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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
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 (I.R.S. Employer Identification No.)
incorporation or organization)
3055 112th Avenue N.E., Ste. 106
Bellevue, WA 98004
(Address of principal executive offices)
(425) 822-3140
(Issuer's telephone number)
Securities registered under
Section 12(b) of the Exchange Act: COMMON STOCK, $.01 PAR VALUE
WARRANTS TO PURCHASE COMMON STOCK
Securities registered under Section 12(g) of the Exchange Act: (none)
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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were: $3,883,962.
As of May 22, 1998, 3,214,640 shares of the Registrant's common stock were
outstanding and the aggregate market value of such common stock held by
non-affiliates was approximately $3,154,682 based on the average of the bid
($1.406) and ask ($1.50) prices on that date of $1.453.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Proxy Statement relating to the Company's July 16, 1998 Annual Meeting of
Shareholders and to be filed with the Commission on or about the date hereof
(the "Proxy Statement").
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
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PART I
When used in this discussion, the words "believes," "intends," anticipates,"
"plans to" and "expects" and similar expressions are intended to qualify as
forward-looking statements relating to, among others, the Company's business
strategies, product releases, and revenues from third party agreements. Such
statements are subject to certain risks and uncertainties and there are a number
of important factors that could cause actual results to differ materially from
those projected. These factors include, among others, the risk factors set forth
below and other factors as described under "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Readers are cautioned not to
place undue reliance on such forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to update or release
publicly the results of any revisions to such forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
ITEM 1: DESCRIPTION OF BUSINESS
OVERVIEW
The Company develops, markets and supports enterprise-wide financial
management, budgeting and reporting software. Timeline's software products
automatically access and distribute business information with full accounting
control. Although the Company has products which permit the processing of
transactions, Timeline's marketing and development strategy is focused on
products which report accounting data in meaningful and flexible formats. These
reporting products allow end users to gather and disseminate business
information throughout the enterprise while the enterprise maintains maximum
flexibility in determining the types of transaction processing systems it will
use.
It has been estimated a significant percentage of the financial analysis
and management reporting done in businesses today is accomplished through keying
data from paper or fixed reports into spreadsheets. This reflects a desire to
have data reside in a user friendly environment, such as Microsoft(R)
Office, where the information is then available for automated inclusion in word
processing documents, forwarding and distribution through electronic mail,
manipulation in spreadsheets, etc. Electronic data residing in common desktop
environments is also potentially available for distribution through the
Internet.
Many financial and management reporting products are focused on the
presentation, either electronically or on paper, of processed data in formatted
reports. While Timeline products can present information in formatted reports,
the Company's technology also permits the distribution of an actual database of
information to the end user's personal computer. These databases are built
through selective criteria which limit data transfer to only that data relevant
to each particular end user. This design is intended to allow for the
distribution of manageable packets of data over networks or the Internet and
maintains corporate security. Each database can be arranged in a unique "view,"
or "orientation," as desired by the end user. The end user may then view the
data through standard corporate reports or through his or her library of
customized personal reports. Additionally, the data resides in Microsoft Office,
which makes it automatically available for use in Microsoft(R) Excel
spreadsheets and all other Microsoft Office tools.
Timeline believes that its proprietary technology, designed to allow the
enterprise to avoid time-consuming, error-prone and costly keying of data,
distinguishes Timeline's products from other vendors of reporting software. The
data resident at the desktop is as valid as the data in the underlying
accounting system. Moreover, the type of underlying accounting system, and the
platform on which it resides, is immaterial. While many enterprises
are\migrating accounting functions from larger mainframe- and minicomputer-based
systems to client/server systems, others have elected to retain their existing,
or "legacy" accounting systems. Timeline's business strategy is focused on
meeting the financial management needs of both types of enterprise by providing
products that accept and report on data from both legacy and newer systems.
The Company's MV Analyst(TM) and MV Server(TM), now called Timeline(R)
Analyst and Timeline(R) Server, product lines were originally introduced in May
1994, and are designed to gather data from multiple operating systems and
hardware platforms, old and new, for translation into a Microsoft client/server
environment. Timeline products emphasize financial reporting and management
functions, connectivity to multiple systems, the ability to distribute data to
the desktop, and a complex reporting architecture for consolidations,
allocations, budgeting and multiple foreign currency conversions.
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The Timeline(R) products are designed to extend the life of the existing
systems, allow the purchase of less expensive new systems, and deliver data for
reporting and analysis throughout the enterprise. The Company believes its
Timeline(R) products can complement accounting and reporting software vendors'
products by adding functionality to eliminate competitive disadvantages in their
products. These vendors are thus considered by management as candidates to
bundle or distribute Timeline(R) products in conjunction with their accounting
and reporting systems. It is through licensing and distribution agreements with
such third party vendors that management believes most license fee revenue will
be generated in fiscal 1999.
At March 31, 1998, Timeline employed 31 full-time employees in the
United States.
The Company spent in the aggregate approximately $1,001,000 in fiscal
1998 and $2,099,000 in fiscal 1997 for research and development and capitalized
software costs, and received $381,000 and $835,000, respectively, in software
development revenue.
TECHNOLOGY BACKGROUND
Timeline Technologies. Timeline's client/server software is designed to
overlay an enterprise's entire computing infrastructure with a reporting engine
which can accept and organize data, with full accounting controls, from both
legacy systems and newer technologies. Timeline's proprietary "architecture," in
conjunction with its proprietary "generation engine," is designed to accomplish
this task. Compatibility with legacy systems allows the enterprise to preserve
hardware and software investments or commence the transition to a client/server
environment while providing enhanced reporting capabilities throughout the
enterprise. In environments already using client/server systems, Timeline
technology provides distributed data marts which enhance the productivity of
reporting, budgeting and analysis professionals throughout the enterprise. The
use of filtering technology not only automates the transfer of data from
accounting and information systems into desktop databases, but can automatically
rebuild such databases to reflect changes introduced in the underlying
accounting structure. This eliminates costly dual maintenance of data structures
between the legacy and the Timeline(R) systems.
The following is a brief discussion of the Company's three primary
proprietary technologies:
- Timeline Architecture. Timeline's architecture is a
multi-dimensional data segmentation capacity which exceeds the
capacity of all accounting data structures known to the Company.
This capacity enables the Timeline reporting products to accept
data from multiple transaction processing systems concurrently,
to combine such data into a single database and to add reporting
relationships not present in the source system(s).
- Generation Engine. The Company's generation engine enables
Timeline products to automate the conversion of accounting data
structures into Microsoft-compatible databases. Prior
technologies required substantial human intervention to manually
build tables, input forms and manipulate other attributes of the
data. It is this technology which allows automated building of
any number of databases for distribution throughout the
organization.
- Filter Technology. Timeline's filter technology was first
introduced in its MV product line. Filtering allows the Timeline
product to duplicate data directly from one or more transaction
processing systems, and to feed the data to the generation
engine to automatically build a new database resident in the
Timeline architecture. The Timeline product is tied directly to
the underlying systems. Changes made in these underlying systems
(such as adding a new accounting relationship for a newly
purchased company) are reflected in the Timeline database in an
automated manner. Prior technologies required substantial human
intervention to manually extract and import data and to maintain
the synchronization of the accounting and information systems.
Timeline has been granted one patent by the U.S. Patent and Trademark
Office on its technology and the Company believes a second patent will be
granted during fiscal 1999. The Company is currently filing for patent
protection in certain countries outside the United States.
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PRODUCTS
The Company's products allow the distribution of data sets of information
to the desktop. Timeline's primary product family, Timeline(R) Analyst and
Timeline(R) Server, consists of a set of client/server software applications
based on Microsoft Windows(TM)/Windows NT(TM) and Microsoft Office operating
systems. Once data is contained in a local Microsoft Office database, the data
is available for each end user to develop his or her own analysis or personal
reports using normal Microsoft or Timeline-enhanced technology. The user can be
assured the data is as accurate as is the data in the underlying accounting
system.
The original MV Server(TM) product, now Timeline(R) Server, was introduced
in late 1995 as a financial and management reporting system which included
modules to allow traditional financial reporting, budgeting, foreign currency
conversion, consolidations and allocations. The various modules in the
Timeline(R) Server product provide desktop and network reporting on information
originating in a single or multiple accounting systems within the enterprise.
While this product can provide many transaction-driven benefits, the Company's
market focus is to use Timeline(R) Server as the data warehouse to handle larger
volumes of data in conjunction with Timeline(R) Analyst.
In June 1996, the Company made its first commercial release of MV
Analyst(TM), now Timeline(R) Analyst, as a stand alone "data mart" which enables
the user to view, create and distribute reports in Microsoft Excel based on data
from a single accounting system. Timeline(R) Analyst is also the client to
Timeline's server-based software, allowing the distribution of reporting
databases to end-users throughout a larger enterprise.
Commencing in October 1996, the Company released the Manager upgrade to
Timeline(R) Analyst designed for the "mid-level" market (i.e., businesses with
approximately six to 100 desktop users). This product completes the Timeline(R)
Analyst suite by allowing the assignment of new reporting relationships at the
desktop level and the distribution of data marts between Timeline(R) Analyst
users without the requirement of Timeline(R) Server.
Timeline(R) Budgeting consists of applications and tools built on the
underlying Timeline data marts. The combination of Excel interfaces and data
base controls provides a system which management believes will be a major area
of revenue growth in the near term. Functionality includes automatic
dissemination of budget templates, consolidation of budget input, allocations,
and multiple spread methods. The Company intends to enhance its budgeting
software in fiscal 1999 to provide solutions which are compatible with Seagate
Software technologies.
In addition to client/server products, the Company develops, markets and
supports a fully integrated line of host-based accounting applications that
operate on VAX(R) and AXP(R) computer systems from Digital Equipment
Corporation. This product line represents a continuation of Timeline's
historical core business and provides ongoing maintenance, license and
consulting revenue. Products in this market include General Ledger, Accounts
Payable, Accounts Receivable, Digibase, Digicalc II(R), Fixed Assets, Inventory,
Purchase Order and Association Management.
YEAR 2000 COMPLIANCE
The Company's products and services are designed to be Year 2000 compliant
with the exception of one VAX system release in use by one customer. The Company
is scheduled to release a Year 2000 compliant version of software to said
non-compliant customer in the fourth quarter of calendar year 1998. While the
Company's other products have been released as Year 2000 compliant, certain
customers have not yet upgraded to these versions. Although the Company believes
that its internal systems, products and services are currently Year 2000
compliant, there can be no assurances that the Company's products and systems
contain all necessary date codes. In addition, there can be no guarantee that
the systems of other companies on which the Company relies or does business with
will be Year 2000 compliant and would not have an adverse effect on the
Company's business.
RISK FACTORS
Accumulated Deficit; Recent Operating Results. The Company has demonstrated
an historical inability to operate profitably and had an accumulated deficit of
approximately $7,997,000 at March 31, 1998. Although for the 1998 fiscal year,
the Company had net income of approximately $174,000, there can be no assurances
that it will continue to operate at a profit. In order to achieve stable
profitability, the Company must increase licensing and maintenance revenues of
its existing client/server products, develop new products, and control its
expenses. There can be no assurance the Company will meet these objectives or
achieve sustained profitability. Although the Company believes its cash balances
and
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anticipated operating results are sufficient to fund the Company in fiscal 1999,
no assurance can be given that sufficient sales will be generated or that
financing will be obtained to enable the Company to continue as a going concern.
See "Limited Product Line; Uncertainty of Market Acceptance," "Reliance on
Licensing and Distribution Relationships," "Future Capital Needs and Uncertainty
of Additional Financing," and "Competition."
Limited Product Line; Uncertainty of Market Acceptance. The Company's
future will depend upon the successful development, marketing and licensing of
its existing product line and other new products. There can be no assurance the
Company will achieve or sustain revenue growth for its actual, scheduled or
anticipated products, that enhancements to such products and other applications
can be successfully developed, that demand for such products will continue to
grow or be sustained, or that the Company's products will successfully compete
with the products of others. To the extent demand for the Company's products
does not develop due to competition, product performance, customer assessment of
the Company's financial resources and expertise, technological change or other
factors, the Company's operations may be materially and adversely affected.
Reliance on Licensing and Distribution Relationships. The Company
expects to rely increasingly on agreements with third party licensees and
distributors, and less on direct sales efforts, for sales of the Company's
products. The Company's agreements with its licensees and distributors generally
are not exclusive, may be terminated by either party without cause, and
generally do not impose minimum licensing or purchase requirements. The
effectiveness of third-party licensing or distribution depends in part on the
market acceptance and distribution channels of such third-party's products and
services, the ability of the Company to integrate its products with those of the
third party, and the continued viability and financial stability of such third
parties, which, in turn, depends in part on the economic health of the software
industry. There can be no assurance that these licensees and distributors will
perform their contractual obligations as expected or that the Company will
derive any additional revenue from such arrangements, that the Company will be
successful in developing new relationships or maintaining existing relationships
with third-party licensees and distributors, that such licensees and
distributors will be able to market the Company's products effectively, or that
any existing licensee or distributor will continue to represent the Company's
products, any of which could materially adversely affect the Company's results
of operations.
Reliance on Microsoft. The Company has developed all of its
client/server products to function in the Microsoft Windows and/or Windows NT
environments, and anticipates future products will also be designed for use in
these Microsoft environments. In light of this product strategy, sales of the
Company's new products would be materially and adversely affected by market
developments adverse to Microsoft Windows and/or Windows NT. The success of the
Company's strategy of developing products using the Microsoft Windows and/or
Windows NT environments is substantially dependent on its ability to gain timely
access to, and to develop expertise in, current and future developments by
Microsoft, of which there can be no assurance. Moreover, the abandonment by
Microsoft of its current operating system product line or strategy would
materially and adversely affect the Company.
Fluctuations in Performance. The Company's results of operations have
historically varied substantially from period to period (quarterly or
otherwise), and the Company expects they will continue to do so. The timing and
amount of the Company's net revenues are substantially dependent upon such
factors as the size and timing of licensing agreements and customer orders, the
timing of the introduction and customer acceptance of new products or product
enhancements by the Company or its competitors, changes in pricing policies by
the Company or its competitors, and changes in general economic conditions.
Over the past year, the Company has made great efforts to reduce its
operating and other expenses, including significant reductions in its sales and
marketing staff and research and development activities. There can be no
assurance that these expense reductions will have the desired result of enabling
the Company to achieve continued profitability or that they will not have
adverse effects on the Company. In addition, the Company currently intends to
rely more on licensing and distribution arrangements and less on direct sales,
and accordingly the Company expects that timing of revenues will fluctuate from
quarter to quarter, which may cause significant variations in periodic results
of operations. There can be no assurance that the Company's business strategy
will be successful or will result in an increase in revenues. In the event the
Company determines to increase its direct sales and marketing efforts or to
undertake research and development not funded by third parties, the Company's
operating expenses would increase and may have an adverse impact on the
Company's results of operations. The Company does not take any measures
specifically designed to limit fluctuations in the Company's periodic results of
operations. There can be no assurance the Company will be profitable on a
quarter-to-quarter or any other basis in the future.
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Future Capital Needs and Uncertainty of Additional Financing. The
Company's net working capital (excluding deferred revenue) at March 31, 1998 was
approximately $452,000. The Company's capital needs in the future will depend
upon factors such as the market acceptance of its products and any other new
products developed by the Company, the success of the Company's third-party
licensing and distribution arrangements and the Company's ability to develop and
maintain sustained maintenance and support revenue, none of which can be
predicted with certainty. There can be no assurance the Company will not require
substantial additional financing in the future for which it has no commitments
or arrangements, and there can be no assurance any additional financing, if
required, will be available, if at all, in a timely manner or on terms
acceptable to the Company. The inability to obtain required financing could have
a material adverse effect on the Company's results of operations, and could
cause the Company to significantly reduce or suspend its operations, seek a
merger partner, sell certain of its assets, sell additional securities on terms
which are highly dilutive to existing investors, or obtain funds through
arrangements that are unfavorable to the Company.
Technological Change and Uncertainty. The market for the Company's
products is characterized by rapidly changing technology, evolving industry
standards, changes in customer needs and frequent new product introductions. The
Company's future success will depend on its ability to enhance its current
products and develop new products on a timely and cost-effective basis, to meet
changing customer needs and to respond to emerging industry standards and other
technological changes. In particular, the Company's products must maintain
compatibility with existing and future Microsoft Windows and Windows NT
operating environments, database systems and development tools. Any failure by
the Company to anticipate or to respond promptly and adequately to changes in
technology and customer preferences, or any significant delays in product
development or introduction, would have a material adverse effect on the
Company's results of operations. There can be no assurance the Company will be
successful in developing new products or enhancing its existing products on a
timely basis, or that such new products or product enhancements will achieve
market acceptance.
Software products as complex as those offered by the Company may contain
undetected errors or failures when first introduced or as new versions are
released. There can be no assurance that, despite significant testing by the
Company and by current and potential customers, errors will not be found in new
products after commencement of commercial shipments, resulting in loss of or
delay in market acceptance. Furthermore, from time to time the Company and
others may announce new products, capabilities or technologies which have the
potential to replace or shorten life cycles of the Company's existing products
and which may cause customers to defer purchasing existing Company products.
Delays or difficulties associated with new product introductions or product
enhancements could have a material adverse effect on the Company's results of
operations.
Competition. The business information software market is highly
competitive. Management believes the primary products in competition with its
products are products provided by Hyperion, Inc., Comshare, Inc., FRX, Platinum
Software Corporation, Computron Technologies Corp., and various IBM- or
UNIX-based vendors. The Company also expects to face competition with respect to
those products it is developing and has scheduled for release. Most of the
Company's competitors have significantly greater financial, technical, sales,
marketing, research and development and other resources, as well as greater name
recognition and larger installed bases, than the Company. Because there are
minimal barriers to entry into the software market, the Company believes sources
of competition will continue to proliferate. The market for the Company's
products is characterized by significant price competition, and the Company
expects it will face increasing pricing pressures. There can be no assurance the
Company will be able to compete effectively, if at all, and its inability to do
so would adversely affect the Company's results of operations.
Dependence on Key Personnel; Management of Operations. The Company's
success depends to a significant extent on the continued contributions of
several management personnel, in particular Charles Osenbaugh, the Company's
Chief Executive Officer and Chief Financial Officer. The Company currently does
not have key person life insurance on Mr. Osenbaugh and does not have an
employment agreement with Mr. Osenbaugh. The loss of the services of Mr.
Osenbaugh would have a material adverse effect on the Company.
The Company's success also depends in part on its ability to attract and
retain qualified professional, technical, managerial and marketing personnel.
Competition for such personnel in the software industry is intense, and there
can be no assurance the Company will be successful in attracting and retaining
the personnel it requires to conduct its operations successfully. The Company's
results of operations could be adversely affected if the Company were unable to
attract, hire, train and manage qualified personnel. The Company has recently
reduced the size of its staff which could place a strain on the Company's
management and other resources. The ability of the Company to manage operations
will depend in part on the ability of its officers and key personnel to continue
to successfully implement appropriate management, operational and financial
systems and controls.
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Intellectual Property and Proprietary Rights. The Company relies on a
combination of copyright, trademark and trade secret laws, patents,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company seeks to protect its software, documentation and other
written materials under patent, trade secret and copyright laws, which afford
only limited protection. The Company has received Notice of Issuance by the U.S.
Patent Office of one patent, and holds one other patent, and intends to file for
patent protection in certain foreign countries. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's products or to obtain and use information the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult, and although the Company is unable to determine the extent, if any,
to which piracy of its software products currently exists, it can be expected to
occur in the future. In addition, the laws of some foreign countries do not
protect proprietary rights to the same extent as do the laws of the U.S. There
can be no assurance proprietary protections will be adequate or that the
Company's competitors will not independently develop similar technology. The
Company has not obtained an opinion of counsel as to the validity of its
proprietary rights.
No claims have been made against the Company for infringement of
proprietary rights of third parties. There can be no assurance, however, that
third parties will not assert infringement claims against the Company in the
future. The cost of responding to any such claim may be substantial, whether or
not the assertion is valid.
International Operations. Historical net revenues attributable to
licenses made outside the U.S. have been relatively insignificant, however, the
Company anticipates, international licenses will account for an increasing
portion of its net revenues in the future. The Company's international licenses
and other revenues are subject to fluctuations in U.S. currency valuations. The
Company does not currently engage in foreign currency hedging transactions,
although it may implement such transactions in the future. In addition, foreign
countries may impose limitations on the amount of currency which may be
withdrawn from such countries, thereby adversely affecting the Company's
liquidity and geographic market scope.
Possible Illiquidity of Trading Markets. The Common Stock and its
warrants are currently listed for trading on the OTC Bulletin Board, and as a
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's securities than if the
securities were traded on the Nasdaq Stock Market or other national exchange. In
addition, the Common Stock and warrants are also listed for trading on the
Boston Stock Exchange. If the Company were to experience significant or
prolonged losses or otherwise, it may be unable to maintain the standards for
continued listing on the Boston Stock Exchange. As a result, an investor would
find it more difficult to dispose of, or to obtain accurate quotations for, the
Company's securities.
The Company's securities are subject to certain rules and regulations
relating to "penny stock" (generally defined as any equity security that is not
quoted on Nasdaq and that has a price less than $5.00 per share, subject to
certain exemptions). Broker-dealers who sell penny stocks are subject to certain
"sales practice requirements" for sales in certain nonexempt transactions (i.e.,
sales to persons other than established customers and institutional "accredited
investors"), including requiring delivery of risk disclosure document relating
to the penny stock market and monthly statements disclosing recent price
information for the penny stock held in the account, and certain other
restrictions. For as long as the Company's securities are subject to the rules
on penny stocks, the market liquidity for such securities could be materially
and adversely affected.
ITEM 2. DESCRIPTION OF PROPERTY
Timeline leases approximately 17,025 square feet of office space at
3055 112th Ave. N.E., Bellevue, Washington, under a lease which expires
April 30, 2001. Of this amount, 1,134 square feet are subleased under an
agreement expiring January 31, 1999; 2,259 square feet are subleased under an
agreement expiring May 31, 2000; and 2,345 square feet are subleased under an
agreement expiring February 28, 2001, but which can be terminated at any time
upon payment of three months rent and expenses.
Timeline does not own any real estate.
ITEM 3. LEGAL PROCEEDINGS
In May 1998, the Company, certain of its directors, former directors and
officers, were named as defendants in a putative securities class action
lawsuit, Tennant v. Timeline, Inc., et al., Case No. 9805-03737, in the Circuit
Court of the
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State of Oregon for Multnomah County. The lawsuit alleged certain violations of
Oregon state securities laws filed by several individual shareholders who
purchased stock primarily in the 1996 private placement. The Company intends to
vigorously defend such lawsuit. Although the ultimate outcome of such litigation
is uncertain, management does not believe that the resolution of this lawsuit
will have a material impact on the future financial results of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Timeline's common stock is traded on the OTC Bulletin Board ("OTCBB")
and the Boston Stock Exchange ("BSE") under the symbols "TMLN" and "TML",
respectively. Additionally, warrants to purchase common stock are traded on both
OTCBB and BSE under the symbols "TMLNW" and "TMLW", respectively. Prior to
November 1997, Timeline's common stock and warrants were traded on the Nasdaq
SmallCap Market(TM) (Nasdaq(R)). Both classes of securities initiated trading on
January 18, 1995, the effective date of the Company's initial public offering of
common stock and warrants. The following table contains the high and low trading
price as reported by Nasdaq through November 17, 1997 and by OTCBB thereafter,
for each quarter of fiscal 1997 and 1998. The quotations from the OTCBB reflect
inter-dealer prices without retail mark up, mark down, or commissions and may
not represent actual transactions.
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
------------------------------------------------------ ----------------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock
High 7 5/8 7 1/8 5 7/8 4 1/8 1 3/8 1 5/8 1 1/8 2 3/8
Low 4 3/4 4 7/8 1 5/16 1 1/8 5/8 25/32 3/8 9/16
Warrants
High 2 9/16 2 1/8 1 7/8 27/32 7/16 11/32 9/32 3/10
Low 1 1/8 1 1/4 9/32 9/32 1/4 1/4 3/100 3/100
</TABLE>
At May 22, 1998 there were 3,214,640 shares of common stock outstanding
held by approximately 69 holders of record. An additional 1,000,000 warrants to
purchase common stock were outstanding held by approximately 9 holders of
record, each warrant allowing the purchase of one share of stock on or before
January 17, 2000 at a price of $6.25 per share.
In July 1997, in connection with a financing, the Company issued a
warrant to acquire 5,000 shares of its common stock to FirstCorp at an exercise
price of $1.625 per share.
In November 1997, the Company granted a performance-based stock option
to purchase 75,000 shares of stock to Charles R. Osenbaugh, at an exercise price
of $1.00 per share, as compensation. This option becomes 50% vested upon
achieving 10 consecutive days of the Company's stock closing trading at $3.00
per share, and the remaining 50% vest upon the Company's stock closing trading
at $5.00 per share for 10 consecutive days.
In February, 1998, the Company sold a warrant to acquire up to 300,000
shares of its common stock to Infinium Software, Inc. at an exercise price of
$1.00 per share. Infinium Software, Inc. paid the Company $100,000 for this
warrant.
In February, 1998, the Company issued 20,764 shares of restricted common
stock to Leonard Cereghino in payment of services rendered.
No cash dividends have been paid on the stock of the Company and no
dividends are currently contemplated by management. There are no restrictions on
the payment of dividends.
Page 8
<PAGE> 9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The charts below containing interim period information are provided solely as
part of Registrant's annual report to securityholders, and are not submitted as
a response to Item 6 of Form 10-KSB. The inclusion of the charts below does not
constitute or imply Registrant's agreement that such charts are subject to
Section 18 of the Exchange Act.
RESULTS OF OPERATIONS
For fiscal year ending March 31, 1998 Timeline generated net income of
$175,000, compared to a net loss of $3,082,000 for the period ended March 31,
1997. A decrease in gross revenue in excess of $1.6 million was more than offset
by decreased expenses and a one-time gain of $988,000 from the sale of a
majority interest in Timeline Europe Limited, which caused it to no longer be
consolidated on Timeline's books.
Fiscal 1998 results reflect a significant reduction in costs and
personnel, most particularly in the direct sales and marketing area and research
and development, as compared to fiscal 1997. A majority of these cost cutting
initiatives were undertaken in the last two quarters of fiscal 1997. However,
fiscal 1998 represents the results of these cost reductions for the full fiscal
year. The sale of a majority interest in Timeline Europe Limited in July 1997,
also triggered substantial cost reductions from that point forward.
GROSS REVENUE
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
-------------------------------------- --------------------------------------
1998 1997 Change 1998 1997 Change
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Software license 979 473 107% 1,747 1,964 (11%)
Maintenance 176 225 (22%) 777 827 (6%)
Consulting 213 203 5% 979 1,877 (48%)
Software Development 6 188 (97%) 381 835 (54%)
----------------------- -----------------------
Net sales 1,374 1,089 26% 3,884 5,503 (29%)
-------- -------- -------- -------- -------- ----------
</TABLE>
Total revenue decreased 29% to $3,884,000 for the fiscal year ended
March 31, 1998. Revenues generated by all areas of operations were lower in
fiscal 1998 than in fiscal 1997. This trend was expected as a result of the
considerable downsizing which occurred in fiscal 1997, and the fact Timeline
Europe Limited results were not consolidated for periods after June 1997. During
the fourth quarter of 1998, the Company recognized $870,000 on a license
agreement with Seagate Software, Inc.
Management believes software license revenue will be greater in fiscal
1999 than fiscal 1998 due to the opportunity to license and distribute its
software in conjunction with a number of third parties. As a result, the Company
may be exposed to more dramatic swings in its revenue due to the
unpredictability of license revenue. The Company is currently working with
Infinium Software, Inc. to market the Company's products into new and existing
Infinium customers. In addition, the Company and Infinium are developing
software for licensing by Infinium which is scheduled for delivery late in
fiscal 1999. The Company is also developing an interface between its products
and those of Navision a/s, which, if certified by Navision, will be marketed
through its distribution channels. Delivery of these products are scheduled for
September 1998 and March 1999. Starting July 1, 1998, Timeline Europe Limited
will begin accruing license fee revenue to the Company at the rate of 10% of net
license fee revenue received on licenses of products which include the Company's
technology. These license revenues will be collected quarterly in arrears.
Management believes revenues in consulting and maintenance will continue
to be comparably weak in fiscal 1999. This is due to the expectation a majority
of software license fees going forward will be generated through distribution
and marketing agreements with third parties. As such, Timeline is continuously
enhancing its products to make them easier to install. Furthermore, a portion of
consulting and maintenance responsibilities (and resulting revenue) will be
handled by third party distributors and/or marketing partners. Finally, the
Company has focused its sales on reporting, budgeting, and non-complex
consolidations (as opposed to multi-national consolidations, foreign currency
Page 9
<PAGE> 10
conversions, etc.) which tend to require substantially less consulting in order
to install and maintain. The Company has reduced personnel in the consulting and
maintenance departments in anticipation of this trend.
Software development revenues decreased significantly in fiscal 1998.
During fiscal 1997, the Company received significant development revenues from
Microsoft Corporation for development and subsequent enhancement of the
Microsoft Small Business Financial Manager. Management does not anticipate that
software development revenue will constitute a significant source of revenue in
fiscal 1999 as there are not substantial contracts currently in place or being
pursued. The Company does not consider software development for fees to be a
line of business that should be pursued except in exceptional situations.
GROSS MARGIN
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
----------------------- --------------------------
1998 1997 Change 1998 1997 Change
------- ------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Gross profit 991 483 105% 2,364 3,222 (27%)
Percentage of net sales 72% 44% 61% 59%
</TABLE>
Gross profit decreased during the 1998 fiscal year by $858,000 (27%)
over the 1997 fiscal year. However, cost of revenue decreased as a percentage of
sales. This reflects the change in approach to cooperative distribution in
conjunction with third parties and a decrease in personnel. These cost savings
more than offset increased amortization of capitalized software costs (to
$393,000 in 1998 compared to $218,000 in 1997).
SALES AND MARKETING & RESEARCH AND DEVELOPMENT EXPENSE
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
------------------------ --------------------------
1998 1997 Change 1998 1997 Change
-------- -------- ----- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Sales and marketing 135 200 (33%) 714 2,513 (72%)
Percentage of net sales 10% 18% 18% 46%
-------- -------- ------- --------- --------- -------
Research & development 320 440 (27%) 776 1,416 (45%)
Percentage of net sales 23% 40% 20% 26%
-------- -------- ------- --------- --------- -------
</TABLE>
Sales and marketing costs decreased 72% to $714,000 in fiscal 1998 from
$2,513,000 in fiscal 1997. This decrease was fairly consistent for all quarters
of the fiscal year and is directly attributable to no longer consolidating
results from Timeline Europe Limited as of July 1997, and having closed the
Chicago area sales office in April 1997.
Research and development costs were $776,000 in fiscal 1998 compared to
$1,416,000 in fiscal 1997, a 45% decrease. The decrease in research and
development costs was the result of fewer programmers being employed in fiscal
1998 and the Company's substantial downsizing between full year operations in
fiscal 1998 as compared to fiscal 1997.
Management believes research and development will be greater in the
first several quarters of fiscal 1999 due to a large backlog of programming
tasks necessary to deliver versions of software to Navision a/s and Infinium
Software, Inc. under existing agreements. The Company intends to out-source a
major portion of this work in order to meet delivery dates. While this approach
will be relatively more expensive than having the work performed by employees,
the Company believes it is not in its best interest to hire permanent staff to
handle short-term projects. No assurance can be given that additional
integration projects will be forthcoming which would justify the responsibility
of carrying a substantially increased staff. Consequently, the Company's current
policy is to hire additional permanent staff only in circumstances where
management believes there is a definitive need to cover long term version
release schedules and maintenance responsibilities. Consistent with that policy,
the Company anticipates hiring four or five people for the software development
staff, primarily to replace the three senior staff members being hired by
Seagate Software under the terms of
Page 10
<PAGE> 11
the Seagate/Timeline license. A substantial portion of the cost of these
additional hires will be offset by the reduction in costs associated with the
employees hired by Seagate Software.
GENERAL AND ADMINISTRATIVE EXPENSE
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
------------------------ --------------------------
1998 1997 Change 1998 1997 Change
-------- -------- ------ --------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
General & administrative 220 538 (59%) 1,295 1,984 (35%)
Percentage of net sales 16% 49% 33% 36%
</TABLE>
General and administrative expenses decreased to $1,295,000 in fiscal
1998 from $1,984,000 in fiscal 1997. This reduction reflects fiscal 1998 cost
reductions in this area in the US. Additionally, results for Timeline Europe
Limited are not consolidated for the last three fiscal quarters of 1998 and
which accounted for general and administrative expenses of $544,113 in fiscal
1997 and $154,267 in the first quarter of fiscal 1998.
Depreciation expense decreased slightly in fiscal 1998 to $240,000 from
$270,000 in fiscal 1997.
OTHER INCOME
Interest expense increased to $158,000 in fiscal 1998 from $138,000 in
fiscal 1997. Interest income decreased to $5,000 from $16,000 for fiscal 1997.
These changes reflect the higher interest rates on debt and lower average
investment balances during fiscal 1998. While the Company's debt balances
decreased in fiscal 1998 as compared to fiscal 1997, the Company paid comparably
higher rates as a result of its weakened financial condition. This condition
continued through fiscal year-end. Management believes interest costs for fiscal
1999 will be less than in fiscal 1998 and interest income will be higher due to
the Company's better cash position. During the first month of fiscal 1999, the
Company collected a significant portion of its account receivables.
Nevertheless, the Company does not intend to retire any of its long-term debt
except in the ordinary course under existing terms, due to the belief that
maintaining a cash balance is prudent.
Upon the sale of a majority of its interest in Timeline Europe Limited
in July 1997, the Company recognized a gain of $988,000. The Company received
cash of approximately $650,000 and the remainder of the gain represented release
of liabilities. Timeline currently owns a 12.5% equity interest in Timeline
Europe Limited, a distributor of Timeline products located in the United
Kingdom.
The Company did not record a tax benefit or cost in either fiscal 1997
or 1998, as the tax assets generated by the net operating losses from prior
years did not satisfy the recognition criteria set forth by generally accepted
accounting principles. Accordingly, the Company has established a valuation
allowance that offsets net deferred tax assets. As taxable income is accrued
which is offset by previously unrecognized net operating loss carry-forwards,
the Company offsets tax costs with such net operating losses. Management does
not anticipate recognition of federal income taxes in the near future as
existing net operating loss carry-forwards are considered adequate to cover
taxable income, if any, for fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's cash and cash equivalent balances at March 31, 1998 stood
at $59,000 compared to $187,000 at March 31, 1997. The decrease in cash during
fiscal 1998 was attributable to $21,000 used in operating activities, $303,000
used in financing activities offset by $196,000 provided by investing
activities.
Cash flows used in operating activities of $21,000 related to net income
of $175,000 increased by the non-cash depreciation and amortization of $651,000
and reduced by the gain of $988,000 on the sale of the majority interest in
Timeline Europe. Cash used in operating activities related primarily to the
increase in accounts receivable of $357,000 offset by increases in accounts
payable, accrued expenses and deferred revenues of $344,000 and a decrease in
prepaids of $117,000.
Page 11
<PAGE> 12
The Company received $439,000 on repayment of intercompany loans from
Timeline Europe Limited in conjunction with the sale of a majority interest.
Purchases of equipment and capitalized software development consumed $243,000 of
cash.
Total obligations, excluding deferred income items, totaled $1,254,000
at March 31, 1998 as compared to $2,122,000 at March 31, 1997. The fiscal 1998
and 1997 obligations include a corporate guarantee of a $500,000 bank note
payable by the Timeline Employee Stock Ownership Trust to Silicon Valley Bank.
This guarantee represents $229,000 of the fiscal 1998 total and $354,000 of the
fiscal 1997 total. This note is intended to be repaid from employee and matching
employer contributions under the Timeline Employee Stock Ownership Plan (the
"ESOP"). The Company is currently out of compliance with certain debt covenants
associated with the ESOP debt and has therefore classified this debt as current.
During fiscal 1997, the President and CEO of the Company personally guaranteed
this debt with the bank.
Net cash used in operating activities was $21,000 in fiscal 1998 as
compared to $2,151,000 in fiscal 1997. The substantial reduction is primarily
attributable to net income generated in fiscal 1998 compared to the net loss
incurred in fiscal 1997. During fiscal 1998, the Company spent $18,000 on
equipment and $225,000 on software development costs. The Company reduced
amounts outstanding on lines of credit and notes payable by a net amount of
$403,000 during fiscal 1998. The Company received $100,000 on the sale of
warrants during fiscal 1998.
Due to collection of a significant portion of accounts receivables in
early fiscal 1999, the Company believes its cash balances and anticipated
operating results are sufficient to fund the Company in fiscal 1999. However, no
assurance can be given that additional borrowings, sales of equity or debt
instruments, or substantial sales of assets may not be required. Furthermore, no
assurance can be given that financing will be obtained or that sufficient sales
will be generated to enable the Company to continue as a going concern.
At March 31, 1998, the outstanding balance on the Company's line of
credit facility was $147,000. The Company has a bank line of credit of $625,000
based upon selling its accounts receivable with recourse. In June 1997, the
Company entered into a $150,000 loan agreement, secured by certain equipment
owned by the Company, that is payable in equal monthly payments over a 24 month
period.
Page 12
<PAGE> 13
ITEM 7. FINANCIAL STATEMENTS
Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants 14
Balance Sheets as of March 31, 1998 and 1997 15
Statements of Operations for the years ended
March 31, 1998 and 1997 16
Statements of Changes in Stockholders' Equity
for the years ended March 31, 1998 and 1997 17
Statements of Cash Flows for the years ended
March 31, 1998 and 1997 18
Notes to Financial Statements 19
</TABLE>
Page 13
<PAGE> 14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Timeline, Inc.:
We have audited the accompanying balance sheets of Timeline, Inc. (a Washington
corporation) as of March 31, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. 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 generally accepted auditing
standards. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Timeline, Inc. as of March 31,
1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
April 29, 1998
(Except with respect to the matter
discussed in Note 11, as to which the
date is June 11, 1998.)
Page 14
<PAGE> 15
TIMELINE, INC.
BALANCE SHEETS -- MARCH 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 59,022 $ 187,428
Accounts receivable, net of allowance of
$60,966 and $99,146 1,372,155 1,258,143
Note receivable from Timeline Europe Limited 174,864 --
Prepaid expenses and other 94,381 218,365
----------- -----------
Total current assets 1,700,422 1,663,936
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,469,026 and $1,515,126 490,167 737,611
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $863,339 and $469,975 472,496 674,485
OTHER ASSETS 21,072 24,333
Total assets $ 2,684,157 $ 3,100,365
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 352,392 $ 569,981
Accrued expenses 399,386 497,537
Line of credit 146,872 348,950
Deferred revenues 460,191 354,643
Current portion of long-term debt 329,578 659,782
Current portion of obligations under capital leases 19,939 19,939
----------- -----------
Total current liabilities 1,708,358 2,450,832
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 5,781 25,719
----------- -----------
Total liabilities 1,714,139 2,476,551
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000 shares authorized,
3,214,622 and 3,216,153 issued and outstanding 32,147 32,162
Additional paid-in capital 9,205,706 9,266,159
Unearned ESOP shares (270,833) (391,366)
Stock subscription receivable -- (95,603)
Foreign currency adjustment -- (15,910)
Accumulated deficit (7,997,002) (8,171,628)
----------- -----------
Total stockholders' equity 970,018 623,814
----------- -----------
Total liabilities and stockholders' equity $ 2,684,157 $ 3,100,365
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
Page 15
<PAGE> 16
TIMELINE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Software license $ 1,747,398 $ 1,964,096
Software development 381,079 834,961
Maintenance 776,565 826,936
Consulting 978,920 1,877,050
----------- -----------
Total revenues 3,883,962 5,503,043
COST OF REVENUES 1,519,623 2,281,070
----------- -----------
Gross profit 2,364,339 3,221,973
----------- -----------
OPERATING EXPENSES:
Sales and marketing 713,635 2,513,220
General and administrative 1,295,017 1,983,769
Research and development 776,086 1,415,988
Depreciation and amortization 240,312 270,026
----------- -----------
Total operating expenses 3,025,050 6,183,003
----------- -----------
Loss from operations (660,711) (2,961,030)
----------- -----------
OTHER INCOME (EXPENSE):
Gain on sale of Timeline Europe 988,409 --
Interest expense and other (158,063) (137,835)
Interest income and other 4,991 16,390
----------- -----------
Total other income (expense) 835,337 (121,445)
----------- -----------
Income (loss) before income taxes 174,626 (3,082,475)
Income tax provision -- --
Net income (loss) $ 174,626 $(3,082,475)
=========== ===========
BASIC NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $ .06 $ (1.04)
=========== ===========
DILUTED NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $ .05 $ (1.04)
=========== ===========
SHARES USED IN CALCULATION OF BASIC EARNINGS PER SHARE 3,133,688 2,965,249
=========== ===========
SHARES USED IN CALCULATION OF DILUTED EARNINGS PER SHARE 3,204,706 2,965,249
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 16
<PAGE> 17
TIMELINE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Additional Unearned
Common Stock Paid-in ESOP
Shares Amount Capital Shares
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, March 31, 1996 2,614,576 $26,146 $ 6,847,329 $(500,000)
Net loss -- -- -- --
Secondary offering of
common stock, net 521,530 5,215 2,297,180 --
Exercise of common stock
options 90,390 904 175,848 --
Retirement of ESOP shares (10,343) (103) (54,198) 54,301
Amortization of unearned
ESOP shares -- -- -- 54,333
Foreign currency
translation adjustment -- -- -- --
----------- ----------- ----------- ---------
BALANCE, March 31, 1997 3,216,153 32,162 9,266,159 (391,366)
Net income -- -- -- --
Retirement of ESOP shares (22,295) (223) (116,827) 117,050
Amortization of unearned
ESOP shares -- -- -- 3,483
Exercise of common stock
options 55,860 56 31,365 --
Return of previously
subscribed shares (55,860) (56) (95,547) --
Sale of warrants to
purchase 300,000 shares
of common stock at $1.00 -- -- 100,000 --
Issuance of common stock
for expenses 20,764 208 20,556 --
Foreign currency
translation adjustment -- -- -- --
----------- ----------- ----------- ---------
BALANCE, March 31, 1998 3,214,622 $32,147 $ 9,205,706 $(270,833)
=========== =========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
Stock Foreign
Subscription Currency Accumulated
Receivable Adjustment Deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, March 31, 1996 $ -- $ (4,163) $(5,089,153) $ 1,280,159
Net loss -- -- (3,082,475) (3,082,475)
Secondary offering of
common stock, net -- -- -- 2,302,395
Exercise of common stock
options (95,603) -- -- 81,149
Retirement of ESOP shares -- -- -- --
Amortization of unearned
ESOP shares -- -- -- 54,333
Foreign currency
translation adjustment -- (11,747) -- (11,747)
--------- --------- ----------- -----------
BALANCE, March 31, 1997 (95,603) (15,910) (8,171,628) 623,814
Net income -- -- 174,626 174,626
Retirement of ESOP shares -- -- -- --
Amortization of unearned
ESOP shares -- -- -- 3,483
Exercise of common stock
options -- -- -- 31,421
Return of previously
subscribed shares 95,603 -- -- --
Sale of warrants to
purchase 300,000 shares
of common stock at $1.00 -- -- -- 100,000
Issuance of common stock
for expenses -- -- -- 20,764
Foreign currency
translation adjustment -- 15,910 -- 15,910
--------- --------- ----------- -----------
BALANCE, March 31, 1998 $ -- $ -- $(7,997,002) $ 970,018
========= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 17
<PAGE> 18
TIMELINE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 174,626 $(3,082,475)
Adjustments to reconcile net income (loss) to net cash
used in operating activities-
Depreciation and amortization 650,810 555,478
Gain on sale of Timeline Europe (988,409) --
Expenses paid with issuance of common stock and exercise of options 52,185 --
Loss on disposal of property and equipment 3,568 --
Compensation expense on stock option exercises -- 39,941
Changes in assets and liabilities:
Accounts receivable (356,690) (76,821)
Prepaid expenses and other 116,817 153,797
Accounts payable 110,460 70,411
Accrued expenses 77,880 216,623
Deferred revenues 155,601 (76,860)
Other noncurrent assets (18,246) 48,659
--------- -----------
Net cash used in operating activities (21,398) (2,151,247)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (17,867) (160,986)
Proceeds from sales of property and equipment -- 7,057
Payments for capitalized software development costs (224,986) (682,643)
Sales of short-term investments -- 107,174
Proceeds from note receivable 439,115 --
--------- -----------
Net cash provided by (used in) investing activities 196,262 (729,398)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (19,938) (57,057)
Borrowings under line of credit 806,237 348,950
Repayments under line of credit (859,365) --
Proceeds from notes payable 150,000 350,000
Payments on notes payable (480,204) (190,218)
Sale of common stock and exercise of stock options -- 2,343,603
Sale of warrants to purchase common stock 100,000 --
--------- -----------
Net cash (used in) provided by financing activities (303,270) 2,795,278
--------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (11,747)
--------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (128,406) (97,114)
CASH AND CASH EQUIVALENTS, beginning of year 187,428 284,542
--------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 59,022 $ 187,428
========= ===========
SUPPLEMENTAL CASH AND NONCASH DISCLOSURES:
Cash paid during the year for interest $ 164,188 $ 91,403
Prepaid asset financed through accounts payable 80,360 77,036
Retirement of unallocated ESOP shares 117,050 54,301
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 18
<PAGE> 19
TIMELINE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
1. THE COMPANY:
Organization
The accompanying financial statements are for Timeline, Inc. (the Company). A
majority of the Company's interest in its previously wholly-owned subsidiary
Timeline Europe Limited was sold during July 1997. The accounts of Timeline
Europe Limited are consolidated in these financial statements through the date
of sale. The Company develops, markets and supports enterprise-wide financial
management software.
Operations
As of March 31, 1998, the Company had an excess of current liabilities over
current assets of $7,936 and had an accumulated deficit of $(7,997,002), with
total stockholders' equity of $970,018. Management is in the process of
evaluating alternatives for raising additional funds and returning the Company
to profitable operations. These alternatives potentially include the continued
licensing or sale of part of its patented software, agreements with distribution
partners to market the Company's products and entering into additional debt
agreements. If these alternatives are unsuccessful, the Company would need to
implement a plan to reduce costs substantially until sales from operations
generate sufficient cash flows to continue to fund operations and development.
No assurance can be given that financing will be obtained or that sufficient
sales will be generated to enable the Company to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
These financial statements have been prepared in accordance with generally
accepted accounting principles and assuming that the Company will continue as a
going concern. The financial statements do not include any adjustments that
would result if the Company were not to continue as a going concern such as
realizable value of certain assets and amount and classification of certain
liabilities. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities.
Actual results could differ from these estimates. Other significant accounting
policies are summarized in the following paragraphs.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a purchased maturity of
three months or less to be cash equivalents. Cash equivalents are valued at
cost, which approximates fair value due to the short-term nature of these
investments.
Property and Equipment
Property and equipment are stated at historical cost. Improvements and
replacements are capitalized. Maintenance and repairs are expensed when
incurred. The provision for depreciation is determined by the straight-line
method, which allocates the cost of property and equipment additions, including
capital leases, over the shorter of the lease period or their estimated useful
lives of three to seven years.
Page 19
<PAGE> 20
Capitalized Software Costs and Research and Development Costs
The Company capitalizes certain internally generated software development costs,
which consist primarily of salaries, in accordance with Statement of Financial
Accounting Standards No. 86. Amounts capitalized relate to software development
costs incurred after the technological feasibility and market acceptance of a
product line have been established. Amortization is recognized using the
straight-line method over the products' remaining estimated economic life of the
products of three years. Amortization starts when the product is available for
general release to customers. During fiscal 1998 and 1997, the Company
capitalized $224,986 and $682,643, respectively, of software development costs.
Amortization expense for fiscal 1998 and 1997 was $393,363 and $218,198,
respectively. The amortization is included in cost of revenues in the
accompanying statements of operations.
All research and development costs are expensed as incurred.
Revenue Recognition
Revenue from software licenses is recognized upon shipment, provided no
significant vendor obligations remain and collection of the resulting receivable
is deemed probable. Software licenses sold, for which there are still
significant vendor obligations or right of return, are recorded as deferred
revenue and are recognized as revenue upon the fulfillment of the obligation or
lapse of the return period. Software licenses typically include a three-month
warranty period. The revenues attributable to the warranty are recognized on a
straight line basis over the warranty period.
The Company enters into post-contract customer-support maintenance agreements,
which are renewable annually. Revenue from these maintenance agreements is
recognized ratably over the maintenance period.
The Company also enters into separately priced consulting agreements with its
customers to provide installation, training and other consulting services. These
agreements are generally priced on a time and materials basis and revenues are
recognized as the services are performed. The nature of the services do not
significantly alter the licensed software.
Net Income (Loss) per Common Share
The Company adopted Statement of Financial Accounting Standard No. 128,
"Earnings per Share," effective December 15, 1997. Basic net income (loss) per
share is the net income (loss) divided by the average number of shares
outstanding during the year. Diluted net income (loss) per share is calculated
as the net income (loss) divided by the sum of the average number of shares
outstanding during the year plus the net additional shares that would have been
issued had all dilutive options been exercised, less shares that would be
repurchased with the proceeds from such exercise (Treasury Stock Method). During
fiscal year 1997, the effect of including outstanding options is antidilutive,
therefore, options have been excluded from the calculation of diluted net loss
per share. For periods prior to fiscal 1998, there is no difference between
previously reported net loss per share and the basic and diluted net loss per
share. Furthermore, shares in the Employee Stock Ownership Plan, which were not
committed to be released to plan participants as of each year-end, are not
considered outstanding for the earnings per share calculation.
The computation of diluted net income (loss) per common and common equivalent
share is as follows at March 31:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net income (loss) $ 174,626 $(3,082,475)
----------- -----------
Weighted average common shares outstanding 3,133,688 2,965,249
Plus: dilutive options and warrants 619,144 --
Less: shares assumed repurchased with proceeds from exercise (548,126) --
----------- -----------
Weighted average common and common equivalent shares outstanding 3,204,706 2,965,249
----------- -----------
Diluted net income (loss) per common and common equivalent share $ .05 $ (1.04)
=========== ===========
</TABLE>
The calculation of diluted net income (loss) per common and common equivalent
does not include 1,201,467 and 1,447,398 options and warrants in 1998 and 1997,
respectively, as they are antidilutive.
Page 20
<PAGE> 21
Reclassifications
Certain reclassifications have been made to the 1997 financial statements to
conform them to the current year's presentation.
3. SALE OF STOCK IN SUBSIDIARY:
Effective July 3, 1997, the Company entered into an agreement pursuant to which
it sold a majority interest in its then wholly-owned subsidiary, Timeline Europe
Limited. (Timeline Europe). Under the agreement, Timeline Europe issued 87,500
new shares of common stock to certain individuals in the United Kingdom in
exchange for subscriptions totaling approximately $1,633,760. The Company
contributed a portion of its intercompany receivable from Timeline Europe for
12,499 additional shares in Timeline Europe. The result of these transactions
reduced the Company's ownership interest in Timeline Europe to 12.5% and caused
the Timeline Europe management team and certain outside investors to obtain an
87.5% ownership interest in Timeline Europe. Timeline Europe also repaid to the
Company approximately $152,000 of prior advances and executed a debenture
securing its remaining intercompany obligation to make additional installments
totaling approximately $406,000. Of this amount, $147,700 was outstanding at
March 31, 1998, and was collected subsequent to year end.
In connection with the sale of the majority interest in Timeline Europe, the
Company and Timeline Europe also executed a Distributorship Agreement and Source
Code License which allows Timeline Europe to distribute, enhance and maintain
certain Timeline, Inc. software products in exchange for licensing fees and
maintenance fees payable to the Company. The licensing fees are based on a
percentage of revenues generated by Timeline Europe. During the term of this
agreement, Timeline Europe has the right to market and license certain of the
Company's products to the exclusion of the Company in Europe, the Middle East
and Africa.
As a result of this transaction, Timeline has recognized a gain on the sale of
the 87.5% interest in Timeline Europe in the amount of $988,409. This amount
represents the elimination of the Company's negative investment in Timeline
Europe due to Timeline Europe no longer being a consolidated subsidiary of
Timeline, Inc.
4. MAJOR CUSTOMERS:
During fiscal 1998 and 1997, one customer comprised approximately 22% and 15% of
the Company's total revenue, respectively. At March 31, 1998, approximately 73%
of the accounts receivable balance was due from the Company's largest customer.
All of these revenues were collected subsequent to the end of the fiscal year.
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at March 31:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Computer equipment $ 1,525,461 $ 1,769,457
Office equipment 433,732 483,280
----------- -----------
1,959,193 2,252,737
Less-- accumulated depreciation (1,469,026) (1,515,126)
----------- -----------
Total property and equipment $ 490,167 $ 737,611
=========== ===========
</TABLE>
6. FINANCING ARRANGEMENTS:
Line of Credit
In January 1997, the Company entered into a line of credit for an amount not to
exceed the lesser of: (i) $400,000 at any one time or (ii) 75% of the net amount
of eligible accounts receivable less the outstanding balance on the equipment
loan. The line of credit had a variable rate of interest of prime plus 2% (10.5%
at March 31, 1997). Related borrowings were secured by the Company's accounts
receivable. As of March 31, 1997, $348,950 was outstanding under the line of
credit. This line expired during fiscal year 1998.
Page 21
<PAGE> 22
During May 1997, the Company entered into another line of credit agreement with
its primary lender. Under the agreement, the Company may sell receivables with
recourse in an amount up to $625,000. Interest on the line of credit is
calculated at 2.50% of the average monthly balance plus a 1% administration fee.
At March 31, 1998, $146,872 was outstanding under this agreement.
Equipment Loan
In January 1997, the Company obtained an equipment loan for an amount not to
exceed the lesser of (i) $350,000 at any one time or (ii) 50% of the net book
value of unencumbered equipment purchased on or prior to December 31, 1995, plus
80% of the invoice value of equipment purchased after December 31, 1995. The
equipment loan accrued interest at 10.5%. The outstanding balance of $307,000 as
of March 31, 1997, was refinanced during 1998 with proceeds from the line of
credit.
Secured Promissory Note
During May 1997, the Company borrowed $150,000 under a secured promissory note
agreement. The note is secured by certain property and equipment and is payable
in equal monthly installments of $7,183, with a balloon payment of approximately
$22,000 at the settlement of the note in June 1999. The note bears interest at
22.5%. At March 31, 1998, $100,411 was outstanding under this agreement.
Employee Stock Ownership Plan
During March 1996, the Company established an Employee Stock Ownership Plan
(ESOP) that covers substantially all U.S. employees. The Company registered and
sold 95,200 shares of common stock (3% of the total outstanding at March 31,
1998) to the ESOP. Financing for the purchase was provided by a $500,000 bank
loan which is a direct obligation of the Company's Employee Stock Ownership
Trust (the Trust) and is secured by pledge of the shares purchased and is
guaranteed by the Company and the chief executive officer. The guarantee
agreement with the lender also requires the Company to meet certain financial
covenants. As of March 31, 1998 and 1997, the Company was out of compliance with
certain of these covenants, including minimum tangible net worth and other
performance related covenants.
Funds for payment of the note principal and interest are obtained by the ESOP
from employee contributions and a Company match as well as Company advances to
the ESOP. The outstanding balance of $229,167 and $354,167 at March 31, 1998 and
1997, respectively, on the ESOP note is included as a liability on the balance
sheet. The Company has recorded the cost of unallocated shares as unearned ESOP
shares. During 1998 and 1997, the Company applied $117,050 and $54,301,
respectively, of its prepayments to the ESOP to repurchase and retire 22,295 and
10,343 shares, respectively, of its common stock.
The ESOP note bears interest at the prime rate plus 2% (10.5% at March 31, 1998
and 1997).
Minimum principal payments on long-term debt are as follows:
<TABLE>
<S> <C>
1999 $225,411
2000 104,167
--------
$329,578
========
</TABLE>
Page 22
<PAGE> 23
7. FEDERAL INCOME TAXES:
Federal income taxes are determined using an asset and liability approach.
The Company has determined that the deferred tax assets do not satisfy the
recognition criteria set forth in SFAS No. 109. Accordingly, a valuation
allowance has been recorded against the applicable deferred tax assets and
therefore no tax benefit has been recorded in the accompanying statement of
operations. The Company's deferred tax assets (liabilities) as of March 31 are
as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net operating loss carryforward $ 1,832,000 $ 2,388,000
Research and experimentation credit 300,000 330,000
Deferred revenues 156,000 121,000
Capitalized software costs (161,000) (229,000)
Other 96,000 102,000
----------- -----------
2,223,000 2,712,000
Less - valuation allowance (2,223,000) (2,712,000)
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
</TABLE>
The net operating loss carryforwards and research and experimentation credit
carryforwards expire through 2013.
The decrease in the valuation allowance of $489,000 during the year ended March
31, 1998 was primarily a result of the sale of Timeline Europe which had
generated net operating losses and the utilization of past net operating losses
against the current year's income tax provision.
In connection with the initial public offering, the Company experienced a
significant change in ownership, which limits the amount of previously generated
net operating loss carryforwards and research and experimentation credits which
may be used in any given year to approximately $300,000.
8. 401(k) SAVINGS AND PROFIT SHARING PLAN:
All employees of the Company over 21 years of age have the option of
participating in a company-sponsored 401(k) savings and profit sharing plan.
Employees can contribute up to 20% of their gross pay subject to statutory
maximums. At its discretion, the Company may make contributions to the plan
based on a percentage of participants' contributions. Employer contributions
vest over a period of seven years. The Company has made no contributions to the
plan in either of the years ended March 31, 1998 or 1997.
Page 23
<PAGE> 24
9. COMMITMENTS
AND CAPITAL LEASE OBLIGATIONS:
Leases
The Company has entered into noncancelable lease agreements involving equipment
and office space. The following is a schedule of future minimum lease payments
under both capital and operating leases as of March 31, 1998:
<TABLE>
<CAPTION>
Gross Less
Capital Operating Subleases Net
-------- --------- --------- --------
<S> <C> <C> <C> <C>
1999 $ 15,419 $349,088 $ 91,627 $257,461
2000 15,419 347,413 64,087 283,326
2001 5,141 61,853 7,622 54,231
-------- -------- -------- --------
Total minimum lease payments 35,979 $758,354 $163,336 $595,018
======== ======== ========
Less-- amount representing interest and
tax costs (10,259)
--------
Present value of net minimum
lease payments 25,720
Less-- current portion 19,939
--------
$ 5,781
========
</TABLE>
Rental expense for operating leases amounted to $326,727 and $452,632 for the
years ended March 31, 1998 and 1997, respectively. The Company entered into a
sublease agreement for a portion of its office space during 1998. Cash collected
from subleases in 1998 was $40,504.
10. STOCKHOLDERS' EQUITY:
Initial and Secondary Public Offering
During fiscal 1995, the Company completed its initial public offering. The
offering was for 1,000,000 units, consisting of one share of common stock and
one warrant to purchase one share of common stock for $6.25 at any time through
January 17, 2000.
During May 1996, the Company closed a sale of 521,530 shares of common stock in
a private placement offering, for net proceeds of $2,302,000. Warrants to
purchase 36,000 shares of common stock at an exercise price of $5.88 were issued
as partial fees for this offering.
Stock Options and Warrants
The Company has a 1994 Stock Option Plan (the "1994 Plan") and a Directors'
Nonqualified Stock Option Plan (the "Directors' Plan"). An aggregate of 400,000
shares of common stock are collectively reserved for issuance upon exercise of
options granted to the Company's employees, directors and consultants under the
1994 Plan and the Directors' Plan (collectively, the "Stock Option Plans") and
178,000 are available for grant as of March 31, 1998. The exercise price of any
options to be granted is equal to or greater than the fair market value of the
common stock at the date of grant. The Company also has a 1993 Stock Option Plan
(the "Old Plan"). A total of 132,000 shares of common stock have been reserved
for issuance under the Old Plan. As of March 31, 1998, no further option grants
are available under this plan. Options under these plans vest ratably over
three- or four-year periods. The term of the options is for a period of 10 years
or less. Options automatically expire 90 days after termination of employment.
In November 1997, the Company granted a performance-based stock option to
purchase 75,000 shares of stock to Charles R. Osenbaugh, at an exercise price of
$1.00 per share, as compensation. This option becomes 50% vested upon achieving
10 consecutive days of the Company's stock closing trading at $3.00 per share,
and the remaining 50% vest upon the Company's stock closing trading at $5.00
per share for 10 consecutive days.
Page 24
<PAGE> 25
Options outstanding as of each period are as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
-------- --------
<S> <C> <C>
Balance, March 31, 1996 454,405 $3.53
Granted 229,500 2.36
Exercised (98,427) 1.94
Canceled (174,080) 4.64
-------- -----
Balance, March 31, 1997 411,398 2.78
Granted 310,360 .92
Exercised (55,860) .56
Canceled (181,287) 3.22
-------- -----
Balance, March 31, 1998 484,611 $1.68
======== =====
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123). Accordingly, no compensation cost has been recognized for stock
options issued at market value on the date of grant. Had compensation cost for
the Company's stock option plans been determined based on the fair value of the
options at the grant date for awards in 1998 and 1997, consistent with the
provisions of SFAS No. 123, the Company's net income (loss) and net income
(loss) per common share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997
-------- -----------
<S> <C> <C>
Net income (loss) - as reported $174,626 $(3,082,475)
Net income (loss) - pro forma 88,804 (3,168,093)
Basic net income (loss) per common share -
as reported .06 (1.04)
Basic net income (loss) per common share -
pro forma .03 (1.07)
Diluted net income (loss) per common share -
as reported .05 (1.04)
Diluted net income (loss) per common share -
pro forma .03 (1.07)
</TABLE>
The fair value of each option grant is established on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during 1998 and 1997: zero dividend yield; expected
volatility of 100% and 73%, respectively; risk-free interest rates varying by
grant date between 6.00% and 6.38%; and expected lives of five years. Because
the SFAS No. 123 method of accounting has not been applied to options granted
prior to April 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years. The weighted-average
grant date fair value of options granted during fiscal 1998 and 1997, was $.78
and $1.60, respectively.
In connection with its initial public offering, the Company issued warrants to
purchase 1,000,000 shares of common stock for $6.25 per share, subject to
adjustment. The warrants are subject to redemption by the Company at $.05 per
warrant if the closing bid price of the common stock averages in excess of
$10.00.
During fiscal 1998, the Company received $100,000 from a distributor in exchange
for warrants to purchase 300,000 shares of the Company's common stock at $1.00
per share. These warrants expire in February 2000. Also during 1998, as part of
a financing arrangement, the Company granted warrants to purchase 5,000 shares
of common stock at an exercise price of $1.625 per share.
Page 25
<PAGE> 26
Information relating to stock options outstanding and stock options exercisable
at March 31, 1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Exercise Number Exercise
Range of Exercise Prices of Shares Life in Years Price of Shares Price
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$.06 .............. 64,644 5.4 $0.06 64,644 $0.06
$1.00-$2.19 ....... 307,104 8.3 $1.16 79,104 $1.43
$3.57-$6.75 ....... 112,863 7.4 $4.04 99,363 $3.84
------- --- ----- ------- -----
484,611 7.9 $1.68 243,111 $2.05
======= === ===== ======= =====
</TABLE>
11. LEGAL PROCEEDINGS
In May 1998, the Company, certain of its directors, former directors and
officers, were named as defendants in a putative securities class action
lawsuit, Tennant v. Timeline, Inc., et al., Case No. 9805-03737, in the Circuit
Court of the State of Oregon for Multnomah County. The lawsuit alleged certain
violations of Oregon state securities laws filed by several individual
shareholders who purchased stock primarily in the 1996 private placement. The
Company intends to vigorously defend such lawsuit. Although the ultimate
outcome of such litigation is uncertain, management does not believe that the
resolution of this lawsuit will have a material impact on the future financial
results of the Company.
Page 26
<PAGE> 27
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
The information called for by Items 9 through 12 of Part III is included in the
Registrant's Proxy Statement and is incorporated herein by reference. The
information appears in the Proxy Statement under the captions "Election of
Directors," "Security Ownership of Directors and Executive Officers," "Executive
Compensation" and "Certain Transactions."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------ -----------
<S> <C>
3.1* Articles of Incorporation, as amended and in effect
3.2* Bylaws
4.1* Specimen Common Stock Certificate
4.2* Form of Warrant Agreement with Representative and Warrant Agent
4.3* Form of Representative's Warrant
4.4* Specimen Redeemable Common Stock Purchase Warrant
4.5 Common Stock Warrant for Infinium Software, Inc.
10.1.A* Amended and Restated 1993 Stock Option Plan
10.1.B* Form of Employee Stock Option Agreement
10.2* 1994 Stock Option Plan
10.3* Directors' Nonqualified Stock Option Plan
10.4** Employee Stock Ownership Plan
Common Stock Purchase Warrants issued in consideration of loans or
loan guarantees:
10.5.A* Warrant issued July 31, 1994 to Frederick W. Dean
10.5.B* Warrant issued July 31, 1994 to Charles R. Osenbaugh
10.5.C* Warrant issued July 31, 1994 to John W. Calahan
10.5.D* Warrant issued July 31, 1994 to Michael R. Hallman
10.6 Calahan Agreement
10.7* Form of Indemnification Agreement with directors and officers
10.8* Form of Employee (Confidentiality) Agreement
</TABLE>
Page 27
<PAGE> 28
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------ -----------
<S> <C>
10.9* Form of License Agreement for Computer Application Software
(client/server)
10.10* Form of License Agreement for Computer Application Software
(VAX-based)
10.11* Form of Basic Service for Software Agreement
10.12* Form of Value Added Reseller (Distribution) Agreement
10.13* Solution Provider Agreement with Microsoft Corporation dated
September 23, 1994
10.14* U.S. Patent and Trademark Office Notice of Allowance (Serial No.
08/162,839 [3/28/94])
10.15**** Lease Agreement dated September 8, 1995, as amended, with G&W
Investment Partners
10.16*** Form of Consulting Partners Agreement
21.1* Subsidiary of Timeline, Inc.
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
</TABLE>
* Incorporated herein by reference from Item 27 of Registrant's Form
SB-2.
** Incorporated herein by reference from the Registrant's Registration
Statement on Form S-8 filed on March 11, 1996.
*** Incorporated herein by reference from Item 13 of Registrant's Form
10-KSB for the year ended March 31, 1995.
**** Incorporated herein by reference from Item 13 of Registrant's Form
10-KSB for the year ended March 31, 1997.
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1998.
Page 28
<PAGE> 29
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Timeline, Inc.
By: /s/ Charles R. Osenbaugh
----------------------------
Charles R. Osenbaugh, President
Dated: June 12, 1998
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Capacities Date
--------- ---------- ----
<S> <C> <C>
/s/ Charles R. Osenbaugh Director June 12, 1998
- - ------------------------ President
Charles R. Osenbaugh Chief Executive Officer
Chief Financial Officer
and Treasurer
/s/ Frederick W. Dean Director June 12, 1998
- - ------------------------ Executive Vice President -
Frederick W. Dean Operations
/s/ Donald K. Babcock Director June 12, 1998
- - ------------------------
Donald K. Babcock
/s/ Michael R. Hallman Director June 12, 1998
- - ------------------------
Michael R. Hallman
Director
- - ------------------------
Kent L. Johnson
</TABLE>
Page 29
<PAGE> 1
Exhibit 4.5
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SUCH ACT AND APPLICABLE LAWS, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
TRANSFER OF THIS WARRANT IS NOT VALID EXCEPT TO THE EXTENT THAT SUCH
TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE PROVISIONS REGARDING
TRANSFER CONTAINED HEREIN.
TIMELINE, INC.
COMMON STOCK PURCHASE WARRANT
Warrant Number Infinium 1 Maximum Number of Shares: 300,000
This Warrant is issued to Infinium Software, Inc., a Massachusetts
corporation (the "Holder") by Timeline, Inc., a Washington corporation (the
"Company").
For value received and subject to the terms and conditions hereinafter
set forth, the Holder of this Warrant is entitled upon exercise in accordance
with Section 3 hereof to purchase from the Company up to 300,000 fully paid and
non-assessable shares of common stock, $.01 par value (the "Common Stock"), of
the Company, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as set forth below.
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the date of this Warrant and ending at 5:00 p.m., Pacific standard
time, on the second anniversary of the date of this Warrant. This Warrant shall
be void thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be $1.00 per share of Common Stock, as adjusted from time to
time pursuant to Section 5 hereof.
3. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are
exercisable by the Holder in whole or in part, but not for less than 10,000
shares at a time (or such lesser number of shares which may then constitute the
maximum number purchasable; such number being subject to adjustment as provided
in Section 5 below), at any time, or from time to time, during the term hereof
as described in Section 1 above, by the surrender of this Warrant and the Notice
of Exercise annexed hereto duly completed and executed on behalf of the Holder,
at the office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company), accompanied by payment (in the form
specified in the Notice of Exercise) of the purchase price of the shares to be
purchased (i) by cash, money order, certified or bank cashier's check, or wire
transfer, (ii) by surrender to the Company of shares of Common Stock of the
Company having an aggregate Fair Market Value equal to the aggregate Exercise
Price, (iii) by reducing the number of shares of Common Stock issuable upon
exercise by the number of shares of Common Stock having an
<PAGE> 2
aggregate Fair Market Value equal to the aggregate Exercise Price of the Warrant
or portion thereof being exercised, or (iv) by a combination of (i) through
(iii) above.
(b) For purposes of this Section 3, the Fair Market Value of a
share of Common Stock at any date shall be deemed to be (i) if the shares of
Common Stock are traded in the over-the-counter market and not on any national
securities exchange and not in the NASDAQ National Market System or NASDAQ Small
Cap System, the average of the closing bid and asked prices per share, as
reported by The National Quotation Bureau, Inc. or an equivalent generally
accepted reporting service, for the twenty (20) consecutive trading days
immediately preceding the date for which the determination of Fair Market Value
is to be made; (ii) if the shares of Common Stock are traded on a national
securities exchange or in the NASDAQ National Market System or NASDAQ Small Cap
System, the average daily per share closing price on the principal national
securities exchange on which they are so listed or in the NASDAQ National Market
System or NASDAQ Small Cap System, as the case may be, for the twenty (20)
consecutive trading days immediately preceding the date for which the
determination of Fair Market Value is to be made; or (iii) if the Common Stock
is no longer traded on the Nasdaq National Market System, NASDAQ Small Cap
System or other stock exchange or in the over-the-counter market on the relevant
date, then the Fair Market Value as of such date shall be determined by an
appraiser mutually agreed upon by the Holder and the Company (the cost of which
shall be borne by the Company).
(c) This Warrant shall be deemed to have been exercised
immediately before the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date. As
promptly as practicable on or after such date and in any event within ten (10)
business days thereafter, the Company at its expense shall issue and deliver to
the person or persons entitled to receive the same a certificate or certificates
for the number of shares issuable upon such exercise. In the event that this
Warrant is exercised in part, the Company at its expense will execute and
deliver a new Warrant of like tenor exercisable for the remaining number of
shares for which this Warrant may then be exercised.
4. Reservation of Stock. The Company covenants that it will at all times
reserve and keep available a number of its authorized but unissued or treasury
shares of its Common Stock, free from all preemptive rights therein, which will
be sufficient to permit the exercise of this Warrant. The Company further
covenants that such Common Stock as may be issued pursuant to the exercise of
this Warrant will, upon issuance, be duly and validly issued, fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof.
5. Adjustments. The number and kind of securities purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
(a) Reclassification, Merger, Sale of Assets, etc. In case of any
reclassification, capital reorganization, or change of the outstanding Common
Stock of the Company (other than as a result of a subdivision, combination or
stock dividend), or in case of any consolidation of the Company with, or merger
of the Company into, another company or other business organization (other than
a consolidation or merger in which the holders of the outstanding voting stock
of the Company immediately before the consummation of such transaction shall,
immediately after such transaction, hold, as a group, at least a majority of the
voting securities of the surviving or successor entity), or in case of any sale
or conveyance to another company or other business organization of the property
of the Company, as an entirety or substantially as an entirety, at any time
before the expiration of this Warrant, then, as a condition of such
reclassification, reorganization, change, consolidation, merger, sale or
conveyance, lawful provision shall be made and duly executed documents
evidencing the same from the Company or its successor shall be delivered to the
Holder of this Warrant, so that the Holder of this Warrant shall have the right
before the expiration of this Warrant to purchase, at a total price not to
exceed that payable upon the exercise of the unexercised portion of this
Warrant, the kind and amount of shares of stock and other
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<PAGE> 3
securities and property receivable upon such reclassification, reorganization,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock of the Company which might have been purchased by the
Holder of this Warrant immediately before such reclassification, reorganization,
change, consolidation, merger, sale or conveyance, and in any such case
appropriate provisions shall be made with respect to the rights and interest of
the Holder of this Warrant to the end that the provisions hereof shall
thereafter be applicable in relation to any shares of stock, and other
securities and property thereafter deliverable upon exercise hereof.
(b) Split, Subdivision or Combination of Shares. If the Company
shall at any time before the expiration of this Warrant subdivide its
outstanding Common Stock, by split-up or otherwise, or combine its outstanding
Common Stock, or issue additional shares of its capital stock in payment of a
stock dividend in respect of its Common Stock, the number of shares issuable on
the exercise of the unexercised portion of this Warrant shall forthwith be
proportionately increased in the case of a subdivision or stock dividend, or
proportionately decreased in the case of a combination, and the Exercise Price
then applicable to shares covered by the unexercised portion of this Warrant
shall forthwith be proportionately decreased in the case of a subdivision or
stock dividend, or proportionately increased in the case of a combination.
(c) Adjustments for Dividends in Stock or Other Securities or
Property. If while this Warrant, or any portion thereof, remains outstanding and
unexpired, the holders of the securities as to which purchase rights under this
Warrant exist at the time shall receive, or, on or after the record date fixed
for the determination of eligible stockholders, shall have become entitled to
receive, without payment therefor, other or additional stock or other securities
or property (other than cash) of the Company by way of dividend, then and in
each case, this Warrant shall represent the right to acquire, in addition to the
number of shares of the security receivable upon exercise of this Warrant, and
without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
the Company that such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Warrant on
the record date of such dividend, giving effect to all adjustments called for
during such period by the provisions of this Section 5.
(d) No Impairment. The Company will not, by amendment of its
Articles of Organization or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of the
terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against impairment.
(e) Capitalization. On the date of this Warrant, there are
3,130,610 shares of Common Stock, par value $.01 per share, issued and
outstanding, and no shares of preferred stock issued and outstanding.
Except for (a) outstanding options as of the date hereof to purchase
631,064 shares of Common Stock granted to employees pursuant to the Company's
stock option plan(s), and (b) outstanding warrants as of the date hereof to
purchase 1,071,125 shares of Common Stock at a price of $6.25 per share, there
are not outstanding any options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder agreements
or agreements of any kind for the purchase or acquisition from the Company of
any of its securities. In addition to the aforementioned options, the Company
has reserved an additional 184,000 shares of its Common Stock for purchase upon
exercise of options to be granted in the future under the Company's stock option
plan(s).
6. No Fractional Shares. In no event shall any fractional share of
Common Stock of the Company be issued upon any exercise of this Warrant. If,
upon exercise of this Warrant as an entirety,
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the Holder would, except as provided in this Section 6, be entitled to receive a
fractional share of Common Stock, then the Company shall issue a full share with
respect to such fractional share.
7. Replacement of Warrant. In case this Warrant shall be mutilated,
lost, stolen, or destroyed, the Company may issue a new warrant of like tenor
and denomination and deliver the same (a) in exchange and substitution for and
upon surrender and cancellation of any mutilated Warrant, or (b) in lieu of any
Warrant lost, stolen, or destroyed, upon receipt of evidence satisfactory to the
Company of the loss, theft or destruction of such Warrant (including a
reasonably detailed affidavit with respect to the circumstances of any loss,
theft, or destruction) and of indemnity satisfactory to the Company.
8. Rights of Stockholders. Except as provided in Sections 5 and 12
hereof above, this Warrant shall not entitle its Holder to any of the rights of
a stockholder of the Company.
9. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register (the
"Warrant Register") containing the name and address of the Holder of this
Warrant. The Holder of this Warrant may change its address as shown on the
Warrant Register by written notice to the Company requesting such change. Any
notice or written communication required or permitted to be given to the Holder
may be given by registered mail, or delivered to such Holder at its address as
shown on the Warrant Register.
(b) Warrant Agent. The Company may, by written notice to the
Holder, appoint an agent for the purpose of maintaining the Warrant Register
referred to in Section 9(a) above, issuing the Common Stock issuable upon the
exercise of this Warrant, exchanging this Warrant, replacing this Warrant, or
any or all of the foregoing. Thereafter, any such registration, issuance,
exchange or replacement, as the case may be, shall be made at the office of such
agent.
(c) Transferability of Warrant. This Warrant may be transferred
or assigned in whole or in part by the Holder either to an affiliate (as that
term is defined in the Securities Act of 1933, as amended (the "Securities Act")
of the Holder or if the Holder has complied with the terms and conditions of (i)
this Warrant and (ii) all applicable federal and state securities laws. Such
compliance shall include, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company. Subject to the provisions of this Warrant with respect to compliance
with the Securities Act, title to this Warrant may be transferred by endorsement
(by the Holder executing the Form of Assignment annexed hereto) and delivery in
the same manner as a negotiable instrument transferable by endorsement and
delivery. The transferees of this Warrant shall be deemed the Holder or Holders
thereof for all purposes of this Warrant.
(d) Exchange of Warrant Upon a Transfer. On surrender of this
Warrant for exchange, properly endorsed on the Form of Assignment and subject to
the provisions of this Warrant with respect to compliance with the Securities
Act and with the limitations on assignments and transfers contained in this
Section 9, the Company at its expense shall issue to or on the order of the
Holder a new warrant or warrants of like tenor, in the name of the Holder or as
the Holder (on payment by the Holder of any applicable transfer taxes) may
direct, for the number of shares issuable upon exercise hereof.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Common Stock to be issued upon
exercise hereof are being acquired solely for the Holder's own account and not
as a nominee for any other party, and for investment, and that the Holder will
not offer, sell or otherwise dispose of this Warrant or any shares of Common
Stock to be issued upon exercise hereof except under circumstances that will not
result in a violation of the Securities Act or any state securities laws. Upon
exercise of this Warrant, the Holder shall, if requested by the Company, confirm
in writing, in a form satisfactory to the Company, that the shares of Common
Stock so
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<PAGE> 5
purchased are being acquired solely for the Holder's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale.
(ii) This Warrant and all shares of Common Stock issued
upon exercise hereof shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER SUCH ACT AND APPLICABLE LAWS, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
10. Registration Rights.
(a) Certain Definitions. As used in this Section 10, the following
terms shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Registration Statement" means a registration statement filed by
the Company with the Commission for a public offering and sale of shares of
Common Stock (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for a similar limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation, or any registration
statement that does not permit secondary sales).
"Registration Expenses" means the expenses described in Section
10(e) hereof.
"Registrable Stock" means (i) the shares of Common Stock issuable
upon exercise of this Warrant and (ii) any other shares of Common Stock issued
in respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); provided, however,
that shares of Common Stock which are shares of Registrable Stock shall cease to
be shares of Registrable Stock (A) upon any sale pursuant to a Registration
Statement, Section 4(1) of the Securities Act or Rule 144 under the Securities
Act or (B) at such time as they are eligible for sale pursuant to Rule 144(k)
under the Securities Act.
(b) Required Registrations.
(i) At any time that the Company is eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), the Holder may request the Company, in writing, to effect the
registration on Form S-3 (or such successor form), of the Registrable Stock
owned by the Holder having an aggregate offering price of at least $250,000
(based on the then current Fair Market Value, determined in accordance with
Section 3(a) hereof); provided that if the underwriter (if any) managing the
offering determines that, because of marketing factors, all of the such shares
of Registrable Stock requested to be registered by the Holder and all other
holders with contractual registration rights may not be included in the
offering, then the Holder and all other holders of securities entitled by
contract to include them in such Form S-3 Registration Statement shall
participate in the registration pro rata based
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<PAGE> 6
upon the number of shares of Registrable Stock or other securities which they
have requested to be so registered (on an as-converted to shares of Common Stock
basis). Thereupon, the Company shall, as expeditiously as possible, use its best
efforts to effect the registration on Form S-3 (or such successor form) of all
shares of Registrable Stock or other securities which the Company has been
requested to so register.
(ii) The Company shall be required to effect up to two
registrations pursuant to Section 10(b)(i) above; provided, however, that (i) a
registration shall not count as one of the two permitted registrations if less
than one-quarter of the shares of Registrable Stock requested to be included in
such registration are included and (ii) the Company shall not be required to
effect any registration within nine months after the effective date of any other
Registration Statement of the Company pursuant to Section 10(b)(i) or that
permits inclusion of shares of Registrable Stock pursuant to Section 10(c) of
this Warrant.
(iii) If at the time of any request to register shares of
Registrable Stock pursuant to this Section 10(b), the Company is engaged or has
fixed plans to engage within 90 days of the time of the request in a registered
public offering as to which the Holder may include shares of Registrable Stock
pursuant to Section 10(c), or is engaged in any other activity which, in the
good faith determination of the Company's Board of Directors, would be adversely
affected by the requested registration to the material detriment of the Company,
then the Company may at its option direct that such request be delayed for a
period not in excess of four months from the date of receipt of the request by
the Holder pursuant to this Section 10(b), such right to delay a request to be
exercised by the Company not more than once in any twelve-month period.
(c) Incidental Registration.
(i) Whenever the Company proposes to file a Registration
Statement (other than pursuant to Section 10(b)) at any time and from time to
time, it will, prior to such filing, give written notice to the Holder of its
intention to do so and, upon the written request of the Holder given within 20
days after the Company provides such notice (which request shall state the
intended method of disposition of such shares of Registrable Stock), the Company
shall use its best efforts to cause all shares of Registrable Stock which the
Company has been requested by the Holder to register to be registered under the
Securities Act to the extent necessary to permit their sale or other disposition
in accordance with the intended methods of distribution specified in the request
of the Holder; provided that the Company shall have the right to postpone or
withdraw any registration effected pursuant to this Section 10(c) without
obligation to the Holder.
(ii) In connection with any registration under this Section 10(c)
involving an underwriting, the Company shall not be required to include any
shares of Registrable Stock in such registration unless the Holder accepts the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it pursuant to an underwriting agreement in customary
form among the Company, the Holder and the representative of such underwriters.
If in the prior written opinion of the managing underwriter it is appropriate
because of marketing factors to limit the number of shares of Common Stock to be
included in the offering, then the Company shall be required to include in the
registration only that number of shares of Registrable Stock, if any, which the
managing underwriter believes will not jeopardize the success of the offering by
the Company. The number of shares that are entitled to be included in the
registration and underwriting shall be allocated first to the Company for
securities being sold for its own account. Thereafter, if the number of shares
of Registrable Stock and shares of Common Stock held by other holders with
contractual registration rights to be included in the offering in accordance
with the foregoing is less than the total number of shares which the Holder and
other holders with contractual registration rights have requested to be
included, then the Holder and other holders of securities by contract entitled
to include them in such registration shall participate in the registration pro
rata based upon their total ownership of shares of Common Stock (giving effect
to the conversion into shares of Common Stock of all securities convertible
thereunto). If any holder would thus
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<PAGE> 7
be entitled to include more securities than such holder requested to be
registered, the excess shall be allocated among other requesting holders pro
rata in the manner described in the preceding sentence.
(d) Registration Procedures. If and whenever the Company is required
by the provisions of this Warrant to use its best efforts to effect the
registration of any of the shares of Registrable Stock under the Securities Act,
the Company shall:
(i) file with the Commission a Registration Statement with
respect to such shares of Registrable Stock and use its best efforts to cause
that Registration Statement to become and remain effective;
(ii) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all shares of Registrable Stock
covered thereby or 120 days after the effective date thereof (subject to
extension by the aggregate amount of any Black Out Periods (defined in
subsection 10(d)(v) below);
(iii) as expeditiously as possible furnish to the Holder, counsel
to the Holder and the managing underwriter such reasonable numbers of copies of
the prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, including any
amendment of or supplement to the prospectus, as the Holder, counsel to the
Holder or the managing underwriter may reasonably request in order to facilitate
the public sale or other disposition of the shares of Registrable Stock; and
(iv) as expeditiously as possible use its best efforts to
register or qualify the shares of Registrable Stock covered by the Registration
Statement under the securities or Blue Sky laws of such states as the Holder
shall reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Holder to consummate the public sale or
other disposition in such states of the shares of Registrable Stock owned by the
Holder; provided, however, that the Company shall not be required in connection
with this paragraph (d) to qualify to do business or execute a general consent
to service of process in any jurisdiction.
(v) if the shares of Common Stock are covered by a Form S-3
Registration Statement, notify the Holder at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which the prospectus is used (a "Fundamental Change") and, at the request
of the Holder, promptly prepare and furnish to the Holder and each underwriter,
if any, a reasonable number of copies of a supplement to such prospectus as may
be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
under which they were made; provided, however, that if the Company receives an
opinion of its counsel that the event in question constitutes a Fundamental
Change and the Company notifies the Holder that it wishes to defer disclosure of
the Fundamental Change and distribution of any related supplements to or
stickers of the prospectus and/or filing of post-effective amendments to the
Registration Statement, the Company shall be entitled to defer such disclosure,
filing and/or supplements to or stickering of the prospectus for a period of up
to 60 days and, in the case of a Fundamental Change which in the opinion of its
counsel would require a post-effective amendment to the registration statement,
shall use its best efforts to have the post-effective amendment declared
effective by the Commission as soon as practicably possible thereafter (such
period of time, a "Black Out Period"). The Holder may not sell any shares of
Registrable
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Stock during a Black Out Period. The Registration Statement effectiveness period
set forth in subsection 10(d)(ii) above shall be extended by the aggregate
amount of all Black Out Periods.
If the Company has delivered preliminary or final prospectuses to the
Holder and after having done so the prospectus is amended to comply with the
requirements of the Securities Act, the Company shall promptly notify the Holder
and, if requested, the Holder shall immediately cease making offers of shares of
Registrable Stock and return all prospectuses to the Company. The Company shall
promptly provide the Holder with revised prospectuses and, following receipt of
the revised prospectuses, the Holder shall be free to resume making offers of
the shares of Registrable Stock.
(e) Allocation of Expenses. The Company will pay all Registration
Expenses of one registration under Section 10(b) of this Warrant and all
Registration Expenses of all registrations under Section 10(c) of this Warrant;
provided, however, that if a registration under Section 10(b) is withdrawn at
the request of the Holder (other than as a result of information concerning the
business or financial condition of the Company which is made known to the Holder
after the date on which such registration was requested) and if the Holder
elects not to have such registration counted as a registration requested under
Section 10(b), the Holder and such other person selling securities thereunder
shall pay the Registration Expenses of such registration pro rata in accordance
with the number of shares of Registrable Stock or other securities (all on an
as-converted to Common Stock basis) included in such registration. For purposes
of this Section 10(e), the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Section 10, including, without
limitation, all registration and filing fees, fees of the National Association
of Securities Dealers, Inc., exchange or Nasdaq National Market listing fees,
printing expenses, fees and expenses of counsel for the Company, state Blue Sky
fees and expenses, and the expense of any special audits incident to or required
by any such registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of Holder's own counsel.
(f) Indemnification and Contribution.
(i) In the event of any registration of any of the shares of
Registrable Stock under the Securities Act pursuant to this Warrant, the Company
will indemnify and hold harmless, to the full extent permitted by law, the
Holder, each underwriter of such shares of Registrable Stock, and each other
person, if any, who controls the Holder or such underwriter within the meaning
of the Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which the Holder, such underwriter or
controlling person may become subject under the Securities Act, the Exchange
Act, state securities or Blue Sky laws or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement under which such shares of
Registrable Stock were registered under the Securities Act, including all
documents incorporated therein by reference, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made; and the Company will reimburse
the Holder, such underwriter and each such controlling person for any legal or
any other expenses reasonably incurred by such seller, underwriter or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that (i) the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any untrue statement or omission
made in such Registration Statement, preliminary prospectus or final prospectus,
or any such amendment or supplement, in reliance upon and in conformity with
information furnished to the Company, in writing, by or on behalf of the Holder,
underwriter or controlling person specifically for use in the preparation
thereof and (ii) such indemnity with respect to any preliminary prospectus shall
not inure to the benefit of any seller from whom the person asserting any such
loss, claim, damage or liability purchased stock if such person did not receive
a copy of the final prospectus at or prior to the confirmation of the sale of
such stock to such person in any case where such
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<PAGE> 9
delivery is required by the Securities Act and the untrue statement or omission
of material fact contained in the preliminary prospectus was corrected in the
final prospectus unless such failure to deliver the final prospectus was a
result of the failure of the Company to furnish copies of the final prospectus
for delivery.
(ii) In the event of any registration of any of the shares of
Registrable Stock under the Securities Act pursuant to this Warrant, the Holder
will indemnify and hold harmless the Company, each of its directors and officers
and each underwriter (if any) and each person, if any, who controls the Company
or any such underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages or liabilities, joint or several, to
which the Company, such directors and officers, underwriter or controlling
person may become subject under the Securities Act, Exchange Act, state
securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such shares of Registrable
Stock or other securities were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made,
if the statement or omission was made in reliance upon and in conformity with
information relating to the Holder furnished in writing to the Company by or on
behalf of the Holder specifically for use in connection with the preparation of
such Registration Statement, prospectus, amendment or supplement and the Holder
will reimburse the Company for any legal or any other expenses reasonably
incurred by the Company in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that (i) the
obligations of the Holder hereunder shall be limited to an amount equal to the
proceeds to the Holder from the shares of Registrable Stock sold in connection
with such registration, (ii) such indemnity with respect to any preliminary
prospectus shall not inure to the benefit of the Company, if the person
asserting any such loss, claim, damage or liability did not receive a copy of
the final prospectus at or prior to the confirmation of the sale of such stock
to such person in any case where such delivery is required by the Securities Act
and the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the final prospectus if such failure to
deliver the final prospectus was a result of the failure of the Company to
furnish copies of the final prospectus for delivery, and (iii) the Holder shall
not be obligated to provide indemnity hereunder to the extent that damages
result from the failure of the Company to promptly amend or supplement any
Registration Statement or prospectus on the basis of supplemental information
provided to the Company in writing by the Holder (provided that such
supplemental information constitutes new facts or information relative to the
Holder and not a correction or completion of statements that were inaccurate or
incomplete when originally provided by the Holder to the Company).
(iii) Each party entitled to indemnification under this Section
10(f) (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, provided, further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 10(f). The Indemnified
Party may participate in such defense at such party's expense; provided,
however, that the Indemnifying Party shall pay such expense if representation of
such Indemnified Party by the counsel retained by the Indemnifying Party would
be inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation, and no Indemnified Party shall consent to entry of any judgment or
settle such claim or litigation without the prior written consent of the
Indemnifying Party.
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(iv) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) the
Holder or any controlling person thereof, makes a claim for indemnification
pursuant to this Section 10(f) but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 10(f) provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of the Holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 10(f); then, in each such case, the Company, the
Holder and all other persons who have sold securities pursuant to such
Registration Statement will contribute to the aggregate losses, claims, damages
or liabilities to which they may be subject (after contribution from others) in
such proportions so the Holder is responsible for the portion represented by the
percentage that the public offering price of its shares of Registrable Stock
offered by the Registration Statement bears to the public offering price of all
securities offered by such Registration Statement, and the Company and the other
selling stockholders are responsible for the remaining portion; provided,
however, that, in any such case, (A) in no event will the Holder be required to
contribute any amount in excess of the proceeds to it of all shares of
Registrable Stock sold by it pursuant to such Registration Statement, and (B) no
person or entity guilty of fraudulent misrepresentation, within the meaning of
Section 11 of the Securities Act, shall be entitled to contribution from any
person or entity who is not guilty of such fraudulent misrepresentation.
(g) Indemnification with Respect to Underwritten Offering. In the event
that shares of Registrable Stock are sold pursuant to a Registration Statement
in an underwritten offering pursuant to Section 10(b), the Company agrees to
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by the Company of the underwriters of such offering.
(h) Information by Holder. The Holder shall furnish to the Company such
information regarding the Holder and the distribution proposed by the Holder as
the Company may reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Warrant.
(i) Survival of Terms. The provisions of this Section 10 shall survive
the exercise of this Warrant in whole or in part and shall inure to the benefit
of any successor Holder(s) of this Warrant by virtue of Section 9 hereof.
11. Certificate of Adjustment. Whenever the Exercise Price or the number
of shares of Common Stock purchasable hereunder is adjusted, as herein provided,
the Company shall promptly deliver to the Holder of this Warrant a certificate
setting forth the Exercise Price and number of shares of Common Stock
purchasable hereunder after such adjustment and setting forth a brief statement
of the facts requiring such adjustment, as certified by the Company's chief
financial officer.
12. Notice of Dividend or Distribution.
(a) If at any time before the expiration or exercise of this
Warrant:
(i) the Company shall take a record of the Holders of its
Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right, or
(ii) there shall occur any capital reorganization of the
Company, any reclassification of the capital stock of the Company, consolidation
or merger of the Company with or into
10
<PAGE> 11
another corporation, or any conveyance of all or substantially all of the assets
of the Company to another corporation, or
(iii) there shall occur any voluntary dissolution,
liquidation or winding-up of the Company,
then, in each such case, the Company will mail or cause to be mailed to the
Holder a notice specifying, as the case may be, (A) the date on which a record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, or (B)
the date on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record of Common Stock
(or such stock or securities at the time receivable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 15
days prior to the date therein specified.
(b) All such notices, advices and communications shall be deemed
to have been received (i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing, on the third business day following
the date of such mailing.
(c) Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any dividend, distribution, recapitalization,
reorganization or liquidation.
13. Governing Law. The provisions and terms of this Warrant shall be
construed in accordance with the laws of the State of Washington.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
under seal this 9th day of February, 1998.
TIMELINE, INC.
By: _______________________________
Name: ____________________________
Title: _____________________________
Address: 3055 112th Avenue NE
Suite 106
Bellevue, WA 98004
11
<PAGE> 12
Notice of Warrant Exercise
Date ____________________
Timeline, Inc.
3055 112th Avenue NE
Suite 106
Bellevue, WA 98004
(1) The undersigned hereby elects to purchase ________ shares of Common
Stock of Timeline, Inc. pursuant to the provisions of Section 3 of the attached
Warrant, and tenders herewith payment of the Exercise Price for such shares in
accordance with Section 3(a) of such Warrant, as follows:______________________
_______________________________________________________________________________
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party (other than
affiliates as permitted under Section 9(c) of the attached Warrant), and for
investment, and that the undersigned will not offer, sell or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended or any
applicable state securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
________________________________________________________________________________
Certificate Name
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below.
By: _______________________________
Name: ____________________________
Title: _____________________________
Address:
12
<PAGE> 13
Form of Assignment
For value received __________________ hereby sells, assigns and transfers unto
_________________________________________________________________
_________________________________________________________________
(Please print or typewrite name and address of Assignee)
warrants to purchase ________________________________(__________) shares of the
Common Stock of Timeline, Inc., represented by the within Warrant, and does
hereby irrevocably constitute and appoint _________________________ Attorney to
transfer the within Warrant on the books of the _____________, with full power
of substitution on the premises.
Dated: ______________________
By: _______________________________
Name: ____________________________
Title: _____________________________
Address:
13
<PAGE> 1
Exhibit 10.6
CALAHAN AGREEMENT
This Agreement is made and entered into effective as of March 30, 1998
(the "Effective Date"), by and between TIMELINE, INC., a Washington corporation
("Company"), and JOHN W. CALAHAN ("Calahan").
RECITALS
WHEREAS, Calahan has been President and Chief Executive Officer of the
Company pursuant to an Employment Agreement dated September ___, 1994 and
amended February 1995 and October 1995 (the "1994 Employment Agreement"), until
the Company requested his resignation from that position in November, 1996,
whereafter he has continued at the request of the Company to be employed as
___________; and
WHEREAS, the 1994 Employment Agreement is to expire on September ___,
1999; and
WHEREAS, Calahan has accrued certain unpaid salary and the right to a
sabbatical, unpaid vacation and accrued sick leave, which issues the Company and
Calahan wish to address; and
WHEREAS, the 1994 Employment Agreement referenced a Technology Transfer
Agreement dated April 19, 1993 (the "Technology Agreement") and a Noncompetition
Agreement dated April 19, 1993 (the "Noncompetition Agreement"); and
WHEREAS, the Company and Calahan wish to terminate Calahan's employment
with the Company and to arrange for the retention of Calahan as a consultant to
the Company;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows.
1. Termination of Employment. The Company and Calahan mutually agree
that Calahan's employment by the Company shall terminate effective April 1, 1998
(the "Termination Date"), subject to the obligation of the Company to pay the
following amounts and provide the following time off which are related to
services previously provided to the Company by Calahan prior to the Termination
Date.
(a) Deferred Salary. The Company and Calahan agree and
acknowledge that, as of March 31, 1998, Calahan is owed deferred salary
and accrued vacation pay, in the aggregate amount of $70,274.78 (the
"Deferred Salary and Accrued Benefits"). The Company shall make payments
on such
<PAGE> 2
Deferred Salary and Accrued Benefits at a rate of no less than $4,337.00
per month until fully paid. In the event that Timeline either (i) sells
substantially all of its assets to a third party, or (ii) is merged with
or substantially all of its shares are acquired by a third party, the
Deferred Salary and Accrued Benefit remaining unpaid shall be
immediately paid to Calahan. In the event Calahan elects in writing,
Calahan may receive $2.00 of advance license credit for each $1.00 of
Deferred Salary. Calahan expressly acknowledges that the Deferred Salary
and Accrued Benefit amount includes all accrued but unused vacation and
sick leave owed to Calahan throughout his employment through the
Termination Date. There are no other amounts owing to Calahan, except as
expressly provided in 1(b), 1(c) and 1(d) below or except for
legitimate, unreimbursed expenses incurred by Calahan pursuant to the
Company's policies, through the Termination Date.
(b) Sabbatical. The Company shall pay Calahan for his unused
sabbatical in the amount of $25,000.00 at the rate of $8,667.00 per
month beginning April 1, 1998.
(c) Acceleration of Payment. If the Company signs a contract
with Seagate Software, which contract requires disclosure to the Company
shareholders, then the Company shall immediately pay Calahan any amount
of (i) unpaid Deferred Salary and Accrued Benefit and (2) unpaid
sabbatical.
(d) COBRA Benefits. The Company will pay Calahan's COBRA medical
insurance continuation premiums for a period of one (1) month, beginning
as of April 1, 1998 (the "COBRA Premiums"). Calahan acknowledges and
agrees that other than as provided in this Agreement, the Company has no
obligation to pay COBRA Premiums.
2. Professional Services. Calahan shall use his best efforts to close
matters dealing with Managed Care located in Phoenix and Habitat for Humanity,
prior to the Termination Date. Commencing April 1, 1998, Calahan shall consult
with the Company on subjects concerning marketing, software programming and
installation of Company products ("Consulting") at such times as the Company may
reasonably request upon the following terms and conditions:
(a) Rate. Calahan shall be paid weekly at the rate of $100.00
per hour for each hour of Consulting. When traveling, all travel time is
billable and trips to the East Coast shall require one day of travel (8
hours).
(b) Minimum. The Company shall be obligated to offer
-2-
<PAGE> 3
to Calahan no fewer than 600 hours of Consulting in 1998.
(c) Offset. At the sole election of Calahan, any amount due
Calahan for Consulting, whether or not applicable to the minimum payment
requirement set forth in subsection (b), may be offset against any
software license fee due under the terms of the Distributor Agreement.
(d) Scheduling. The Company shall take into consideration and
accommodate Calahan's three (3) month sabbatical when scheduling its
request for Consulting. All Consulting shall be utilized based upon a
full day of no less than eight (8) hours.
(e) Working Facilities. While Consulting, Calahan shall be
furnished with such office, facilities, services, supplies, and
assistants as are suitable and adequate for the proper performance of
his duties.
(f) Expenses. Calahan shall be reimbursed by the Company for his
reasonable expenses, incurred in connection with Consulting, in
accordance with the general policy of Company regarding reimbursement of
expenses as adopted by the Board of Directors of Company from time to
time. Calahan shall receive reasonable advances for expenses he is
expected to incur.
3. Distributor Agreement. On April 1, 1998, Calahan shall become a
distributor of Company products pursuant to the Distributor Agreement and
Software License (the "Distributor Agreement") attached hereto as Exhibit A.
4. Equipment. The Equipment listed on Exhibit B attached hereto is all
of the equipment owned by the Company now in the possession of Calahan (the
"Equipment"). Calahan shall have the continued use of the Equipment until such
time as the Company shall offer the Equipment to Calahan to purchase at the
lower of (i) the Company's book value of the Equipment, (ii) the Company's tax
basis in the Equipment, or (iii) the fair market value of the Equipment in a
distressed sale.
5. Microsoft Software. Until such time that Timeline shall have one
hundred computers, and to the extent permitted by third-parties, Calahan shall
be entitled to participate in Timeline's Microsoft Solution Provider Software
Program and shall be provided copies of Microsoft's software provided to
Timeline for use on the computers listed on Exhibit B or any computers purchased
by Calahan.
6. Right to Indemnification. In order to assure the Company's ability to
provide Calahan the indemnification to which
-3-
<PAGE> 4
he may be entitled by virtue of his services as a director and executive officer
of the Company, pursuant to the indemnification policies which are available to
any officer or director and are contained in the Company's Articles of
Incorporation, Bylaws, and other applicable laws and Company policies, the
Company shall continue in effect its existing Directors and Officers ("D&O")
Insurance policy which shall provide coverage for all current and past officers
and directors. The Company shall provide proof annually to Calahan of the
existence of such a D&O policy which is in full force and effect, for a period
of ten (10) years after the Termination Date.
7. Support of Timeline. Pursuant to the guidelines set forth therein,
Calahan shall use his best efforts under the Distribution Agreement, and,
consistent with those efforts, shall at all times publicly support the Company's
business. Calahan and the Company, and its officers and directors, agree not to
make any disparaging statements, either written or verbal, to any third party
regarding the Company, its products, its directors or officers, or Calahan.
8. Termination. Calahan and the Company agree that this Agreement shall
not be construed or interpreted as either an express or implied admission that
Calahan's cessation of employment was in any way improper or that Calahan's
conduct as an employee and director of the Company was in any way improper or
otherwise breached his employment or other agreements with the Company.
9. Joint Press Release. The Company and Calahan will issue a joint press
release indicating Calahan's resignation as an employee and director of the
Company and the assumption of a distributorship role which shall be published to
customers, the industry and shareholders.
10. Waiver of Claims.
(a) By Calahan. Except for future claims against the Company for
(i) obligations arising from this Agreement and Distributorship
Agreement and Source Code License, and (ii) indemnification and for the
advancement of costs that Calahan may have under any applicable
statutes, articles of incorporation, bylaws and/or agreements providing
for the indemnification of Calahan by virtue of the fact that he was an
officer and director of the Company, Calahan agrees that payment of the
amount due under the terms of this Agreement and the other covenants of
the Company to be performed by it hereunder constitute full and complete
settlement for any and all other claims of Calahan against the Company,
whether known or unknown, based in any way on Calahan's employment with
or cessation of employment from the Company or
-4-
<PAGE> 5
Calahan's activities while an officer or director of the Company,
including but not limited to claims relating to his age, sex, religion,
national origin, ADA, mental, sensory or physical status, which may be
pursued or prosecuted in any state, federal, local, administrative or
other forum. Except with respect to indemnification claims referred to
above, Calahan waives and relinquishes all claims to any other remedy
against the Company. This paragraph shall become effective only upon the
payment in full of the amounts to Calahan as set forth in Section 1
above.
(b) By the Company. The Company hereby releases any and all
claims the Company may have against Calahan for the repayment of any
expenses, advances or reimbursements. The Company acknowledges that it
knows of no pending or threatened litigation against the Company or its
officers or directors which could involve a claim against Calahan and
which has not been disclosed to Calahan in writing.
11. Supersedes Prior Employment Agreements. This Agreement supersedes
that certain Calahan Employment Agreement dated as of April 19, 1993, by and
between Company and Calahan (the "1993 Employment Agreement"), and the 1994
Employment Agreement.
12. Notices. Any notice or other communication required hereunder shall
be in writing, mailed in the United States, First Class, postage prepaid and
shall be presumed to have been delivered five (5) days after the date of mailing
as follows:
If to Calahan: John W. Calahan
P. O. Box 881056
Steilacoom, WA 98388-0616
If to the Company: Timeline, Inc.
3055 112th Ave. N.E.
Suite 106
Bellevue, WA 98004
Attention: Charles R. Osenbaugh
or to such other address as Calahan or the Company may direct in writing.
13. Applicable Law and Venue. This Agreement shall be interpreted under
the laws of the State of Washington. Venue for any suit brought to enforce any
rights or remedies granted herein shall lie in the Superior Courts of the State
of Washington or the federal courts of the Western District of Washington.
14. Legal Fees. If Timeline or Calahan employs attorneys to enforce any
rights arising from this Agreement, the substantially prevailing party shall be
entitled to recover
-5-
<PAGE> 6
reasonable attorney's fees and costs, including any costs of appeal. Legal fees
and costs incurred by Calahan in the preparation and negotiation of this
Agreement and the Distribution Agreement shall be paid by Timeline.
15. Miscellaneous.
(a) All rights of the Calahan to indemnification shall survive
any termination of this Agreement.
(b) This Agreement contains the entire agreement between the
parties relating to Calahan's employment by Timeline and his retention
as a consultant, and no modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto.
(c) No assignment of any benefits due or to become due hereunder
shall be made by Calahan without the prior written consent of Company.
In the event of Calahan's death, any benefits due or to become due under
this Agreement which would otherwise be payable to Calahan up to the end
of the month in which his death occurs, and any balance remaining on
Deferred Salary and Accrued Benefits shall become a part of Calahan's
estate and shall be distributed to his personal representative.
16. Survival. The obligations of the parties set forth in Sections 6, 7
and 10 are continuing and shall survive any implied term of this Agreement and
any payment obligations set forth herein.
17. Authority. The Company represents that the officer signing this
Agreement has the full power, authority and capacity to enter into and bind the
Company to this Agreement.
EXECUTED as of the day and year first above written.
COMPANY:
TIMELINE, INC. CALAHAN:
By: /s/ Charles R. Osenbaugh /s/ John W. Calahan
----------------------------------- --------------------------------
Its: President/CEO John W. Calahan
-6-
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-KSB into the Company's previously filed
Form S-8.
/s/ Arthur Anderson LLP
ARTHUR ANDERSON LLP
June 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED MARCH
31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 59,022
<SECURITIES> 0
<RECEIVABLES> 1,433,121
<ALLOWANCES> 60,966
<INVENTORY> 0
<CURRENT-ASSETS> 1,700,422
<PP&E> 1,959,193
<DEPRECIATION> 1,469,026
<TOTAL-ASSETS> 2,684,157
<CURRENT-LIABILITIES> 1,708,358
<BONDS> 0
0
0
<COMMON> 32,147
<OTHER-SE> 9,205,706
<TOTAL-LIABILITY-AND-EQUITY> 2,684,157
<SALES> 1,747,398
<TOTAL-REVENUES> 3,883,962
<CGS> 0
<TOTAL-COSTS> 1,519,623
<OTHER-EXPENSES> 3,025,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 158,063
<INCOME-PRETAX> 174,626
<INCOME-TAX> 0
<INCOME-CONTINUING> 174,626
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174,626
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.05
</TABLE>
