREHENSIVE INCOME
(In thousands, except share amounts)
 
                                                         
                      Accumulated
 		                   
                      Other
 		                   
          Additional
 		          Comprehensive
 		          Total
 		       
    Common
 		    Paid-In
 		    Accumulated
 		    (Loss)
 		    Treasury
 		    Stockholders’
 		    Comprehensive
 		 
    Stock     Capital     Deficit     Income     Stock     Equity     Income  
 
Balance, January 1, 2004
  $ 33     $ 50,497     $ (45,375 )   $ (1,539 )   $ (1,361 )   $ 2,255          
                                                         
Net income
                    4,702                       4,702     $ 4,702  
Foreign currency exchange translation adjustment
                            66               66       66  
                                                         
Total comprehensive income
                                                  $ 4,768  
                                                         
Stock issued under stock plans (769,367 shares)
    2       1,993                               1,995          
Sale of common stock to affiliates (657,894 shares)
    2       2,987                               2,989          
Executive loans settlement
            179                       52       231          
Redesignation of treasury shares
    (1 )     (1,308 )                     1,309       —          
                                                         
Balance, December 31, 2004
    36       54,348       (40,673 )     (1,473 )     —       12,238          
Net income
                    6,738                       6,738     $ 6,738  
Foreign currency exchange translation adjustment
                            (178 )             (178 )     (178 )
Unrealized gain on short-term investments
                            (1 )             (1 )     (1 )
                                                         
Total comprehensive income
                                                  $ 6,559  
                                                         
Stock issued under stock plans (633,310 shares)
    1       1,783                               1,784          
Executive loans settlement
            892                               892          
Stock-based compensation related to severance
            155                               155          
                                                         
Balance, December 31, 2005
    37       57,178       (33,935 )     (1,652 )     —       21,628          
Net income
                    9,331                       9,331     $ 9,331  
Foreign currency exchange translation adjustment
                            202               202       202  
                                                         
Total comprehensive income
                                                  $ 9,533  
                                                         
Stock issued under stock plans (403,112 shares)
    1       1,455                               1,456          
Stock issued in connection with Temtec acquisition (330,252 shares)
    1       2,537                               2,538          
Stock-based compensation
            2,195                               2,195          
                                                         
Balance, December 31, 2006
  $ 39     $ 63,365     $ (24,604 )   $ (1,450 )   $ —     $ 37,350          
                                                         
See accompanying Notes to Consolidated Financial Statements.


41

Table of Contents

APPLIX, INC.
 
 
                         
    Years Ended December 31,  
    2006     2005     2004  
    (In thousands)  
 
Cash flows from operating activities:
                       
Net income
  $ 9,331     $ 6,738     $ 4,702  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
                       
Depreciation
    591       335       573  
Amortization
    666       250       515  
Provision for bad debts
    121       27       79  
Net gain on sale of CRM assets
    —       —       (261 )
Loss on disposal of property and equipment
    7       4       99  
Share-based compensation expense
    2,270       215       60  
Deferred income taxes
    (3,956 )     221       (496 )
Changes in operating assets and liabilities:
                       
Increase in accounts receivable
    (3,386 )     (2,554 )     (223 )
Decrease (increase) in other assets
    279       (255 )     955  
Increase (decrease) in accounts payable
    38       653       (309 )
Increase (decrease) in accrued expenses
    1,714       565       (1,612 )
Decrease in accrued restructuring expenses
    (47 )     (143 )     (3,027 )
Increase (decrease) in other liabilities
    75       (33 )     (304 )
Increase in deferred revenue
    50       1,291       385  
                         
Cash provided by operating activities
    7,753       7,314       1,136  
Cash flows from investing activities:
                       
Acquisition, net of cash acquired
    (12,433 )     —       —  
Property and equipment expenditures
    (857 )     (578 )     (321 )
Decrease (increase) in restricted cash
    100       (100 )     417  
Proceeds from sale of subsidiary
    —       —       195  
Purchases of short-term investments
    (9,780 )     (10,923 )     —  
Maturities of short-term investments
    10,255       6,725       —  
                         
Cash (used in) provided by investing activities
    (12,715 )     (4,876 )     291  
Cash flows from financing activities:
                       
Proceeds from issuance of common stock under stock plans
    1,396       1,724       1,935  
Proceeds from long-term debt
    6,500       —       —  
Payments of debt issuance costs
    (49 )     —       —  
Principal payments on long-term debt
    (541 )     —       —  
Proceeds from issuance of common stock to affiliate
    —       —       2,989  
Proceeds from settlement of executive loans
    —       892       231  
                         
Cash provided by financing activities
    7,306       2,616       5,155  
Effect of exchange rate changes on cash
    403       (238 )     101  
                         
Increase in cash and cash equivalents
    2,747       4,816       6,683  
Cash and cash equivalents at beginning of period
    20,740       15,924       9,241  
                         
Cash and cash equivalents at end of period
  $ 23,487     $ 20,740     $ 15,924  
                         
Supplemental disclosure of cash flow information
                       
Cash paid for income tax
  $ 483     $ 380     $ 949  
Cash paid for interest
  $ 281     $ 15     $ 43  
Supplemental disclosure of non-cash financing activity
                       
In June 2006, the Company issued 330,252 shares of common stock valued at approximately $2.5 million in connection with the acquisition of Temtec International B.V. (Note 3)
                       
 
See accompanying Notes to Consolidated Financial Statements.


42

Table of Contents

APPLIX, INC.
 
 
1.   THE COMPANY
 
Applix, Inc. (the “Company”) is a global provider of 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, which the Company reports as its continuing operations.
 
2.   SIGNIFICANT ACCOUNTING POLICIES
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of Applix, Inc. and all of its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions in these financial statements relate to, among other items, the useful lives of property and equipment and intangible assets, domestic and foreign income tax liabilities, valuation of deferred tax assets, share-based compensation, the allowance for doubtful accounts, impairment of goodwill and accrued liabilities.
 
Revenue Recognition
 
The Company generates revenues mainly from licensing the rights to use its software products and providing services. The Company sells products primarily through a direct sales force, indirect channel partners and original equipment manufacturers (“OEMs”). The Company accounts for software revenue transactions in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended. Revenues from software arrangements are recognized when:
 
  •  Persuasive evidence of an arrangement exists, which is typically when a non-cancelable sales and software license agreement has been signed, or purchase order has been received;
 
  •  Delivery has occurred. If the assumption by the customer of the risks and rewards of its licensing rights occurs upon the delivery to the carrier (FOB Shipping Point), then delivery occurs upon shipment (which is typically the case). If assumption of such risks and rewards occurs upon delivery to the customer (FOB Destination), then delivery occurs upon receipt by the customer. In all instances, delivery includes electronic delivery of authorization keys to the customer;
 
  •  The customer’s fee is deemed to be fixed or determinable and free of contingencies or significant uncertainties;
 
  •  Collectibility is probable; and
 
  •  Vendor specific objective evidence of fair value exists for all undelivered elements, typically maintenance and professional services.
 
The Company 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


43

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of the Company’s product revenue is recognized in this manner. If the Company cannot determine the fair value of any undelivered element included in an arrangement, the Company will defer revenue until the fair value of the undelivered elements can be objectively determined or these elements have been delivered or services have been rendered. In circumstances where the Company offers significant and incremental fair value discounts for future purchases of other software products or services to its customers as part of an arrangement, utilizing the residual method, the Company defers the value of the discount and recognizes such discount to revenue as the related product or service is delivered.
 
As part of an arrangement, end-user customers typically purchase maintenance contracts and in certain instances, professional services. Maintenance services include telephone and Web-based support as well as rights to unspecified upgrades and enhancements, when and if the Company makes them generally available. Substantially all of the Company’s software license revenue is earned from perpetual licenses of off-the-shelf software requiring no modification or customization. Therefore, professional services are deemed to be non-essential to the functionality of the software and typically are for implementation planning, loading of software, training, building simple interfaces and running test data.
 
Revenues from maintenance services are recognized ratably over the term of the maintenance contract period, which is typically one year, based on vendor specific objective evidence of fair value. Vendor specific objective evidence of fair value is based upon the amount charged when maintenance is sold separately.
 
Revenues for consulting services are generally recognized on a time and material basis as services are delivered. Based upon the Company’s experience in completing product implementations, these services are typically delivered within three months or less subsequent to the contract signing. Revenues from professional services are generally recognized based on vendor specific objective evidence of fair value when: (1) a non-cancelable agreement for the services has been signed or a customer’s purchase order has been received; and (2) the professional services have been delivered. Vendor specific objective evidence of fair value is based upon the price charged when these services are sold separately.
 
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. Generally, the Company’s arrangements with end-user customers and indirect channel partners do not include any acceptance provisions. In those cases in which specific customer acceptance criteria are included in the arrangement, the Company defers the entire arrangement fee and recognizes revenue, assuming all other conditions for revenue recognition have been satisfied, when acceptance has been obtained as generally evidenced by written acceptance by the customer. The Company’s arrangements with indirect channel partners and end-user customers do include a standard warranty provision whereby the Company will use reasonable efforts to cure material nonconformity or defects of the software from the Company’s published specifications. The standard warranty provision does not provide the indirect channel partners or end-user customer with the right of refund.
 
At the time the Company enters into an arrangement, the Company assesses the probability of collection of the fee and the payment terms granted to the customer. For end-user customers and indirect channel partners, the Company’s typical payment terms require payment within 30 to 90 days of the invoice date. If the payment terms for the arrangement are considered extended (generally, if payment is due greater than 90 days), the Company defers revenue under these arrangements and such revenue is recognized, assuming all other conditions for revenue recognition have been satisfied, when the payment of the arrangement fee becomes due.
 
In some instances, indirect channel partners provide first level maintenance services to the end-user customer and the Company provides second level maintenance support to the end-user customer. The Company accounts for amounts received in these arrangements in accordance with Emerging Issues Task Force 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”. 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


44

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 deferred and expensed ratably over the maintenance period and reported in cost of revenues. Under these arrangements, the Company recorded revenue over the related maintenance periods which aggregated to $371,000, $433,000 and $864,000 for the years ended December 31, 2006, 2005 and 2004, respectively.
 
Cash Equivalents and Short-Term Investments
 
Cash equivalents represent short-term, highly liquid investments, including money market accounts, with original maturities of three months or less at time of purchase. Short-term investments, which consist of debt securities, are classified as available for sale and are stated at fair value. Unrealized gains and losses are included in accumulated other comprehensive income (loss), net of tax effects. Realized gains or losses are determined based on the specific identified cost of the securities. Any unrealized losses that are considered to be “other than temporary” are charged immediately to the income statement.
 
Restricted Cash
 
As of December 31, 2006 and 2005, $400,000 of restricted cash represents the required collateral on the Company’s lease of its headquarters located in Westborough, Massachusetts. During 2005, the Company provided to the SEC a proposed settlement agreement relating to the SEC’s investigation concerning the restatement of the Company’s financial statements for fiscal years 2001 and 2002. Pursuant to the terms of this proposed settlement agreement, the Company reserved $100,000 in an escrow account for a potential monetary penalty payment. On January 4, 2006, the Company reached a final settlement with the SEC relating to the investigation. The final settlement agreement, which superceded the proposed settlement agreement, did not require the Company to pay a monetary penalty. Thus, the Company released the $100,000 from the escrow account and, as a result, restricted cash decreased $100,000 in 2006 as compared to 2005.
 
Concentrations of Credit Risk, Accounts Receivable and Allowance for Doubtful Accounts
 
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments and trade receivables. The Company maintains cash, cash equivalents and short-term investments with high credit quality financial institutions and monitors the amount of credit exposure to any one financial institution.
 
The Company extends credit to its customers in the normal course of business, resulting in trade receivables. The Company’s normal credit terms are 30 to 90 days.
 
The Company performs continuing credit evaluations of its customers’ financial condition, and although the Company generally does not require collateral, letters of credit may be required from its customers in certain circumstances. An allowance for doubtful accounts is provided for customer accounts receivable which management believes may not be collectible.


45

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
The following table of qualifying accounts provides a rollforward of the allowance for doubtful accounts for each of the years ended December 31, (in thousands):
 
                         
    2006     2005     2004  
 
Balance, beginning of year
  $ 231     $ 227     $ 252  
Provision for bad debts
    121       27       79  
Write-offs and other
    16       (23 )     (104 )
                         
Balance, end of year
  $ 368     $ 231     $ 227  
                         
 
Fair Value of Financial Instruments
 
The carrying amount of our cash, accounts receivable and accounts payable approximates fair value due to the short-term nature of these instruments. We base the fair value of available for sale short-term investments on current market value (Note 5). The carrying value of long-term debt approximates its fair value.
 
Property and Equipment, net
 
Property and equipment are recorded at cost. Property and equipment purchased in business combinations are recorded at fair value which are then treated as the current cost. Assets are depreciated using the straight-line method over the estimated useful lives of the related assets (2 to 6 years) as detailed below. Assets associated with capital lease agreements are depreciated by the straight-line method over the lease term.
 
             
    Estimated
 		     
    Useful Life
 		     
Asset Type
  (In Years)      
 
Office furniture
  4 to 6        
Leasehold improvement
  5     (or life of underlying lease, whichever is shorter )
Equipment
  3        
Computer equipment
  3        
Software
  2 to 5        
 
Property and equipment consists of the following at December 31:
 
                 
    December 31,  
    2006     2005  
    (In thousands)  
 
Computer equipment and software
  $ 2,217     $ 2,100  
Furniture, equipment and leasehold improvements
    1,721       1,394  
                 
    $ 3,938     $ 3,494  
Less: accumulated depreciation and amortization
    (2,625 )     (2,541 )
                 
    $ 1,313     $ 953  
                 
 
Product Development Costs
 
Product development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to customers. The Company considers technological feasibility to be achieved when a product design and working model of the software product have been completed and the software product is ready for initial customer testing. Capitalized software development costs are then amortized on a product-by-product basis over the estimated product life of between one to two years and are included in the cost of software license revenue.


46

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
The Company evaluates the net realizable value of capitalized software on an annual basis, relying on a number of factors including demand for a product, operating results, business plans and economic projections. In addition, the Company considers non-financial data such as market trends, product development cycles and changes in management’s market emphasis. The Company evaluates the net realizable value of its capitalized software based primarily on actual and forecasted sales and records a charge to write-down the carrying value if factors indicate that the carrying value will not be realizable.
 
There were no software development costs that qualified for capitalization during the years ended December 31, 2006, 2005 or 2004 due to the short period of time between the establishment of technological feasibility and the point at which the product is available for general release to customers. Amortization expense related to software development cost was $265,000 for the year ended December 31, 2004. As of December 31, 2006 and 2005, there were no capitalized software development costs.
 
Goodwill, Intangible Assets and Long-lived Assets
 
The Company tests its goodwill for impairment annually or more frequently upon occurrence of certain events or circumstances. Goodwill is tested for impairment annually using a two-step process. First, the Company determines if the fair value of its “reporting unit” exceeds the carrying amount of the reporting unit. If the fair value does not exceed the carrying amount, goodwill of the reporting unit is potentially impaired, and the Company must then measure the impairment loss by comparing the “implied fair value” of the goodwill, as defined by Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”), to its carrying amount. During 2006 and 2005, the Company had one reporting unit. The fair value of the reporting unit at September 30, 2006 and 2005 was estimated using the Market Value Approach. At September 30, 2006 and 2005, the Company evaluated its goodwill and determined that the fair value had not decreased below the carrying value. To date, no impairment adjustments have been recorded. Intangible assets, other than goodwill, are amortized on a straight-line basis over their estimated useful lives. No impairment adjustments have been recorded to date.
 
Long-lived assets primarily include property and equipment and intangible assets with finite lives (customer-related intangibles). In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” The Company periodically reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of those assets are no longer appropriate. We base each impairment test on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, we write down the asset to its estimated fair value based on a discounted cash flow analysis. No impairment adjustments have been recorded to date.
 
Stock-Based Compensation
 
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123(R), “Share-Based Payment” (“SFAS 123R”). SFAS 123R requires the Company to measure the grant date fair value of equity awards given to employees in exchange for services and recognize that cost over the period that such services are performed. Prior to adopting SFAS 123R, the Company accounted for stock-based compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), as permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under APB 25, the Company generally did not recognize compensation expense in connection with the grant of stock options because all options granted had an exercise price equal to the fair market value of the underlying common stock on the date of grant.
 
In transitioning from APB 25 to SFAS 123R, the Company has applied the modified prospective method. Accordingly, periods prior to adoption have not been restated and are not directly comparable to periods after adoption. Under the modified prospective method, compensation cost recognized in periods after adoption includes


47

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, less estimated forfeitures, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R, less estimated forfeitures.
 
The Company grants stock options and issues common stock to its employees and directors and also provides employees the right to purchase stock pursuant to stockholder approved stock option and employee stock purchase plans. The stock-based plans are described more fully in Note 9. Under the provisions of SFAS 123R, the Company recognizes as compensation expense the fair value of share-based payment awards on a straight-line basis over the requisite service period of the individual award, which generally equals the vesting period. All of the Company’s share-based payment awards are accounted for as equity instruments, as there have been no liability awards granted.
 
The Company utilizes the Black-Scholes valuation model for estimating the fair value of the stock-based compensation granted after the adoption of SFAS 123R. The weighted-average fair values of the options granted under the stock option plans and shares subject to purchase under the employee stock purchase plan were $3.50 and $2.35, respectively, for the year ended December 31, 2006, assuming no dividends and using the following assumptions:
 
                 
    Stock Option
 		    Purchase
 		 
    Plans     Plan  
 
Expected life (years)
    4.6       0.5  
Expected stock price volatility
    55.3 %     51.1 %
Risk free interest rate
    4.6 %     4.8 %
 
Expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury rates on the date of grant for a term equivalent to the expected life of the options. The expected life was calculated using the method outlined in SEC Staff Accounting Bulletin Topic 14.D.2, “Expected Term,” as the Company’s historical experience does not provide a reasonable basis for the expected term of the option.
 
Based on the Company’s historical employee turnover and stock option forfeitures rates, an annualized estimated forfeiture rate of 8.5% has been used in calculating the cost for stock options. Under the true-up provisions of SFAS 123R, additional expense will be recorded if the actual forfeiture rate is lower than estimated, and a recovery of prior expense will be recorded if the actual forfeiture is higher than estimated.
 
Under the provisions of SFAS 123R, the Company recorded $2,270,000, or $0.15 and $0.13 per basic and diluted share, respectively, of share-based compensation in its consolidated statements of income for the year ended December 31, 2006. There was no income tax benefit recognized in the Company’s consolidated statement of income for the year ended December 31, 2006 for stock-based payments. At December 31, 2006, total unrecognized share-based compensation expense related to unvested stock options, expected to be recognized over a weighted average period of 1.4 years, amounted to approximately $4,174,000. Total unrecognized stock-based compensation expense will be adjusted for any future changes in estimated forfeitures, if any.
 
Prior to the adoption of SFAS 123R, the Company presented all excess tax benefits related to share-based compensation as cash flows from operating activities in the Company’s statement of cash flows. SFAS 123R requires the cash flows resulting from these tax benefits to be classified as cash flows from financing activities. For the year ended December 31, 2006, there was no net tax benefit from the exercise of stock options. Additionally, the Company used the short form method to calculate the Additional Paid-in Capital (“APIC”) pool, the tax benefit of any resulting excess tax deduction should increase the APIC pool; any resulting tax deficiency should be deducted from the APIC pool.
 
SFAS 123R requires the presentation of pro forma information for the comparative period prior to the adoption as if all of the Company’s stock options had been accounted for under the fair value method of the original


48

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SFAS 123. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation to the prior-year periods (in thousands, except per share data).
 
                 
    Year Ended December 31,  
    2005     2004  
 
Net income, as reported
  $ 6,738     $ 4,702  
Add: Stock-based employee compensation expense included in reported net income
    215       60  
Deduct: Total stock-based employee compensation expense determined under fair value method
    (1,941 )     (1,291 )
                 
Pro forma net income
  $ 5,012     $ 3,471  
                 
Net income per share:
               
Basic — as reported
  $ 0.46     $ 0.33  
Diluted — as reported
  $ 0.41     $ 0.30  
Basic — pro forma
  $ 0.34     $ 0.25  
Diluted — pro forma
  $ 0.31     $ 0.23  
Weighted average number of shares outstanding:
               
Basic
    14,669       14,038  
Diluted
    16,027       15,187  
 
For purposes of pro forma disclosure, the fair value of the Company’s stock-based awards to employees are estimated using the Black-Scholes option valuation model. The fair value of the Company’s stock-based awards to employees was estimated assuming no expected dividends and the following weighted average assumptions:
 
                 
    2005     2004  
 
Expected life (years)
    4       4  
Expected stock price volatility
    74.9 %     80.0 %
Risk free interest rate
    4.34 %     3.00 %
 
Income Taxes
 
The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax assets and liabilities relating to the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements and tax returns. A valuation allowance is established against net deferred tax assets if, based on the weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As permitted by Accounting Principles Board (“APB”) Opinion No. 23, Accounting for Income Taxes — Special Areas, provisions for income taxes on undistributed earnings of foreign subsidiaries that are considered permanently invested are not recognized in the Company’s consolidated financial statements.
 
Net Income (Loss) Per Share
 
Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Dilutive net income is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect, if any, of potential incremental common shares, determined through the application of the treasury stock method under SFAS No. 128 “Earnings Per Share”


49

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

to the stock options outstanding as well as shares held in escrow in connection with the Temtec acquisition during the period.
 
                         
    Year Ended December 31,  
    2006     2005     2004  
    (In thousands, except per share amounts)  
 
Numerator:
                       
Income from continuing operations
  $ 9,430     $ 6,838     $ 4,808  
Loss from discontinued operations
    (99 )     (100 )     (106 )
                         
Net income
  $ 9,331     $ 6,738     $ 4,702  
                         
Denominator:
                       
Denominator for basic net income per share — Weighted shares outstanding
    15,348       14,669       14,038  
Diluted effect of assumed exercise of stock options and contingently returnable shares
    1,638       1,782       1,444  
                         
Denominator for diluted net income per share
    16,986       16,451       15,482  
                         
Basic net income (loss) per share
Continuing operations
  $ 0.61     $ 0.47     $ 0.34  
Discontinued operations
  $ (0.01 )   $ (0.01 )   $ (0.01 )
Net income per share
  $ 0.61     $ 0.46     $ 0.33  
Diluted net income (loss) per share
Continuing operations
  $ 0.56     $ 0.42     $ 0.31  
Discontinued operations
  $ (0.01 )   $ (0.01 )   $ (0.01 )
Net income per share
  $ 0.55     $ 0.41     $ 0.30  
 
Common stock equivalents (stock options) of 173,700, 114,771 and 554,905 were excluded from the calculation of diluted earnings per share for the years ended December 31, 2006, 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.
 
Foreign Currency Translation
 
The Company considers the functional currency of its foreign subsidiaries to be the local currency, and accordingly, the financial statements of the foreign subsidiaries are translated into U.S. dollars using exchange rates in effect at the period end for assets and liabilities and average exchange rates during each reporting period for the results of operations. Adjustments resulting from translation of foreign subsidiary financial statements are reported on the balance sheet in accumulated other comprehensive income (loss) within stockholders’ equity. The Company has determined that its intercompany payables and receivables balances with its foreign subsidiaries are short-term in nature and as a result, the Company re-measures these balances at each period end and records any related foreign currency gains and losses in its consolidated statements of income. The short-term intercompany balances with its foreign subsidiaries are denominated in the British pound, the Euro, the Australian dollar, and the Swiss franc. For the year ended December 31, 2006, the Company recorded a net gain of $259,000 on foreign exchange in its consolidated statement of income, primarily due to the weakening U.S. dollar against the Australian dollar, British pound and the Euro. For the years ended December 31, 2005 and 2004, foreign exchange net (losses) gains recorded in the consolidated statements of income totaled ($292,000) and $407,000, respectively, primarily as a result of the foreign currency exchange rate fluctuations of the Euro, British pound and Australian dollar against the U.S. dollar.


50

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
Comprehensive Income
 
Components of comprehensive income include net income and certain transactions that have generally been reported in the consolidated statements of stockholders’ equity. Other comprehensive income (loss) includes gains and losses from foreign currency translation adjustments and unrealized gains and losses on short-term investments.
 
Advertising Expense
 
Advertising costs are expensed as incurred. Advertising expense amounted to $298,000, $244,000 and $62,000 in 2006, 2005 and 2004, respectively.
 
New Accounting Pronouncements
 
The Company adopted the SEC’s Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Years Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 requires that companies utilize a dual-approach to assessing the quantitative effects of financial statement misstatements. The dual approach includes both an income statement focused and balance sheet focused assessment. The adoption of SAB 108 had no effect on our consolidated financial statements for the year ended December 31, 2006.
 
In July 2006, the FASB issued FASB Interpretation Number (FIN) No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,” which, in the case of the Company, is effective as of January 1, 2007. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN No. 48 requires that all tax positions be evaluated using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Differences between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable or receivable, or adjustments to deferred taxes, or both. FIN No. 48 also requires expanded disclosure at the end of each annual reporting period including a tabular reconciliation of unrecognized tax benefits. In accordance with FIN No. 48, the Company will report the difference between the net amount of assets and liabilities recognized in the statement of financial position prior to and after the application of FIN No. 48 as a cumulative effect adjustment to the opening balance of retained earnings. The Company is currently evaluating the requirements of FIN 48 and has not yet determined the impact on its consolidating financial statements.
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands fair value measurement disclosures. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating whether adoption of SFAS 157 will have an impact on our financial statements.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are in the process of evaluating the effect of SFAS No. 159 on our consolidated results of operations and financial position.
 
3.   ACQUISITION
 
On June 15, 2006, the Company completed the acquisition of Temtec International B.V. (“Temtec”), a privately-held Netherlands company that is a leading provider of self-service analytic software that empowers non-technical business users to analyze and report on business-critical information in real time. The acquisition of Temtec enables the Company to provide companies with a more powerful solution set for creating, managing and delivering compelling operational performance management applications throughout the enterprise. The total


51

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

purchase price for Temtec was approximately $15,336,000 and was comprised of the following (in thousands, except share amounts):
 
         
Cash
  $ 11,455  
Common stock (330,252 shares)
    2,538  
Direct acquisition costs
    1,343  
         
Total
  $ 15,336  
         
 
The fair value of Applix common stock issued in connection with the acquisition of Temtec was estimated at $7.68 per share, which represented the average closing price of the Company’s common stock for five trading days, comprised of June 15, 2006 (the day that the terms of the acquisition were agreed to and announced), the two trading days before and the two trading days after June 15, 2006. Direct acquisition costs include investment banking fees, legal and accounting fees and other external costs directly related to the acquisition.
 
On June 15, 2006, the Company deposited $1 million of the cash consideration and $2 million, or 264,200 shares, of the Company’s common stock into an escrow account for a total escrow amount of $3 million to secure certain indemnification, warranty and claim obligations of the former stockholders of Temtec to the Company. Subject to the provisions of the escrow agreement, one-third of the escrow amount, for which the form of consideration will be determined at the sole discretion of the sellers, will be released within 30 days after the filing of the Company’s 2006 annual financial statements, but in any event no later than May 31, 2007. Also, subject to the provisions of the escrow agreement, the remaining amount of escrow in cash and shares will be released within 30 days after the filing of the Company’s 2007 annual financial statements, but in any event no later than May 31, 2008.
 
The Company accounted for the Temtec acquisition as a purchase, and accordingly, included the assets purchased and liabilities assumed in the consolidated balance sheet at the purchase date based upon their estimated fair values. The results of operations of Temtec are included in the consolidated financial statements beginning June 15, 2006.
 
The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions and other information compiled by management, including an independent valuation that utilized established valuation techniques. Goodwill recorded as a result of this acquisition is not deductible for tax purposes.


52

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
The total purchase price has been allocated as follows (in thousands):
 
         
    At
 		 
    June 15,
 		 
    2006  
 
Cash and cash equivalents
  $ 317  
Accounts receivable
    1,438  
Prepaid and other current assets
    243  
Deferred tax assets
    179  
Property and equipment
    133  
Accounts payable
    (536 )
Accrued expenses
    (984 )
Deferred revenue
    (1,196 )
Assumed Temtec payroll-related liability
    (545 )
Deferred tax liabilities
    (1,726 )
Amortizable intangible assets:
       
Existing technology
    1,850  
Customer relationships
    3,980  
         
Total amortizable intangible assets
    5,830  
Goodwill
    12,183  
         
Total purchase price
  $ 15,336  
         
 
The purchase price and related allocations is preliminary and may be revised as a result of adjustments made to the purchase price, additional information regarding liabilities assumed, including contingent liabilities, and revisions of estimates of fair values made on the date of purchase.
 
Intangible assets include amounts related to the fair value of existing technology and customer relationships, which have estimated useful lives of 5 and 10 years, respectively.
 
The following pro forma financial information presents the combined results of operations of Applix and Temtec as if the acquisition had occurred as of the beginning of the periods presented below. Adjustments to reflect the dilutive effect of the shares of common stock issued, interest expense incurred relating to the debt issued in connection with the acquisition and amortization of acquired intangible assets have been made to the combined results of operations for the years ended December 31, 2006 and 2005. The pro forma financial information is not intended to represent or be indicative of the Company’s consolidated results of operations or financial condition that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of the Company’s future consolidated results of operations or financial condition.
 
                 
    Year Ended
 		    Year Ended
 		 
    December 31, 2006     December 31, 2005  
    (In thousands, except per share amounts)  
 
Revenues
  $ 54,856     $ 42,945  
Net income
  $ 8,630     $ 5,039  
Net income per share, basic
  $ 0.56     $ 0.34  
Net income per share, diluted
  $ 0.50     $ 0.30  


53

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.   INTANGIBLE ASSETS AND GOODWILL

 
Intangible assets consist of the following significant classes at December 31, 2006 (in thousands):
 
                         
    Gross
 		             
    Carrying
 		    Accumulated
 		    Net Book
 		 
    Amount     Amortization     Value  
 
Existing technology
  $ 1,850     $ (200 )   $ 1,650  
Customer relationships
    5,480       (1,653 )     3,827  
                         
Total
  $ 7,330     $ (1,853 )   $ 5,477  
                         
 
Intangible assets consist of the following significant classes at December 31, 2005 (in thousands):
 
                         
    Gross
 		             
    Carrying
 		    Accumulated
 		    Net Book
 		 
    Amount     Amortization     Value  
 
Customer relationships
  $ 1,500     $ (1,188 )   $ 312  
                         
Total
  $ 1,500     $ (1,188 )   $ 312  
                         
 
The Company amortizes its intangible assets on a straight-line basis assuming no residual value. At December 31, 2006, the weighted average amortization period for all intangible assets was 8.4 years, including 5 years for existing technology and 9.9 years for customer relationships. Amortization expense related to these intangible assets was $666,000, $250,000 and $250,000 for 2006, 2005 and 2004, respectively. The future estimated amortization expense of these intangible assets held as of December 31, 2006 is as follows:
 
         
    (In thousands)  
 
2007
  $ 831  
2008
    768  
2009
    768  
2010
    768  
2011
    568  
 
Goodwill was $13,341,000 and $1,158,000 at December 31, 2006 and 2005, respectively. The change in the carrying amount of goodwill during 2006 represented goodwill of $12,183,000 resulting from the Temtec acquisition (See Note 3). There was no change in the carrying amount of goodwill during 2005.
 
5.   SHORT-TERM INVESTMENTS
 
The Company’s short-term investments were as follows (in thousands):
 
                                 
          December 31, 2006        
          Unrealized
 		    Unrealized
 		       
    Cost Basis     Gains     Losses     Fair Value  
 
Debt securities
  $ 3,723     $ —     $ —     $ 3,723  
 
                                 
          December 31, 2005        
          Unrealized
 		    Unrealized
 		       
    Cost Basis     Gains     Losses     Fair Value  
 
Debt securities
  $ 4,199     $ —     $ (1 )   $ 4,198  
 
As of December 31, 2006 and 2005, all short-term investments mature in less than one year. Realized gains and losses were insignificant for 2006 and 2005.


54

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
Included in cash and cash equivalents is approximately $7,877,000 and $6,041,000 of short-term investments at December 31, 2006 and 2005, respectively, considered to be cash equivalents, as the maturity dates of such investments were three months or less when purchased.
 
6.   LONG-TERM DEBT AND CREDIT FACILITY
 
In June 2006, the Company amended its existing loan and security agreement with Silicon Valley Bank (“SVB”) in connection with the acquisition of Temtec, to provide for a term loan (the “Term Loan”) in the principal amount of $6.5 million, which the Company used to partially finance the acquisition. Debt issuance costs relating to the Term Loan totaled approximately $49,000. The Term Loan is payable in thirty-six equal monthly installments of principal commencing on October 1, 2006 through September 1, 2009, plus monthly payments of accrued interest. The Term Loan bears interest at a rate of prime plus 0.75% and is guaranteed by Applix Securities Corp., a wholly-owned subsidiary of the Company, and is collateralized by substantially all of the Company’s assets. There are no penalties or fees in the event that the Company prepays the Term Loan prior to its scheduled maturity date. This amendment also extended the maturity date of the Company’s credit facility with SVB from March 18, 2007 to June 18, 2007. The credit facility is a domestic working capital line of credit with an interest rate equal to the prime interest rate and under which the Company may borrow the aggregate principal amount of up to the lesser of: (i) $3,000,000; or (ii) an amount based upon a percentage the Company’s qualifying domestic accounts receivable. The availability of borrowings under the Company’s credit facility as well as the Term Loan is subject to the borrowing limits described above as well as the maintenance of certain financial covenants. As of December 31, 2006 and December 31, 2005, there were no amounts outstanding under the credit facility.
 
The scheduled principal payments for the Term Loan as of December 31, 2006 were as follows (in thousands):
 
         
2007
  $ 2,167  
2008
    2,167  
2009
    1,625  
         
Total
  $ 5,959  
         
 
7.   ACCRUED EXPENSES
 
Accrued expenses at December 31, 2006 and 2005 consisted of the following (in thousands):
 
                 
    2006     2005  
 
Income taxes
  $ 972     $ 756  
Sales and value added taxes
    1,432       977  
Compensation and benefits
    4,308       2,260  
Other
    2,612       1,467  
                 
Total
  $ 9,324     $ 5,460  
                 
 
8.   INCOME TAXES
 
The components of income from continuing operations before income taxes is as follows (in thousands):
 
                         
    2006     2005     2004  
 
Domestic
  $ 4,527     $ 6,750     $ 3,875  
Foreign
    1,633       445       1,158  
                         
Total
  $ 6,160     $ 7,195     $ 5,033  
                         


55

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of the income tax (benefit) provision from continuing operations are as follows (in thousands):
 
                         
    2006     2005     2004  
 
Current:
                       
Federal and state
  $ 190     $ 95     $ (98 )
Foreign
    492       12       819  
                         
Total Current
    682       107       721  
                         
Deferred:
                       
Federal and state
    (3,965 )     —       —  
Foreign
    13       250       (496 )
                         
Total Deferred
    (3,952 )     250       (496 )
                         
Total Income Tax (Benefit) Provision
  $ (3,270 )   $ 357     $ 225  
                         
 
The approximate tax effect of each type of temporary difference and carryforward is as follows (in thousands):
 
                 
    2006     2005  
 
Deferred tax assets:
               
Net operating loss carryforwards
  $ 4,280     $ 6,610  
Accounts receivable
    88       75  
Accrued expenses
    280       279  
Accrued compensation and benefits
    251       222  
Property and equipment
    130       83  
Stock-based compensation
    220       —  
Tax credit carryforwards
    3,231       3,405  
                 
Total deferred tax assets
    8,480       10,674  
                 
Deferred tax liabilities:
               
Basis differences of intangible asset
    (1,621 )     (94 )
                 
Total deferred tax liabilities
    (1,621 )     (94 )
                 
Valuation allowance
    (4,364 )     (10,510 )
                 
Net deferred tax asset
  $ 2,495     $ 70  
                 


56

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following schedule reconciles the difference between the federal income tax rate and the effective income tax rate for continuing operations (in thousands):
 
                         
    2006     2005     2004  
 
U.S. federal statutory rate
  $ 2,061     $ 2,446     $ 1,711  
Foreign tax rate differentials
    (8 )     110       217  
Permanent items
    673       72       34  
State income taxes
    82       —       30  
Other
    (13 )     95       32  
Release in valuation allowance
    (3,965 )     —       —  
Change in valuation allowance
    (2,100 )     (2,366 )     (1,799 )
                         
Income tax (benefit) provision
  $ (3,270 )   $ 357     $ 225  
                         
 
The tax benefit during 2006 was a result of the reversal of a valuation allowance on a portion of the Company’s deferred tax assets, mainly comprised of domestic net operating loss carryforwards. At December 31, 2006, the Company believed that based on an evaluation of available evidence, including the recent historical experience of profitability as well as projected operating performance, it is more likely than not that such deferred tax assets will be realized. The effective tax rates during 2006, 2005 and 2004 were also significantly less than the U.S. federal statutory rate primarily as a result of the utilization of domestic net operating loss carryforwards, which have resulted in the adjustment to the corresponding portion of the previously established valuation allowance. During the year ended December 31, 2005, the Company also benefited from the favorable resolution of a matter with tax authorities in the United Kingdom relating to transfer pricing effected in prior years. The reversal of the related tax contingency reserve resulted in a tax benefit of approximately $320,000, and is included in the foreign tax rate differentials.
 
The Company had federal net operating loss carryforwards of approximately $12,118,000 and $16,222,000 at December 31, 2006 and 2005, respectively. The Company also had tax credit carryforwards of approximately $3,231,000 and $3,405,000 at December 31, 2006 and 2005, respectively. The Company’s tax credit carryforwards as of December 31, 2006 consisted of $2,811,000 of federal and state research tax credits and $420,000 of alternative minimum tax credits and state investment tax credits. These net operating loss carryforwards expire in various amounts through 2023. These tax credit carryforwards expire in various amounts beginning 2007 through 2015.
 
A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. As a result of the Company’s review of its available evidence supporting the deferred tax asset, the Company continues to provide a valuation allowance for the full amount of deferred tax assets relating to federal and state research tax credits due to the uncertainty of realization. Any subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 2006 would be allocated as follows (in thousands):
 
         
Reported in the statement of operations
  $ 2,811  
Reported in capital in excess of par
    1,553  
         
    $ 4,364  
         
 
Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may have limited, or may limit in the future, the amount of net operating loss carryforwards which could be utilized annually to offset future taxable income and income tax liabilities. The amount of any annual limitation is determined based upon the Company’s value prior to an ownership change.


57

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
The Company has provided for potential amounts due in various foreign tax jurisdictions. Judgment is required in determining the Company’s worldwide income tax expense provision. In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of cost reimbursement arrangements among related entities. Although management believes its estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in the Company’s historical income tax provisions and accruals. Such differences could have a material impact on the Company’s income tax provision and operating results in the period in which such determination is made.
 
The Company is currently undergoing an audit of its Massachusetts state income tax returns for 2002, 2003 and 2004 by the Massachusetts Department of Revenue. At this time, the Company cannot reasonably estimate an assessment, if any, that would result from this audit. Accordingly, no provision has been made in the financial statements. However, it is possible that provisions may be required in future periods if it becomes probable that an amount could be assessed and that amount can be reasonably estimated.
 
9.   STOCKHOLDERS’ EQUITY
 
Preferred Stock
 
The Company has 1,000,000 authorized shares of Preferred Stock, $0.01 par value per share. The Board of Directors is authorized to fix designations, relative rights, preferences and limitations on the preferred stock at the time of issuance. As of December 31, 2006, none of the preferred stock was issued and outstanding.
 
Common Stock
 
The Company has 30,000,000 authorized shares of Common Stock, $0.0025 par value per share. As of December 31, 2006 and 2005, 15,657,258 and 14,923,894 shares of common stock were issued and outstanding, respectively.
 
On February 27, 2004, a member of the Company’s Board of Directors along with another investor, who is related to the Board member, purchased a total 657,894 shares of common stock for approximately $3,000,000. The board member and the other investor each purchased 328,947 shares of common stock. The purchase price of the shares was $4.56 per share, which represents the average of the last reported sales price per share of Applix common stock on the NASDAQ Capital Market over the five consecutive trading days ending February 26, 2004.
 
Treasury Stock
 
Effective July 1, 2004, companies incorporated in Massachusetts became subject to the Massachusetts Business Corporation Act, Chapter 156D. Chapter 156D provides that shares that are reacquired by a company become authorized but unissued shares. As a result, Chapter 156D eliminated the concept of “treasury shares.” Accordingly, at September 30, 2004, the Company redesignated its existing treasury shares, at an aggregate cost of approximately $1,309,000, as authorized but unissued shares and has allocated this amount to the common stock par value and additional paid-in capital.
 
Common Stock Purchase Rights
 
On September 15, 2000, the Board of Directors of the Company declared a dividend of one right for each outstanding share of the Company’s common stock at the close of business on October 2, 2000. Under certain circumstances, each right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, $0.01 par value per share (the “Preferred Stock”), at a purchase price of $42.00 in cash, subject to adjustment.


58

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
The rights are not exercisable and cannot be transferred separately from the common stock until the earlier of (i) 10 business days following the later of (a) the first date of a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired (or obtained the right to acquire) beneficial ownership of 15% or more of the outstanding shares of common stock or (b) the first date on which an executive officer of the Company has actual knowledge that an Acquiring Person has become such (the “Stock Acquisition Date”), or (ii) 10 business days (or such later date as may be determined by the Board of Directors of the Company) following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 15% or more of the outstanding shares of common stock (the earlier of (i) and (ii) being the “Distribution Date”).
 
In the event that any person becomes an Acquiring Person, unless the event causing the 15% threshold to be crossed is a Permitted Offer (as defined in the Rights Agreement), each holder of a right, with certain exceptions, shall have the right to receive, upon exercise, in lieu of the Preferred Stock, that number of shares of common stock (or in certain circumstances, cash, property or other securities of the Company) that equals the exercise price of the right divided by 50% of the current market price (as defined in the Rights Agreement) per share of common stock at the date of the occurrence of such event. However, the rights are not exercisable following such event until the time that the rights are no longer redeemable by the Company as described below. Notwithstanding the foregoing, following such event, all rights that are, or (under certain circumstances specified in the Rights Agreement), were, beneficially owned by any Acquiring Person will be null and void. Following such event, subject to certain conditions, the Board of Directors of the Company may exchange the Rights (other than rights owned by such Acquiring Person which have become void), in whole or in part, at an exchange ratio of one share of common stock, or one one-thousandth of a share of Preferred Stock, per right, subject to adjustment.
 
In the event that, at any time after any person becomes an Acquiring Person, (i) the Company is consolidated with, or merged with and into, another entity and the Company is not the surviving entity of such consolidation or merger (other than a consolidation or merger which follows a Permitted Offer) or if the Company is the surviving entity, but shares of its outstanding common stock are not changed or exchanged for stock or securities (of any other person) or cash or any other property, or (ii) more than 50% of the Company’s assets or earning power is sold or transferred, each holder of a right shall thereafter have the right to receive, upon exercise, that number of shares of common stock of the acquiring company that equals the exercise price of the right divided by 50% of the current market price (as defined in the Rights Agreement) of such common stock at the date of the occurrence of the event.
 
The rights have certain anti-takeover effects, in that they would cause substantial dilution to a person or group that attempts to acquire a significant interest in the Company on terms not approved by the Board of Directors of the Company. The rights expire on September 18, 2010 (the “Final Expiration Date”), but may be redeemed by the Company in whole, but not in part, for $0.001 per right (the “Redemption Price”), payable in cash or stock, at any time prior to (i) the tenth business day after the Stock Acquisition Date, or (ii) the Final Expiration Date. Immediately upon the action of the Board of Directors of the Company ordering redemption of the rights, the rights will terminate and the only right of the holders of the rights will be to receive the Redemption Price. The rights may also be redeemable following certain other circumstances specified in the Rights Agreement. Rights shall be issued (i) in respect of each new share of common stock issued after October 2, 2000 but prior to the earlier of the Distribution Date or the Final Expiration Date and (ii) in connection with the issuance or sale of common stock following the Distribution Date but prior to the Final Expiration Date upon the exercise of stock options or under any employee benefit plan or arrangement, or upon the exercise, conversion or exchange of securities, granted or issued by the Company prior to the Distribution Date.
 
On February 27, 2004, the Company amended its Rights Agreement. The amendment provided that the Board member purchasing shares of common stock on that date, as described above, and any person or entity deemed to be affiliated or associated with him shall not be considered an “Acquiring Person”, as defined under the Rights Agreement, unless the board member together with affiliates become the beneficial owner of 20% or more of the shares of common stock of the Company then outstanding.


59

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
Stock Option Plans
 
The Company has a number of stock award plans, which provide for the grant or issuance of options, restricted common stock, and unrestricted common stock. These plans are administered by the compensation committee of the board of directors, and allow for grants to employees, non-employee directors of the Company, or to non-employees. Option grants can be in the form of either incentive stock options or non-qualified options. Exercise prices are set at the date of grant and are required to be at fair value, in the case of incentive stock options, or at the discretion of the compensation committee, in the case of non-qualified stock option. Awards to non-employee directors must be at no less than the fair value of the common stock on the date of grant.
 
Awards to employees require approval by the Board of Directors compensation committee. Awards generally vest in equal installments over four year periods. There are generally no performance conditions attached to employee awards, other than continued employment by the Company. Awards have a contractual life of 7 years.
 
On December 1, 2006, the stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”) previously adopted by the Board of Directors. Under the 2006 Plan, up to 1,000,000 shares of common stock (subject to adjustment in the event of stock splits and other similar events) may be issued pursuant to awards granted under the 2006 Plan. As of December 31, 2006, there were 1,000,000 shares available for grant under the 2006 Plan.
 
On May 27, 2004, the stockholders approved the 2004 Equity Incentive Plan (the “2004 Plan”) previously adopted by the Board of Directors in the first quarter of 2004. Under the 2004 Plan, up to 1,000,000 shares of common stock (subject to adjustment in the event of stock splits and other similar events) may be issued pursuant to awards granted under the 2004 Plan. On June 9, 2005, the stockholders approved an amendment to the Company’s 2004 Equity Incentive Plan to increase the number of shares of common stock authorized for issuance thereunder from 1,000,000 to 2,000,000 shares of common stock. As of December 31, 2006, there were no shares available for grant under the 2004 Plan.
 
In the fourth quarter of 2005, the Company entered into a Severance Agreement with an executive of the Company. Pursuant to this agreement, the Company recorded $155,000 in stock-based compensation related to modifications to stock awards.
 
In 2003, the Board of Directors adopted, and the stockholders approved, the 2003 Director Equity Plan (the “2003 Director Plan”). The 2003 Director Plan provides for the grant of non-statutory options not intended to meet the requirements of the Section 422 of the Internal Revenue Code of 1986, as amended. Only directors of the Company who are not full-time employees (“Non-Employee Directors”) of the Company or any subsidiary of the Company are eligible to be granted awards under the Plan. A total of 300,000 shares of the Company’s common stock may be issued under the 2003 Director Plan. Any shares subject to options granted pursuant to the 2003 Director Plan which terminate or expire unexercised will be available for future grants under the 2003 Director Plan. The 2003 Director Plan is administered by the Board of Directors of the Company. The directors are elected by the stockholders of the Company in accordance with the provisions of the Restated Articles of Organization, as amended, and the By-Laws of the Company. Under the 2003 Director Plan, the stock options must be granted with an exercise price of no less than the fair market value of the stock on the date of grant.
 
Pursuant to the 2003 Director Plan, each Non-Employee Director receives an automatic grant of common stock and an option for the purchase of common stock on January 1 of each year, beginning January 1, 2004. Each Non-Employee Director receives an amount of common shares as determined in accordance with the 2003 Director Plan including whether the Director serves on a Board committee. Except for Election Grants, both the grant of shares and options are contingent upon attendance by the Non-Employee Director at least 75% of the meetings of the Board of Directors and any committees on which he or she served in the preceding year. Each new Non- Employee Director receives an option to purchase 10,000 shares of common stock upon such director’s initial election to the Board of Directors (an “Election Grant”). Each option will become exercisable (or “vest”), with respect to Election Grants, in two equal annual installments on the first and second anniversary of the date of grant, and with respect to all other options, on the first anniversary of the date of grant, provided in each case that the optionee continues to


60

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

serve as a director on such date. The Board of Directors may suspend, discontinue or amend the 2003 Director Plan. During 2006, 2005 and 2004, there were 8,342, 11,976 and 17,094 shares issued under the 2003 Director Plan, respectively. Issuances of these shares resulted in stock-based compensation expense of $75,000, $60,000 and $60,000 during 2006, 2005 and 2004, respectively. As of December 31, 2006, there were 83,030 shares available for grant under the 2003 Director Plan.
 
Information with respect to activity under the various stock option plans is as shown below:
 
                 
    Options Outstanding  
          Weighted Average
 		 
    Number     Exercise Price  
 
Balance at January 1, 2004
    3,691,040     $ 3.44  
Options granted
    1,125,500     $ 4.08  
Options exercised
    (617,915 )   $ 2.64  
Options cancelled
    (712,510 )   $ 7.50  
                 
Balance at December 31, 2004
    3,486,115     $ 2.96  
                 
Options granted
    738,000     $ 5.35  
Options exercised
    (513,378 )   $ 2.59  
Options cancelled
    (242,925 )   $ 3.96  
                 
Balance at December 31, 2005
    3,467,812     $ 3.46  
                 
Options granted
    1,058,000     $ 6.94  
Options exercised
    (320,091 )   $ 2.90  
Options cancelled
    (207,930 )   $ 6.01  
                 
Balance at December 31, 2006
    3,997,791     $ 4.29  
                 
 
Information regarding options outstanding and exercisable as December 31, 2006, under the various stock plans is as follows:
 
                                         
    Options Outstanding              
          Weighted Average
 		          Options Exercisable  
    Number
 		    Remaining
 		    Weighted Average
 		    Number
 		    Weighted Average
 		 
Range of Exercise Prices   Outstanding     Contractual Life     Exercise Prices     Exercisable     Exercise Prices  
 
$  .63-$  .94
    625       1.76     $ 0.63       625     $ 0.63  
$  .95-$1 .42
    275,608       2.03     $ 1.33       275,608     $ 1.33  
$ 1.43-$ 2.14
    1,129,801       3.08     $ 1.79       1,050,693     $ 1.80  
$ 2.15-$ 3.22
    59,438       0.99     $ 2.44       58,938     $ 2.44  
$ 3.23-$ 4.84
    862,492       4.15     $ 4.21       528,746     $ 4.18  
$ 4.85-$ 7.27
    1,136,377       5.41     $ 5.61       324,984     $ 5.44  
$ 7.28-$10.92
    494,750       6.24     $ 8.19       43,437     $ 7.75  
$10.93-$16.40
    32,700       0.02     $ 13.73       32,700     $ 13.73  
$16.41-$18.06
    6,000       0.01     $ 18.06       6,000     $ 18.06  
                                         
      3,997,791       4.23     $ 4.29       2,321,731     $ 3.13  
                                         
 
The weighted average remaining contractual term and the aggregate intrinsic value for options outstanding at December 31, 2006 were 4.2 years and $28.3 million, respectively. The weighted average remaining contractual term and the aggregate intrinsic value for options exercisable at December 31, 2006 were 3.3 years and


61

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$19.2 million, respectively. The intrinsic value of options exercised was approximately $1,633,000, $2,351,000 and $1,131,000 during the years ended December 31, 2006, 2005 and 2004, respectively.
 
At December 31, 2006, 5,080,821 shares of common stock were reserved for future issuance under the stock plans, which include stock options outstanding and stock options available for future grant.
 
At December 31, 2005 and 2004, there were 1,901,315 and 1,341,237 exercisable options, respectively, with weighted average exercise prices of $2.88 and $3.14, respectively.
 
The weighted average grant date fair values for options granted were $3.50, $3.51 and $2.55, in 2006, 2005 and 2004, respectively.
 
Shares issued upon the exercise of stock options under the Company’s stock option and employee stock purchase plans are normally from authorized but unissued shares of the Company’s Common Stock.
 
Employee Stock Purchase Plan
 
On February 26, 2001, the Board of Directors adopted, and on May 4, 2001, the stockholders approved the Company’s Employee Stock Purchase Plan (“2001 Plan”), which authorized the issuance of up to 800,000 shares of common stock, allowing eligible employees to purchase common stock, in a series of offerings, through payroll deductions of up to 10% of their total compensation. The purchase price in each offering is 85% of the fair market value of the stock on either (i) the offering commencement date or (ii) the offering termination date (six months after commencement date), whichever is lower. On May 27, 2004, the stockholders approved an amendment to the 2001 Employee Stock Purchase Plan, previously adopted by the Board of Directors in the first quarter of 2004, increasing the total number of shares reserved for issuance by an additional 500,000 shares of common stock to an aggregate of 1,300,000 shares of common stock. During 2006, 2005 and 2004, there were 74,679, 107,956 and 134,358 shares issued under the 2001 Plan, respectively. At December 31, 2006, 309,092 shares were available for issuance under the 2001 Plan.
 
Notes Receivable from Stock Purchase Agreements
 
In September 2000, the Company sold 256,002 shares of common stock to certain company executives. None of such individuals are currently executive officers of the Company. 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, 2005. Interest on the promissory notes was calculated on the unpaid principal balance at a rate of 6% per year, compounded annually until paid in full. In the event that the executive sold any shares prior to July 31, 2005, 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 $1,120,000 at December 31, 2002. Certain of these loans had been past due for some time, and subsequent to December 31, 2002, in connection with a severance arrangement the Company forgave one of the loans. As a result of the foregoing, consistent with EITF 00-23, “Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation 44”, for accounting purposes only, 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 of options. During the year ended December 31, 2002, the Company recorded a charge of $964,000 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 of the outstanding executive loans. As of December 31, 2005 and 2004, 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 in 2005 was accounted for as an option exercise in accordance with the provisions of EITF 95-16,


62

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

“Accounting for Stock Compensation Arrangements with Employer Loan Features under APB Opinion No. 25” and has been recorded in additional paid-in capital. As of December 31, 2005, there were no amounts outstanding for any of the executive loans.
 
10.   EMPLOYEE BENEFIT PLAN
 
The Company has a defined contribution 401(k) plan (the “Plan”), in which all full time employees are eligible to participate once they have attained 21 years of age. The Company may make discretionary contributions to the Plan as determined by the Board of Directors. Employee contributions vest immediately while employer contributions vest fully after two years of employment. The Company’s matching contribution to the Plan was $183,000, $145,000 and $117,000 for the years ended December 31, 2006, 2005 and 2004, respectively.
 
11.   MAJOR CUSTOMER AND GEOGRAPHIC SEGMENT INFORMATION
 
The Company and its subsidiaries are principally engaged in the design, development, marketing and support of the Company’s business performance management and business intelligence software products (See Note 1). The Company generates substantially all of its revenues from the licensing of the Company’s software products and related professional services and maintenance services. Financial information provided to the Company’s chief operating decision maker is accompanied by disaggregated information about revenues and expenses by geographic region for purposes of making operating decisions and assessing each geographic region’s financial performance. The Company had only one operating segment at December 31, 2006, 2005 and 2004.
 
A summary of the Company’s operations by geographic locations for the years ended December 31, 2006, 2005 and 2004 is as follows (in thousands):
 
                         
    2006     2005     2004  
 
Revenue from continuing operations United States
  $ 19,890     $ 13,190     $ 10,764  
Europe
    25,169       16,858       15,334  
Pacific Rim
    7,114       6,930       4,817  
                         
Total revenue from continuing operations
  $ 52,173     $ 36,978     $ 30,915  
                         
 
A summary of the Company’s long lived assets by geographic locations as of December 31, 2006 and 2005 is as follows (in thousands):
 
                                 
    At December 31, 2006  
    Total     United States     Europe     Pacific Rim  
 
Property and equipment, net
  $ 1,313     $ 1,021     $ 232     $ 60  
Other assets
    684       33       651       —  
 
                                 
    At December 31, 2005  
    Total     United States     Europe     Pacific Rim  
 
Property and equipment, net
  $ 953     $ 835     $ 95     $ 23  
Other assets
    712       79       633       —  
 
12.   SALE OF SUBSIDIARY
 
In the second quarter of 2004, the Company recorded a gain in other income of approximately $195,000 relating to the sale of its French subsidiary which occurred in the second quarter of 2001. The Company received $195,000 from the buyer, which was released from escrow upon completion of a tax audit.


63

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
13.   NET GAIN FROM SALE OF CRM ASSETS
 
During 2004, the Company reversed an accrual related to the sale of its customer relationship management software solutions (“CRM Assets”) as all remaining transaction costs and post-closing adjustments had been recorded. This reversal resulted in an increase of approximately $261,000 to the net gain from the sale of the CRM Assets. The Company does not anticipate any further adjustments relating to the sale of the CRM Assets.
 
14.   RESTRUCTURING EXPENSES
 
In the second quarter of 2004, the Company adopted a plan of restructuring to reduce operating costs. Under this plan, the Company made the determination that it had no future use for or benefit from, certain space pertaining to its UK office lease. In June 2004, the Company entered into a sublease agreement with a subtenant for a portion of the Company’s UK office lease. In July 2004, upon exiting the space, the Company recorded a restructuring charge of approximately $604,000. The restructuring charge was primarily comprised of the difference between the Company’s contractual lease rate for the subleased space and the anticipated sublease rate to be realized over the remaining term of the original lease, discounted by a credit adjusted risk rate of 8%. The restructuring charge also consisted of other related professional services, including legal fees, broker fees and certain build-out costs, incurred in connection with the exiting of the facility. The Company expects to make payments relating to this restructuring until the lease expires in March 2010.
 
Activity related to the restructuring of the UK office lease was as were as follows:
 
         
    Facility
 		 
    Exit Costs  
 
Balance at January 1, 2004
  $ —  
Restructuring
    604,000  
Adjustment
    —  
Payments and write-offs
    (231,000 )
Foreign currency translation adjustments
    —  
         
Balance at December 31, 2004
    373,000  
Payments and write-offs
    (133,000 )
Foreign currency translation adjustments
    (10,000 )
         
Balance at December 31, 2005
    230,000  
Payments and write-offs
    (47,000 )
Foreign currency translation adjustments
    29,000  
         
Balance at December 31, 2006
  $ 212,000  
         
 
In the fourth quarter of 2003, the Company adopted a plan of restructuring to reduce operating costs. Under this plan, the Company had ceased to use and made the determination that it had no future use for or benefit from certain space pertaining to its Westborough headquarters’ office lease. In the second quarter of 2004, the Company recorded a credit to the restructuring charge of $27,000 as a change in estimate due to lower than anticipated professional service fees. The restructuring charge was fully paid as of December 31, 2004.
 
15.   DISCONTINUED OPERATIONS
 
On March 31, 2001, 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 years ended December 31, 2006, 2005 and 2004 included costs of $99,000, $100,000 and $106,000, respectively. These costs primarily relate to legal and accounting costs associated with the dissolution of the VistaSource business in Europe.


64

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
16.   RELATED PARTY TRANSACTIONS
 
In September 2006, the Company licensed its product to a customer whose chief financial officer at the time serves on the Company’s Board of Directors. The amount paid by this customer was approximately $50,000, which also included one year of maintenance.
 
In connection with the Temtec acquisition, the Company assumed a lease obligation for certain of its office space located in the Netherlands, which is owned by two current employees. The rent expense relating to this office space is approximately $33,000 annually through the remaining term of the lease, May 1, 2010.
 
On February 27, 2004, a member of the Company’s Board of Directors along with another investor, who is related to the Board member, purchased a total 657,894 shares of common stock for approximately $3,000,000. The Board member and the other investor each purchased 328,947 shares of common stock. The purchase price of the shares was $4.56 per share, which represents the average of the last reported sales price per share of Applix common stock on the NASDAQ Capital Market over the five consecutive trading days ending February 26, 2004.
 
17.   COMMITMENTS AND CONTINGENCIES
 
Contingencies
 
From time to time, the Company is subject to routine litigation and legal proceedings in the ordinary course of business. The Company is not aware of any pending litigation to which the Company is or may become a party, that the Company believes could result in a material adverse impact on its consolidated results of operations or financial condition.
 
On January 4, 2006, the Company reached a settlement with the Securities and Exchange Commission concerning the SEC’s investigation, which commenced in 2003, relating to the restatement of the Company’s financial statements for fiscal years 2001 and 2002. The settlement does not require the Company to pay a monetary penalty. As part of the settlement, the Company has consented to a cease and desist order requiring future compliance with Federal securities laws and regulations, and retained a consultant to assist the Company in reviewing its compliance procedures.
 
In connection with this investigation, the Company is subject to indemnification obligations to certain former executives in accordance with the Company’s Articles of Organization. Since the Company is unable to estimate the future indemnification obligations, expenses related to these obligations are recorded as they become known. Under these indemnification agreements, the Company incurred legal expenses of $250,000, $16,000 and $386,000 during the years ended December 31, 2006, 2005 and 2004, respectively. The Company had obligations of approximately $0 and $1,000 recorded in accrued liabilities as of December 31, 2006 and 2005, respectively. If it is ultimately determined that such executives do not satisfy the criteria for indemnification set forth in the Company’s Articles of Organization, such executives would be obligated to repay the Company any amounts advanced by the Company to cover legal fees or other expenses of defending such investigation.
 
The Company is currently undergoing an unclaimed abandoned property (“UAP”) audit by the Commonwealth of Massachusetts. During 2004, the Company recorded a provision of approximately $300,000 based on its estimated exposure relating to the UAP audit.
 
However, it is possible that additional provisions may be required in future periods if it becomes probable that the actual results from the ultimate disposition of the UAP audit differ from this estimate.
 
Indemnifications
 
The Company has frequently agreed to indemnification provisions in software license agreements with customers and in its real estate leases in the ordinary course of its business.


65

Table of Contents

 
APPLIX, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
With respect to software license agreements, these indemnifications generally include provisions indemnifying the customer against losses, expenses, and liabilities from damages that may be awarded against the customer in the event the Company’s software is found to infringe upon a patent or copyright of a third party. The software license agreements generally limit the scope of and remedies for such indemnification obligations in a variety of industry-standard respects, including but not limited to certain geography-based scope limitations, the right to replace or modify an infringing product, and the right to terminate the license and refund a portion of the original license fee within a defined period of time from the original licensing date if a remedy is not commercially practical. The Company believes its internal development processes and other policies and practices limit its exposure related to the indemnification provisions of the software license agreements. In addition, the Company requires its employees to sign an agreement, pursuant to which the Company assigned the rights to its employees’ development work. To date, the Company has not had to reimburse any of its customers for any losses related to these indemnification provisions.
 
With respect to real estate lease agreements, these indemnifications typically apply to claims asserted against the landlord relating to personal injury and property damage which may occur at the leased premises, or to certain breaches of the Company’s contractual obligations. The term of these indemnification provisions generally survive the termination of the agreement, although the provision has the most relevance during the contract term and for a short period of time thereafter. The maximum potential amount of future payments that the Company could be required to make under these indemnification provisions is unlimited. The Company has purchased insurance that reduces its monetary exposure for landlord indemnifications. The Company has never paid any amounts to defend lawsuits or settle claims related to these indemnification provisions. Accordingly, the Company believes the estimated fair value of these indemnification arrangements is minimal.
 
Commitments
 
As of December 31, 2006, the Company had future cash commitments for the payments pertaining to its world-wide obligations under its non-cancelable operating leases. The Company’s future minimum lease payments for its operating lease payments for its office facilities and certain equipment are:
 
         
    (In thousands)  
 
2007
  $ 1,341  
2008
    1,246  
2009
    1,191  
2010
    763  
2011
    54  
         
Total minimum lease payments
  $ 4,595  
         
 
The Company incurred $1,348,000, $1,237,000 and $1,338,000 in rent expense for the years ended December 31, 2006, 2005 and 2004, respectively. Rent collected from the UK sublease and not included in restructuring charge was $240,000, $165,000, and $29,000 in 2006, 2005 and 2004, respectively. The total future sublease rental income to be received under the existing UK sublease agreement as of December 31, 2006 was approximately $291,000.


66

Table of Contents

 
EXHIBIT INDEX
 
             
  2 .1(1)   —   Share Purchase Agreement of the Shares in the Capital of Temtec International B.V. by and among Applix, Inc., the Sellers (as defined therein) and Temtec International B.V., dated June 15, 2006.
  3 .1(2)   —   Restated Articles of Organization.
  3 .2(3)   —   Amended and Restated By-laws.
  4 .1(4)   —   Form of Rights Agreement, dated as of September 18, 2000, between the Registrant and American Stock Transfer & Trust Company, which includes as Exhibit A the terms of the Series A Junior Participating Preferred Stock, as Exhibit B the Form of Rights Certificate, and as Exhibit C the Summary of Rights to Purchase Preferred Stock.
  4 .2(5)   —   First Amendment to Form of Rights Agreement, dated February 27, 2004, between the Registrant and American Stock Transfer & Trust Company.
  10 .1(6)†   —   Applix, Inc. 1994 Equity Incentive Plan, as amended.
  10 .2(7)†   —   Applix, Inc. 2000 Director Stock Option Plan, as amended.
  10 .3(8)†   —   Applix, Inc. 2001 Employee Stock Purchase Plan.
  10 .4(9)†   —   Applix, Inc. 2003 Director Equity Plan, as amended.
  10 .5(10)†   —   Form of Stock Option Agreement for 2003 Director Equity Plan.
  10 .6(11)†   —   Applix, Inc. 2004 Equity Incentive Plan, as amended.
  10 .7(12)†   —   Applix, Inc. 2006 Stock Incentive Plan.
  10 .8(12)†   —   Form of Incentive Stock Option Agreement for the 2006 Stock Incentive Plan.
  10 .9(13)†   —   2006 Executive Officer Bonus Plan.
  10 .10(14)†   —   2007 Executive Officer Bonus Plan.
  10 .11(15)†   —   Form of Retention Agreement.
  10 .12(9)†   —   Summary of Compensation Policy for Directors of Applix, Inc.
  10 .13(16)   —   Letter Agreement between Applix, Inc. and Craig Cervo, dated October 26, 2005.
  10 .14(17)   —   Loan and Security Agreement, dated March 19, 2004 between the Registrant and Silicon Valley Bank.
  10 .15(18)   —   First Loan Modification Agreement by and between Applix, Inc. and Silicon Valley Bank, dated April 14, 2005.
  10 .16(1)   —   Second Loan Modification Agreement by and between Applix, Inc. and Silicon Valley Bank, dated June 15, 2006.
  10 .17(19)   —   Single Tenant Commercial Lease by and between Westborough Land Realty Trust and the Registrant, dated January 23, 2001.
  10 .18(17)   —   Letter of Intent Single Tenant Commercial Lease by and between Westborough Land Realty Trust and the Registrant, dated December 12, 2003.
  10 .19(17)   —   First Amendment of Single Tenant Commercial Lease by and between Westborough Land Realty Trust and the Registrant dated December 31, 2003.
  10 .20(17)   —   Second Amendment of Single Tenant Commercial Lease by and between Westborough Land Realty Trust and the Registrant dated January 22, 2004.
  21 .1   —   Subsidiaries of the Registrant.
  23 .1   —   Consent of Independent Registered Public Accounting Firm.
  31 .1   —   Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).
  31 .2   —   Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
  32 .1   —   Certification Pursuant to 18 U.S.C. Section 1350 (Chief Executive Officer).
  32 .2   —   Certification Pursuant to 18 U.S.C. Section 1350 (Chief Financial Officer).
 
 
1. Incorporated by reference from the Registrant’s Current Report on Form 8-K, as filed with the Commission on June 21, 2006.


67

Table of Contents

 
2. Incorporated by reference from the Registrant’s Registration Statement on Form S-1 (File No. 33-85688).
 
3. Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, as filed with the Commission on March 31, 2005.
 
4. Incorporated by reference to the Registrant’s Registration Statement on Form 8-A dated September 20, 2000.
 
5. Incorporated by reference to the Registrant’s Current Report on Form 8-K/A, as filed with the Commission on March 4, 2004.
 
6. Incorporated by reference to the Registrant’s Proxy Statement on Schedule 14A, as filed with the Commission on April 3, 2001.
 
7. Incorporated by reference to the Registrant’s Report on Form 10-Q for the fiscal quarter ended June 30, 2002, as filed with the Commission on August 14, 2002.
 
8. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001, as filed with the Commission on August 13, 2001.
 
9. Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, as filed with the Commission on March 31, 2006.
 
10. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004, as filed with the Commission on November 15, 2004.
 
11. Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on June 15, 2005.
 
12. Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on December 1, 2006.
 
13. Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on March 1, 2006.
 
14. Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on February 13, 2007.
 
15. Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on January 31, 2007.
 
16. Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Commission on October 31, 2005.
 
17. Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, as filed with the Commission on March 30, 2004.
 
18. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2005, as filed with the Commission on May 16, 2005.


68

EX-21.1 2 b63668aiexv21w1.htm EX-21.1 SUBSIDIARIES OF THE REGISTRANT exv21w1
 

Exhibit 21.1
Subsidiaries of the Registrant
     
 
   Jurisdiction of
Name of Entity
   Incorporation
 
    
 
 
    
Applix AG
   Switzerland
Applix Asia Pacific Pty. Ltd.
   Australia
Applix Canada, Inc.
   Delaware
Applix GmbH
   Germany
Applix France SARL
   France
Applix Securities Corp.
   Massachusetts
Applix Singapore, Inc.
   Delaware
Applix (UK) Limited
   United Kingdom
Dynamic Decisions Pty. Ltd.
   Australia
Temtec Europe B.V.
   Netherlands
Temtec International B.V.
   Netherlands
Temtec Technical Services B.V.
   Netherlands
Temtec UK Ltd.
   United Kingdom
Veriteam, Inc.
   Delaware
Veriteam France
   France
Veriteam GmbH
   Germany
Veriteam Limited
   United Kingdom

EX-23.1 3 b63668aiexv23w1.htm EX-23.1 CONSENT OF DELOITTE & TOUCHE LLP exv23w1
 

EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-89382, 333-02340, 333-06303, 333-16963, 333-20853, 333-52603, 333-80861, 333-39462, 333-57670, 333-63550, 333-97101, 333-107027, 333-117762, and 333-126092 on Form S-8 of our reports dated March 16, 2007, relating to the consolidated financial statements of Applix, Inc., (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standards No. 123R, Share-Based Payment) and management’s report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Applix, Inc. for the year ended December 31, 2006.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 16, 2007

EX-31.1 4 b63668aiexv31w1.htm EX-31.1 SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER exv31w1
 

EXHIBIT 31.1
CERTIFICATION
I, David C. Mahoney, certify that:
  1.   I have reviewed this Annual Report on Form 10-K of Applix, Inc.;
 
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
     
Date: March 16, 2007  /s/ David C. Mahoney    
  David C. Mahoney   
  President and Chief Executive Officer   

 

EX-31.2 5 b63668aiexv31w2.htm EX-31.2 SECTION 302 CERTIFICATION OF THE CHIEF FINANCIAL OFFICE exv31w2
 

         
EXHIBIT 31.2
CERTIFICATION
I, Milton A. Alpern, certify that:
  1.   I have reviewed this Annual Report on Form 10-K of Applix, Inc.;
 
  2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
     
Date: March 16, 2007  /s/ Milton A. Alpern    
  Milton A. Alpern   
  Chief Financial Officer and Treasurer   

 

EX-32.1 6 b63668aiexv32w1.htm EX-32.1 SECTION 906 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER exv32w1
 

         
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Applix, Inc. (the “Company”) for the fiscal year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, David C. Mahoney, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
  1.   the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
  2.   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
         
     
Date: March 16, 2007  /s/ David C. Mahoney    
  David C. Mahoney   
  President and Chief Executive Officer   

 

EX-32.2 7 b63668aiexv32w2.htm EX-32.2 SECTION 906 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER exv32w2
 

         
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Applix, Inc. (the “Company”) for the fiscal year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Milton A. Alpern, Chief Financial Officer and Treasurer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
  1.   the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
  2.   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
         
     
Date March 16, 2007  /s/ Milton A. Alpern    
  Milton A. Alpern   
  Chief Financial Officer and Treasurer   
 

 

GRAPHIC 8 b63668aib6366801.gif GRAPHIC begin 644 b63668aib6366801.gif M1TE&.#EA$`)J`=4@`````("`@$!`0,#`P#\_/Q`0$+^_OW]_?_#P\.#@X*"@ MH"`@(-#0T#`P,&!@8+"PL._O[P\/#W!P<%!04%]?7Y"0D,_/S]_?WY^?GQ\? M'R\O+V]O;T]/3Z^OKX^/C________P`````````````````````````````` M```````````````````````````````````````````````````````````` M`````````````````````````````````"'Y!`$``"``+``````0`FH!``;_ M0)!P2"P:C\BD$PNF\_HM'K-;E\9[KA\ M3J_;[_@\%1$H.!`@"`X"#T*"`@%"#!.$>HZ/D)&2DY1>#@4+#0X@`@42``,@ M$IX`A0T-$P4)E:RMKJ^PL60"$@()@`")`IL+$B":":4(``JRQL?(R)<`PL+U0P%F-77`MG;UT,/`0$.'_?X^?K[ M_/W^_P`#"AQ(L*#!@P@3*ES(L*'#AQ`C2IR8D(F#!^]`)("S"T2O7PZ"/1A6 MS$@`BBA3JES)LJ7+ES!CRIR9S^*Z:I<^AKV[IX\^K=R_?AW;Z``PL>7/0(R]L++FRY MS+GS7LV>0XL>#18TZ=.H4],TK;JUZ]<06<.>3;OV/]FV<^N&C7NW[]^B>P,? M3CQSFK?%DRN/+'RY\^=Q+3B;/KV"&>30LVN':X!`31#TD@A:)23!`$#ESP]A M$`H)]NWPXWOM_CW\D6G."C4#`%0;?T`!.%,-5O(5:*!6]-US@1#V&2$`(Q58 M)T`#P^@B``(%))*+-NT5\?_>@2"&"!-]%VBP"7C=&.%``PL,H8`G!<#1SCNA MQ..AB#CFZ%)W!D1`P0<,IE@$`@+P5\R++,IH(8?<$,'>`/;H*.64$?4(``;W M!(G$+8@4`((GOTS0I#M,VJC1`%!2J>::"$%``0`<''``/0$@@L0"C+SXY00( MX(D-AAH&P*1);!9JJ#\E$B"GG'0&`,=]!3ASI#,Q@K!?`8!\`L"`A![JZ:$6 M1+#!/DT@T`!Y9Z*7ZGH==OKIJU1B<"4_3CR:Q8>PYEH@!1%8T$]SN@:;'`0$ M:`"!/\`*JZQO%F1`P;'('K?LM,]U$,$!`25+[;:M>1`!EME*R^VXN_'JJT#: MDJO_[F80:&`L0>FN*V]D%FCP;$'QSJMO8CUB:U"^^P8<&`;?(@2PP`CG96Y% MXB;LL&+$OLLP&K@^;+%>]=ZKT,$7=SR?J`UQ[/'(2\D*+D,BDZQR41OTZE?# M*\=L%@0<:'"N0TZ4=*O,/'_5+@'0OJP$`T4N(.-TU22PP*9"X"=L!2DRD`X#=B@!`WHQE/LT@WXS#M##@3:'2(@@K#H$X/$+.4V?C MG*O4KL20*]%`G$0FG@D`4DB$=CYZQ!E''3H202(_XDO=W<88`,`<(3) M`JJB#?OP#/7;4A/EE)1``*B"H("@AE3`O'O$5X\0P2>WU83.6$1M_??X/'X\ MS."7GT_$L[.4LOD\RQ[3^NRO;+Q,\,<_,O:KD6__\.+3K__^G$,?4>H'0(2Y M;X#_*Z#:0C4JQB10@5(S&5((",%U'2`"!D@*!2LX+@IDX&9'V2`'I_6Y]#F0 M8B/L6=5,>,(S>"^%"9.@5D0(0UCU;RDTK.&A2MB5'.J0357["O(6H+,!0$\( MSVL/`J37/.']T&$RM,L2;'>Z9O`N%!4``._@D`IS!&\(+WSBMMSDLM(L@1;9 M"$4#N`:'U/6"=3W1FQCG52+0"?]QBNIXU.#L-"8:-4F.0``;8.+ M$SC5O6(NRTVEC(L/G;F<>@%M+M.D9G$(YB]L/E";5")C!@OS37#JR)JW9$LV MS9D;;GZFG.P\$,TPR)=UQO,UM4RG7.QY3]4<`)F!X6<_27.!8H&PGO`P].>\N6GWK)E@AR3 MLRV$T:BH6:F[QKG4G2Z!:``PFJ6FDPBE,%N%R-Q/I4Q%X&IQGXFV=*)3D0,&`5#6#'DC!'A.=M MSK.HZ4X&*LD9)HR.$(8K0#%0`1+5P5$JAX6M:"[`@6O%E#E3Y,]'.G%%\&BQ MKIWPHEV%>YD+O.D`QS7.$I(7O>DA\8A+]"X@J2L9"%R0`A=0_TU3R4+>RY@W M`@1(;VN*VMZCO)>QO$EH??ER7Y.ZAK[[E4E_;0/@`+O$N@"@@']G4V`#J\0` M;T*O;QKLX(E@@`#&!0Z%*^P0"'@@IQC([GSURV&O6!>^"_[-ADM\$`,45\++ M63&+!0(!Q68`N]"1\8P1U3("T#;&)-[Q4#K`@00?-,=!%C),S)M3#XA8PTE6 M,DN(#*<4;T?');[``9HL7Q!AV<$8*+*"=50KITJ9)A=HF0:.]],+T7). M-^!G-@WQ''UB0("$H-D_-HT>D81U0SRL`1^)-E<6P0B''JLZD(B$))X6-HW# M#*=("PO0[D``FARP#9X4(A.I4#1XI'T01T=@S4]6DYN?XJ(Y4T41=J8>N05B M@0WD]`"EGI98S#QO1'W81[5>UI=':(&6&CS?>T[PL=NH`T`(`.TMIC(%?A38L-7`QY;>0&O5&2+ M0X"O(8\R;!T-`'3C`^<(D[GYS'UCDJMUXBK7>4^)GO(/`&!1BQ)JS)4>T1J+ MNNGXZ`#4%[7_\(<)G7,6\(!C"0#RQGU];X[.@+'33;*S]^P"'BBR!@X0<,:Y M77[VCH#%\TV\NW?L`F$^]P:L7#V_.\P`&W`L!\J^/\/O*^S%17G7`5BJD`Q! MVZHRCZK84SMP6EWM%,``WQ7(!/ST9`"1Z@^E`"0@><^R`XE_N`?J3OHS0L@Z M`0#>C`#%C4'A^8EA)T#/!R])B["H"`I@+9E8^^H*`C[RH6<[Y9?`2]VBK@%* M:B3S%;%M&$(`]FI?_.B+OP0N]4$CJ!53K\WTI"A!T`('&/L!"#]+)N!)`'K" MM9^R?;H-;:/YWV-U$>`L'2!].E1ZD=)IR<I/G M63'H'#-H;`9V@[!Q`!`74I&5@Q10@^W%@Z]!=@9G`![@'4)(A/MEA*Z!7QR7 M`<4VA$H&A:TAA13W)K.59UBH&HS%9#=V88SVA:D14E5V=&5(=<%28QD``!M0 M:D#'8F88&O=U8?XUAR56AYQQ8APP3B;W6'"RAC,E+P@&8_WV'85(+A!V+>/7 M;WP8&=V188GX*VQ()9.(8Y48+2/(7MM"7)2XB9PH'F^&'G4"9W0&;U0@`I"(Q9@V$T;>1`=R19N M`H<%.9$CF1:^^(@AF8^7.!P1R8TMB2XOZ1N-%5HSB3,UF1L6@&'HF),BN9.T M04;W")0H(Y0]Z",L:90%L2!(V1HXI0$RR90#<0"8\I2H45`%0Y4=%@$+(%9B MT%EE=5TGR97WX(/_!G"5+@0=YI5@2VF6_7!S+"5?$*!W'?"5BT@<]_66:P]&:7O&,@&%6G4F9>^%!+;,!6@=UI392$4`= M'.>9D64`7&=P?[D/+)69!V!R<3(G]'`Z9;":HY%F*'86L=D7OVEP-\,K&,8! MT[DHI;9U49.?(<6?!(J;GNDOB>F9*Y4/(T4!4'<^_Z19 M)08`0MQ)=_G@#$B7F[MY>N!@>K!@1X";(N25K!QB,Z)%!Z4 M`10AEQ:JGW)B4AM`H"#D6(:9G88Y5&\B?)[9H8(8`0;JGP!*H`-*H$?:FQQG MH_/W`;+29RPE?"]:$($)FE*'#X79H1OJ#"8E)]EC`!T`G/Q`4<.)(6?S2`DH M%>G0#?YQE0'R54.0>M-QG;/1B+]H%F8EF;15:A9PGP<@5!*)#Y[YI88)DCGJ MGR"D*#8JH4G(4KXRI1?`4D4VE7CA6%W6`7`(5',)FG)RI`/J##X*DAB&=*&) M;QQ7H1-A+:?)6TCP(`(0(6`5#_P7*,4)``X0(/_?\H:O<6&A^!47T&4>Q`%J M1P!O.!VF^ECP5:AGN762NA56B@]F935R":@L!:G8:E):%J5<&JK4*B?Y.9Z@ M&5*-^I_EZJP?`(0)=@]"6J`?T)F'B0]"*JJ@"I)R^9T/03`2IZN-.00K,CF4 MTPS=,(Y#`#S4@)9&-QIB^)-'P9T@A6'3P0'W(!TG]X894)YR`D(%EQ37>J_V M2J_3P5B-I:%#):_+RIG.D+*EZJ"D^G-@FJ'MRJ7FZJ#H2K/J"H37*8@4^P$? M.Q@L)6Y$4'TZ$P\&*P0.(`$+X`".]28>T%+ZFA<0EH9%P5*U2:A&"K/-"J$' M4($0D+'X<$%72A`_>P__&$"N^-"?HZJR\^JN+UNQ(468V M#F&F0,6L0$@0QU1JSO(/E=H!799F-WL/Q]2@:K6R+DMR:@NR^%"V".&#YQ.X MA_&U')!>C64U@JL$]ZO M72:[1O$SOM(!]K(89'1R(,E4IY:`1=L-#B@*$&@YIW(2!+.P^F"^M:F9UZD! M_\9*'1`L)S2J%%IHJ-0J=CHX$3>G=1NPMLTJ)P7X#]/)GV^8L@10GB)5,V$K MN?FPO'G!9#W7OTE'?:="!`-@HIO7*KQ&*3L+`-Q[4V=;,X)8F-ZQ6!P@5$.( MN0U!`#SG#+F[4O&WP1'1`8[[6"!I`4%3<"!9LBR;MG%B4@S,NV=)QE?8!&LZ M!6@")08'$94ZGLCJ#/#%H/?@6#=6I@1B:"7$*/=%25-$: M;6HOXW#:J)W:JGW:&(()JH`AEC4W MJSW;M%W;MMT*"$!IY1$`U'C;OOW;P!W<:H#3PEWXCW>Y%W>YGW>L1#6A68D2*L` M7L4IN8,,C&`(NI1I">`T2.33\CUG]>T1]QU60E`!ZJ",K]`GWEJ['DX#".M!5.XRU"-F83#'+C);*0`+S3 M#3+NXU"-XACBXJY@Y/$@#7-5`0ZPY%ZB#;M*X*W0XNTAY=9!Y5DTXV*R2O,( M!>4P`:RF:Z+@)0SP5X/U)=SFV:U0)ZG5-+LE)A4@`?']#'QPWV,-"W0^(`]P MYR"0YWMN';?@``(+"[00#X,>)H4N`6&M#7!0"T[>"HT.UN.P%2 M`5K>"G[P?Q6PZ=;1Z?-]?AERHE'`>DX")GG>1X$@UZX`"/^R'07I;BJR#0"`X$9C`>^ND.OID#<#\%>_13G`DPPF7P`HK_+$(!*C+>T! M7Q4P_^Y_-=JE_5C3S@KQD'R/$@"^P/,@GSJC(/'_)_0,X@M*2SE_M4:_D)HY MS6ISZ@P#,""[,]8DG^_"BS3V$5W_P.,?6'\,N5XD`A+VOX,`@V99OVX,M@KV MB0#;Z_[NE^X*U]#DSE`GH4#W8A(@1:+7D\`D>I\+V2#6O&,=5A1'4F!$WT4G M:.(B1Z01XB4+"E`2C7+YY!%>JV!$=(+OE7#Y04(/FM]=Y+$\"!\+1Y3Y[KW; MO;T\H%\)T+,\D)\BJ(\>280,L$_YM3\$1E1$DX_>PC_\Q%_\QG_\R)_\RK_\ MS-_\SO_\T!_]TC_]U%_]UG_]V)_]VK_]W-_]WO_]X!_^XC_^Y%_^YG_^Z)_^ MZK_^[-_^[O_^\!__\C__]%__]G__^)__^K___`\$(.&06#0>D4GEDMET/J%1 MZ91:M5ZQ_UGMEMOU?L%A\9A<-I_1:?6:W7:_X7'YG%ZWW_%Y_9[?]_\!`P4' M"0L-#Q$3%1<9&QT?(2,E)RDK+2\Q,S4W.3L]/T%#14=)2TU/45-55UE;75]A M8V5GXR8$;G$%'JH*`!RB!@`"0``$G`0`:)674P$&GJ$=AJ<>`!8`$*""AP,4 MCI.9P\4_P8D"IJ4<`!36A23>K1E`%`04"@J\MT$$)$!L$2KH.H)L7KU>_4!( MZ#4AVSB'#Q&5&W*.2H$)("P*0>;@08$%(`(`:#"@`8`$^HJ!J*:P`1*"(4>6 M9,`N0`5?$''FA',-0$^?/X$&%3JTYR\A[+RI2[`/6T)G(7=5"_^`TAA3`/(& M)@LY`*2S">"XZA0[]HY$(12E?/U9@>G9I\Y`;*-ZU%J2EW"W$B2[EV\!0&`L&`I4/N M!+@<-P"#Q=WQ*Y<_?X[>B7"A M)!A)GW]_01*J&H*>YYHXR;\#$4Q0P049;-#!!R&,4,()*:S0P@LQS%###3GL MT,,/00Q1Q!%)+-'$$U%,4<4566S1Q1?_88Q1QAEIK-%&/"J[HB8!O1$BNAZ% M2`!``5I3K["PAF`.R:-L<6#)(09P0``GT5!O*00(O%'+KJ:;HJ>P;AF"I^FN M$>`:VH`R"@3/ZAI"G04$Z`5(NFSK91K2),[HNHNR:Z3QK(!L&/`J2.:Q.`H@[QKRI#`'TIF.@ILO< MBR]42>4!:+T^9PQ`@,BZC**8R0B5P"39@NQI`O#<"LLSHQI8P#.$E!*P';J` M9&!3CTKR!J;;%KAF*I$:N&;.Z;*P!AHH+-\A&$,YOB*$&4Y*8ZI)31V$ M*%-`+<8$3LE7:9#9Q;ZX)LL.9B&.VVJKM@;VK1C?""J)L$;U0>:67DIV,3(D M`P@4BLEJ,T:=GSX:8(*P?%4/OY5&3K,K;RJ(4F!#*XVLIIIO:8&H)^) M#46HVT+5NT959_31#9JN6[25"%R]G*9,C#[JNS>1'GC@&HBE42A?0]4\/%T% MSJYW40`F"$!;IRKHR)B_P0F\@`<@-?AVFP*HQLG70&9]`'8XR@CR%?^M!HK/ M)I+.&6X?!7>J)WRZ.E<>7]?%OE">>EI@W;-ZV5,(!!1B/1O:F::8]3.#_*H` MA`RS)N`!$$#FHO@;R/+X_:6HC'XK>I,`V,PI"PKCWP%;84`$+A`5E$7@2*`=R[51'J=ZZ& M?`$V45#`-?)GA)\48'E"B-(2YM4]`HKA:#F<`P(:0+$$V&.,3N@)0@@UF&O< M*5/#ZU1(0N>[)5](YPG"14 M+`#EF^(8T&-&.TAN"(;"(1,`T`MY$`HIB@I&%GNS,)4D#5+/"@F0U(&D8/#, M`0@I'T,*8@]\^&H!#+#.%2')#XU(X%\"8(#GBB$/>D"%"'%B!\^&(,F2K,E= M_?"5;4!0@?`]QS=;628`'H``]R%$G*&$WQ*S`TJF3$>$=3 MV-.*X*O8\2TD%%NB3=862MRUXSA3TU;%//>1LCVG&I"D68"<5@"U784=>]*3 M!!8I+U\,X`$E`9IM_QC0+>U$3QTC5<`SB8>YW2P`(,)@35M@0A*:^J(C`K.G M%-RETZ0A+&$]"4Q6H>35:'9C'6$ZUCR>%1Z>M`2C`T-K4DP"-2]NM:U#X)M3 M%J>8VJEO<"DIJ3$(8I.Z<28DK7%622:@JI?>ARL,J$!)C%,5!#S`5_4*HU@+ M6RA('@Z;6!KB,PYWC0E4X%O6P"G"%I:7IK3MJF085A&\5[E]R,88-OE)I:15 M*,ABU#,748M/V-*L=#X+K88EIEL;A;ZH)=C$&`W;!Q"5&SB+ MW40DFH7O*MGR`/#4UR-8ZLD3L>O%3@FMN[-S1L;"JIJG92PRQGCP/&[GJPF3 MQP%LH0D]$(#&9&2F4;%DRI/LZP4&2T`V^F,>@=W)NB0AN!_LFE'AM5W&#W>AEQ#C,FNV&K5ZIUXJ\38XBB+82>,B"08 MV;KK7&6,'YN$2Q[5Z!80TS6;]#[X)-9`1C^(G*=[6`W)2>["&J=BA4Q3IANJ M0M)XUC2D`&3#2`/UT:RH@Q6?36EG4&0.L3Q5'2]FKB>3(/FC4V)LY -----END PRIVACY-ENHANCED MESSAGE-----