<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996 COMMISSION FILE NUMBER 1-13524
TIMELINE, INC.
(Exact name of small business issuer as specified in its charter)
WASHINGTON 91-1590734
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3055 112TH AVENUE N.E., STE. 106
BELLEVUE, WA 98004
(Address of principal executive offices)
(206) 822-3140
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ----
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
OUTSTANDING AT
CLASS JULY 15, 1996
Common Stock, $.01 Par Value 3,136,106
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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TIMELINE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996 MARCH 31, 1996
(UNAUDITED)
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,742,296 $284,542
Short-term investments 6,284 107,174
Accounts receivable, net of allowance
of $73,713 and $69,601 1,076,623 1,181,322
Prepaid expenses and other 430,890 295,126
---------- ----------
Total current assets 3,256,093 1,868,164
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,307,454 and $1,245,908 853,321 853,174
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $273,006 and $251,777 635,352 210,040
OTHER ASSETS 86,837 86,447
---------- ----------
Total assets $4,831,603 $3,017,825
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $173,622 $422,534
Accrued expenses 328,838 280,914
Current portion of long-term debt 262,522 125,000
Deferred revenue 400,834 431,503
Current portion of capital leases 67,737 64,511
---------- ----------
Total current liabilities 1,233,553 1,324,462
LONG-TERM DEBT, net of current portion 375,000
LONG TERM PORTION OF CAPITAL LEASES & DEBT 585,395 38,204
---------- ----------
Total liabilities 1,818,948 1,737,666
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock 31,362 26,146
Additional paid-in capital 9,187,139 6,843,166
Deferred compensation (485,562) (500,000)
Unrealized investment gains
Foreign currency adjustment (2,869)
Accumulated deficit (5,717,415) (5,089,153)
---------- ----------
Total stockholders' equity 3,012,655 1,280,159
---------- ----------
Total liabilities and stockholders' equity $4,831,603 $3,017,825
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TIMELINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
REVENUES:
Software license $ 774,888 $ 714,196
Software development 136,288 --
Maintenance 176,955 238,693
Consulting 391,532 353,121
Other -- 7,500
---------- ----------
Total revenues 1,479,663 1,313,510
COST OF REVENUES: 416,352 294,234
---------- ----------
Gross profit 1,063,311 1,019,276
---------- ----------
OPERATING EXPENSES:
Sales and marketing 657,133 372,097
Research and development 336,523 140,289
General and administrative 612,817 402,603
Depreciation 62,353 28,588
---------- ----------
Total operating expenses 1,668,826 943,577
---------- ----------
Income (loss) from operations (605,515) 75,699
OTHER INCOME (EXPENSE):
Interest income 5,204 36,529
Interest expense (30,820) (4,213)
---------- ----------
Net income (loss) $ (631,131) $ 108,015
========== ==========
Net income per common and
common equivalent share $ (0.23) $0.04
========== ==========
Weighted average common and common
equivalent shares outstanding 2,693,219 2,654,752
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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TIMELINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operations $ (796,223) $(237,252)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (62,500) (81,064)
Capitalized software costs (446,541) --
Sales of short-term investments 100,890 95,000
---------- ---------
Net cash provided by investing activities (408,151) 13,936
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 350,000 --
Payments on notes payable (2,083) --
Payments on capital lease obligations (34,978) (18,712)
Proceeds from secondary public offering 2,553,425 --
Costs of secondary public offering (201,367) --
---------- ---------
Net cash provided by (used in) financing activities 2,664,997 (18,712)
---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,869) --
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 1,457,754 (242,028)
CASH AND CASH EQUIVALENTS, beginning of period 284,542 387,382
---------- ---------
CASH AND CASH EQUIVALENTS, end of period $1,742,296 $ 145,354
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the quarter for -
Interest $29,733 $ 4,213
Income taxes -- --
</TABLE>
The accompanying notes are an integral part of these financial statements
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TIMELINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Timeline, Inc. and
subsidiary (the Company) are unaudited. In the opinion of the Company's
management, the financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary to state fairly the financial
information set forth therein. Results of operations for the three month
period ended June 30, 1996 are not necessarily indicative of future financial
results.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-QSB.
Accordingly, these financial statements should be read in conjunction with the
Company's annual financial statements for the year ended March 31, 1996,
previously reported.
Net Loss per Common and Common Equivalent Shares
For the three months ended June 30, 1996, net loss per common and common
equivalent share was based on the weighted average number of common shares
outstanding during each period. Common stock equivalents include shares
issuable upon the exercise of outstanding stock options or warrants. These
shares are not included in the computation of net loss per share because the
effect of including such shares would be antidilutive.
2. SHAREHOLDERS' EQUITY
Changes in shareholders' equity for the period from March 31, 1996 to June 30,
1996 were as follows:
<TABLE>
<S> <C>
Shareholders' equity, March 31, 1996 $1,280,159
Issuance of common stock 2,553,425
Issuance costs (201,367)
Amortization of deferred compensation 14,438
Net loss (631,131)
Foreign currency translation adjustment (2,869)
----------
Shareholders' equity, June 30, 1996 $3,012,655
==========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
When used in this report, the words "expect", "intention", "should",
"anticipate" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company
undertakes no obligation to republish revised forward-looking statements to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. Readers are also urged to carefully review
and consider the various disclosures made by the Company which attempt to
advise interested parties of the factors which affect the Company's business,
including the disclosures made in this report, the Company's periodic reports
on Forms 10-KSB and 10-Q, and the Company's registration statements on Form
SB-2 and S-3, all as filed with the Securities and Exchange Commission, and
those described from time-to-time in the Company's press releases and other
communications.
RESULTS OF OPERATIONS
REVENUES
<TABLE>
<CAPTION>
Three Months Ended June 30,
1996 1995 Change
- -----------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Software license 775 714 9%
Software development 136 - N/A
Maintenance 177 239 (26%)
Consulting 392 353 11%
Other - 8 N/A
------------------
Total Revenues 1,480 1,314 13%
- -----------------------------------------------------------------
</TABLE>
Revenues for the three months ended June 30, 1996 over the comparable period
ended June 30, 1995 reflected an increase of approximately 9% which is
attributable to sales of the MetaView product line. Software development
revenues in the period ended June 30 1996 are from the Company's continued
development relationship with Microsoft Corporation on the Microsoft Small
Business Financial Manager. This arrangement was not producing revenues in the
comparable period ended June 30, 1995.
Maintenance revenue decreased 26% for the comparable three month period. This
reflects decreasing maintenance renewal from licensees of Timeline's accounting
systems based on Digital Equipment Corporation's ("Digital") operating systems.
Consulting revenue increased 11%. The demand for consulting is due to the
increase in the number of licensees requesting installation support and
training during the current and immediately prior quarters.
GROSS MARGIN
<TABLE>
<CAPTION>
Three Months Ended June 30,
1996 1995 Change
- -----------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Gross profit 1,063 1,019 4%
Percentage of revenues 72% 78%
- -----------------------------------------------------------------
</TABLE>
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The Company's gross margin varies in part depending upon the mix of
higher-margin software licenses and consulting and maintenance revenue, which
is labor intensive. Additionally, costs associated with the software
development alliance with Microsoft increased in the period ended June 30,
1996, compared to the quarter ended June 30, 1995.
SALES AND MARKETING
<TABLE>
<CAPTION>
Three Months Ended June 30,
1996 1995 Change
- --------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Sales and marketing 657 372 77%
Percentage of revenue 44% 28%
- --------------------------------------------------------------------
</TABLE>
Sales and marketing expenses as a percentage of net sales increased
substantially between the periods presented. Actual dollar expenditures also
increased by 77%. This increase is due primarily to an increase in the number
of sales personnel during the quarter ended June 30, 1996, specifically in the
London and Chicago areas, where no offices existed at June 30, 1995.
Furthermore, Marketing undertook a number of seminars in England and the United
States to inform prospects of Timeline's new product offerings.
In July, 1996, the Company's Vice President of North American Sales resigned.
Management believes the sales organization is well established and has no plans
to fill this position in the near future. However, sales and marketing
expenses are expected to continue to increase in the future. Management's
goal of increasing the dollar amounts of new license revenue would, if
accomplished, cause a correlative increase in commissions paid to sales
personnel. Additionally, it is management's intention to continue to increase
the sales and marketing staff in an effort to increase new license revenue.
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
Three Months Ended June 30,
1996 1995 Change
- ---------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Research & development 337 140 141%
Percentage of revenues 23% 11%
- ---------------------------------------------------------------------
</TABLE>
A majority of the development costs expensed during the June 30, 1996 quarter
are attributable to the MetaView product line. Timeline released MetaView
Analyst(TM), its PC-based database/Excel product, in June, 1996. This new
product is designed to accept data either directly from an accounting system(s)
or from MetaView Server(TM) and to allow the end user to have a personal set of
data available for reporting and analysis resident on his or her personal
computer. Additional development during the quarter focused on a companion
product, MetaView Manager, which is scheduled for release in August, 1996.
Additional development expenses were incurred in the June 30, 1996 quarter in
moving certain functions of MetaView Server(TM) to SQL Server(TM) from
Microsoft Access. This effort was undertaken to allow greater speed and
capacity for posting and manipulating data in this product.
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In June, 1996, as part of management's ongoing analysis of the effectiveness of
the research and development effort, Product Management and Development were
merged as a single department. Fred Dean, Vice President of Product Management,
assumed management of the combined department. The former Vice President of
Development left Timeline as an employee but is providing management services to
the Company under a separate agreement.
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Three Months Ended June 30,
1996 1995 Change
- ---------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
General & administrative 613 403 52%
Percentage of revenues 41% 31%
- ---------------------------------------------------------------------
</TABLE>
The increase in general and administrative expenses between comparable three
month periods ended June 30, 1995 and June 30, 1996, reflects increased
administration personnel, rent, and general office expenses in our recently
opened London, England office. Additionally, expanded office space has caused
increased rent and related expense in the Company's Bellevue location.
Finally, G&A expenses generally reflect the higher costs associated with
supporting an approximate 60% increase in employment at the Company from June
30, 1995 to June 30, 1996.
Management believes general and administrative expenses will continue to
increase in the future. However, management does not anticipate increases at a
rate equivalent to those reflected herein as future growth in employment is
projected to be at a more modest rate.
INCOME TAX
Income taxes are provided in the statement of operations in accordance with the
liability method. The Company previously determined that the tax assets
generated by the prior year's net operating losses and research and
experimentation credits did not satisfy the recognition criteria set forth
under the liability method. Accordingly, a valuation allowance was recorded
against the applicable deferred tax assets and therefore no tax benefit was
recorded in prior years. Therefore, the previously recorded valuation
allowance will be reversed to the extent of taxable income.
In connection with the Company's initial public offering in January 1995, the
Company experienced a significant change in ownership, which limits the amount
of net operating loss carryforwards and credits which may be used in any given
year. However, the Company does not expect this to be a factor in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, and marketable securities increased from
$391,716 at March 31, 1996 to $1,748,580 at June 30, 1996. The Company had net
working capital (excluding deferred revenue) of $2,423,374 at June 30, 1996.
The Company's liquid position is directly attributable to the receipt of
$2,332,058, net of issuance costs, upon closing of a private placement of
common stock in May of 1996, offset by losses of $631,131 incurred during this
quarter.
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The Company believes funds from operations and interest income will provide the
Company with sufficient funds to finance its operations. The Company maintains
a $750,000 line of credit with a local bank. The line of credit has a variable
rate of interest of prime plus 1.5%. Related borrowings are secured by the
Company's short-term investments. Any guarantee of the obligation of the
Timeline Employee Stock Ownership Trust reduces the amount available to be
drawn on this line of credit. There were no borrowings outstanding under this
line of credit as of June 30, 1996.
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PART II. - OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
</TABLE>
(a) Exhibits
27.1 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the three
months ended June 30, 1996.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Timeline, Inc.
(Registrant)
<TABLE>
<S> <C>
Date: August 13, 1996 By: /s/ CHARLES R. OSENBAUGH
-----------------------------------------
Charles R. Osenbaugh
Executive Vice President/
Chief Financial Officer
Signed on behalf of registrant and as principal
financial officer.
</TABLE>
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EXHIBITS INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the unaudited June
30, 1996 financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,742,296
<SECURITIES> 6,284
<RECEIVABLES> 1,150,336
<ALLOWANCES> 73,173
<INVENTORY> 0
<CURRENT-ASSETS> 3,256,093
<PP&E> 2,160,775
<DEPRECIATION> 1,307,454
<TOTAL-ASSETS> 4,831,603
<CURRENT-LIABILITIES> 1,233,553
<BONDS> 585,395
0
0
<COMMON> 31,362
<OTHER-SE> 9,187,139
<TOTAL-LIABILITY-AND-EQUITY> 4,831,603
<SALES> 774,888
<TOTAL-REVENUES> 1,479,663
<CGS> 0
<TOTAL-COSTS> 416,352
<OTHER-EXPENSES> 1,668,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,820
<INCOME-PRETAX> (631,131)
<INCOME-TAX> 0
<INCOME-CONTINUING> (631,131)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (631,131)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
