<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1999 COMMISSION FILE NUMBER 1-13524
TIMELINE, INC.
(Exact name of small business issuer as specified in its charter)
WASHINGTON 91-1590734
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3055 112TH AVENUE N.E., STE. 106
BELLEVUE, WA 98004
(Address of principal executive offices)
(425) 822-3140
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS JULY 15, 1999
<S> <C>
Common Stock, $.01 Par Value 3,223,709
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIMELINE, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1999 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 116,233 $ 59,453
Short-term investments 3,799,551 -
Accounts receivable (including $165,150 and $195,150 from affiliate),
net of allowance of $119,173 and $52,010 361,552 559,666
Prepaid expenses and other 58,028 56,888
Receivables from affiliates 14,853 13,567
Other Receivable 87,500 -
-------------- --------------
Total current assets 4,437,717 689,574
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,672,597 and $1,624,597 334,611 371,850
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $1,116,720 and $1,131,458 504,280 628,508
OTHER ASSETS 2,185 2,185
-------------- --------------
Total assets $ 5,278,793 $ 1,692,117
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 93,092 $ 142,487
Accrued expenses 355,441 355,125
Line of credit 31,802 23,705
Deferred revenue 380,877 418,827
Current portion of long-term debt - 132,578
Current portion of capital leases 10,705 10,705
-------------- --------------
Total current liabilities 871,917 1,083,427
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 1,633 4,309
-------------- --------------
Total liabilities 873,550 1,087,736
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock 32,270 31,946
Additional paid-in capital 8,966,195 9,070,865
Unearned ESOP shares - (135,417)
Accumulated deficit (4,593,222) (8,363,013)
-------------- --------------
Total stockholders' equity 4,405,243 604,381
-------------- --------------
Total liabilities and stockholders' equity $ 5,278,793 $ 1,692,117
============== ==============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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TIMELINE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Software license $ 5,076,656 $ 847,810
Maintenance 205,069 186,228
Consulting and other 206,519 165,672
----------- -----------
Total revenues 5,488,244 1,199,710
COST OF REVENUES: 390,537 239,896
----------- -----------
Gross profit 5,097,707 959,814
----------- -----------
OPERATING EXPENSES:
Sales and marketing 246,200 169,962
Research and development 307,180 182,171
General and administrative 719,446 434,629
Depreciation 48,000 35,941
----------- -----------
Total operating expenses 1,320,826 822,703
----------- -----------
Income from operations 3,776,881 137,111
OTHER INCOME (EXPENSE):
Interest income 961 980
Interest expense (8,051) (22,043)
----------- -----------
Net income $ 3,769,791 $ 116,048
=========== ===========
Basic net income per common share $ 1.19 $ 0.04
=========== ===========
Diluted net income per common and
common equivalent share $ 1.17 $ 0.03
=========== ===========
Shares used in calculation of basic earnings per share 3,159,432 3,163,886
=========== ===========
Shares used in calculation of diluted earnings per share 3,221,099 3,323,054
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TIMELINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 4,025,666 $ 1,029,411
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (13,261) (22,010)
Capitalized software costs (30,857) (104,579)
Purchase of Short-Term investments (3,799,551) -
----------- -----------
Net cash used in investing activities (3,843,669) (126,589)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - -
Borrowings under line of credit 287,012 64,892
Payments on notes payable (132,578) (48,056)
Payments on line of credit (278,915) (211,764)
Payments on capital lease obligations (2,676) (2,677)
Proceeds from exercise of common stock options 1,940 374
----------- -----------
Net cash used in financing activities (125,217) (197,231)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 56,780 705,591
CASH AND CASH EQUIVALENTS, beginning of period 59,453 59,022
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 116,233 $ 764,613
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the quarter for -
Interest $ 11,886 $ 39,838
Income taxes - -
</TABLE>
The accompanying notes are an integral part of these financial statements
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TIMELINE, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
1. INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of Timeline, Inc. (the Company) are
unaudited. In the opinion of the Company's management, the financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial information set forth therein. Results
of operations for the three-month period ended June 30, 1999 are not necessarily
indicative of future financial results.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-QSB.
Accordingly, these financial statements should be read in conjunction with the
Company's annual financial statements for the year ended March 31, 1999,
previously reported.
2. SHAREHOLDERS' EQUITY
Changes in shareholders' equity for the period from March 31, 1999 to June 30,
1999 were as follows:
<TABLE>
<S> <C>
Shareholders' equity, March 31, 1999 $ 604,381
Exercise of common stock options 31,071
Net income 3,769,791
----------
Shareholders' equity, June 30, 1999 $4,405,243
==========
</TABLE>
3. NET INCOME PER COMMON SHARE
Basic net income per share is the net income divided by the average number of
shares outstanding during the year. Diluted net income per share is calculated
as the net income 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). Shares in the Employee
Stock Ownership Plan, which were not committed to be released to plan
participants as of the quarter ended June 30, 1998, totaling 50,736 shares, are
not considered outstanding for the earnings per share calculation.
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The computation of diluted net income per common and common equivalent share is
as follows for the quarters ended June 30:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net income $ 3,769,791 $ 116,048
----------- -----------
Weighted average common shares outstanding 3,159,432 3,163,886
Plus: dilutive options and warrants 781,822 629,144
Less: shares assumed repurchased with proceeds from exercise (720,155) (469,976)
----------- -----------
Weighted average common and common equivalent shares outstanding 3,221,099 3,323,054
=========== ===========
Diluted net income per common and common equivalent shares $ 1.17 $ 0.03
=========== ===========
</TABLE>
4. LITIGATION
In March 1999, the Company filed an action in the U.S. Federal District Court
for Western Washington against Sagent Technologies, Inc. In July 1999, the
Company filed an action in the U.S. Federal District Court for Western
Washington against Broadbase, Inc. These actions seek monetary damages and an
injunction against each defendant from further unauthorized licensing of certain
products that Timeline believes infringe on Timeline's U.S. Patent rights under
U.S. Patent #5,802,511. From time to time, the Company may pursue litigation
against other third parties to enforce or protect its rights under this patent
or its intellectual property rights generally.*
In July 1999, the Company settled a securities lawsuit filed in May 1998,
Tennant v. Timeline, Inc., et al., Case No. 9805-03737, in the Circuit
Court of the State of Oregon for Multnomah County, in which the Company,
certain of its directors, former directors and officers, were named
as defendants. The total amount of the settlement did not exceed the
amount of reserves previously accrued.
In July 1999, the Company was served a complaint by Microsoft Corporation in the
Superior Court of Washington for King County alleging breach of contract
regarding a Patent License Agreement signed by both companies in June 1999. The
Company believes the claims made by Microsoft have no merit and intends to
vigorously defend itself in this lawsuit.
In July 1999, the Company voluntarily dismissed without prejudice a lawsuit
filed against Clarus Corporation in October 1998, in the US Federal District
Court for Western Washington. This action sought monetary damages and an
injunction against the defendant from unauthorized licensing of certain products
that Timeline believed infringed on Timeline's U.S. Patent rights under U.S.
Patent #5,802,511. The Company determined there was not sufficient sales revenue
generated by the product which was subject of this dispute to justify further
expenditures on this lawsuit.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties
including those discussed below that could cause actual results to differ
materially from historical results or those anticipated. When used herein, the
words "anticipate," "believe," "estimate," "could," "may," "will," "expect" and
similar expressions as they relate to the Company are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. The Company does not undertake any
obligation to revise these forward-looking statements to reflect any future
events or circumstances. In addition, the disclosures under the caption "Other
Factors that May Affect Operating Results", consist principally of a brief
discussion of risks which may affect future results and are thus, in their
entirety, forward-looking in nature. TO FACILITATE READERS IN IDENTIFYING
FORWARD-LOOKING STATEMENTS, THE COMPANY HAS ATTEMPTED TO MARK SENTENCES
CONTAINING SUCH STATEMENTS WITH A SINGLE ASTERISK AND PARAGRAPHS CONTAINING ONLY
FORWARD LOOKING STATEMENTS WITH DOUBLE ASTERISKS. HOWEVER, NO ASSURANCE CAN BE
MADE ALL SUCH STATEMENTS HAVE BEEN IDENTIFIED. Therefore, readers are urged to
carefully review and consider the various disclosures made by the Company in
this report and in the Company's other reports previously filed with the
Securities and Exchange Commission (the "SEC"), including the Company's periodic
reports on Forms 10-KSB and 10-QSB, and the Company's registration statements on
Forms SB-2 and S-3, and those described from time to time in the Company's press
releases and other communications, which attempt to advise interested parties of
the risks and factors that may affect the Company's business.
RESULTS OF OPERATIONS
REVENUES
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998 Change
-------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in Thousands)
Software license 5,077 848 500%
Maintenance 205 186 10%
Consulting 206 166 25%
------------------------------
Total Revenues 5,488 1,200 357%
-------------------------------------------------------------------------------
</TABLE>
Software license revenue for the quarter ended June 30, 1999 includes a one-time
license fee from Microsoft Corporation of $5,000,000. While license revenue for
the quarter ended June 30, 1998 also included a one-time license fee, in this
case from Seagate Software, Inc., the amount of the Microsoft license fee was
far more substantial and represents the entire increase in license revenue
between the periods. Other than the Microsoft license fee, license revenue was
substantially lower in the first quarter of fiscal 2000 than in the comparable
quarter of fiscal 1999. This is due in large part to the decrease in license
revenue experienced by the Company's distribution partners, which management
believes to be the result of
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<PAGE> 8
concerns of potential licensees of issues relating to the Year 2000 problems.
Management expects this weakness to continue through calendar 1999.*
Maintenance revenue increased 10% for the first quarter of fiscal 2000 over
fiscal 1999. The increase in maintenance revenue is due to the movement of new
licensees through the installation process and to maintenance and support
relationships with the Company. The Company continues to experience attrition in
renewals of maintenance contracts for its more complex Microsoft NT-based
product lines and reductions in maintenance revenue from its Digital VAX-based
accounting systems; i.e. those product lines no longer being actively marketed.
Management believes that the resulting decreases in maintenance and consulting
revenues from these product lines will be offset by increased demand
attributable to the Company's current activities.* Nevertheless, future
comparative statements between fiscal quarters may show mixed results for the
rest of fiscal 2000 dependant upon the timing of new licenses and the expiration
of existing maintenance agreements.*
Consulting fees increased 25% for the first quarter of fiscal 2000 over fiscal
1999. The Company experienced substantial downsizing during several years prior
to fiscal 2000. However, as finances improved, the Company has gradually
increased the number of employees dedicated to providing consulting services.
This staffing increase and new license sales during fiscal 1999, which generate
consulting business, combined to increase consulting revenue for the quarter
ended June 30, 1999.
GROSS MARGIN
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998 Change
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in Thousands)
Gross profit 5,098 960 431%
Percentage of revenues 93% 80%
-------------------------------------------------------------------------------------------------------
</TABLE>
The Company's gross margin varies in part depending upon the mix of
higher-margin software licenses and lower-margin consulting and maintenance
revenue, which is labor intensive. A significantly higher proportionate share of
gross revenue in the quarter ending June 30, 1999 consisted of software license
revenue when compared to the same quarter in fiscal 1999. This increase was
primarily due to a large, one-time license fee which resulted in a substantial
increase in gross profits as a percentage of revenue.
SALES AND MARKETING
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998 Change
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in Thousands)
Sales and marketing 246 170 45%
Percentage of revenues 4% 14%
--------------------------------------------------------------------------------------------------
</TABLE>
Sales and marketing expenses in actual dollar amounts increased by 45% between
the periods ended June 30, 1999 and June 30, 1998. This reflects both a higher
number of employees in the sales and marketing department and higher
compensation, some of which was paid as bonuses or commissions based upon
increased results.
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<PAGE> 9
Sales and marketing expenses as a percentage of revenues decreased substantially
due to the higher sales revenue. The Company anticipates actual costs of sales
and marketing to remain at higher levels throughout fiscal 2000 than during
fiscal 1999 based upon the increased staffing levels, which are not expected to
change significantly in the near term.* However, such costs as a percentage of
revenue may vary widely based upon the level of gross revenue in each quarter.*
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998 Change
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in Thousands)
Research & development 307 182 69%
Percentage of revenues 6% 15%
------------------------------------------------------------------------------------------------------
</TABLE>
Research and development expenses increased during the quarter ended June 30,
1999 in actual dollar amounts by 69% over the period ended June 30, 1998.
Approximately $103,000, or 82% of the $125,000 increase in expense, is due to a
reduced level of capitalized software development costs in fiscal 2000 compared
to the fiscal 1999 quarter. The balance of the increase is due in part to a
higher number of employees dedicated to such efforts.
Research and development expenses during the quarters ended June 30, 1999 and
June 30, 1998 were primarily attributable to the enhancement of the
functionality of the current product lines and to integration of the Company's
products with various accounting packages. Management anticipates such efforts
will continue throughout the remainder of the fiscal year.* Consequently,
management believes research and development expenses will continue to increase
slightly over comparable periods of fiscal 1999.*
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998 Change
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Dollars in Thousands)
General & administrative 719 435 65%
Percentage of revenues 13% 36%
------------------------------------------------------------------------------------------------------
</TABLE>
General and administrative expenses increased substantially between the
comparable three-month periods ended June 30, 1999 and June 30, 1998. The
majority of this increase reflects a one-time discretionary bonus awarded to
Charles R. Osenbaugh by the Board of Directors based upon results for the
quarter.
Except for attorneys and expert witness fees associated with certain ongoing and
anticipated patent licensing and enforcement actions, management expects general
and administrative expenses to remain relatively steady throughout the remainder
of fiscal 2000 at levels similar to those experienced in fiscal 1999.* Due to
the uncertainties associated with patent litigation and negotiations, it is hard
to estimate the level of litigation expenses on an ongoing basis. Management
anticipates, based upon the current level of activity, that litigation expenses
may substantially exceed $100,000 per quarter until the trials currently
scheduled for July 2000 and December 2000 are either completed or settled.*
Depreciation expense increased in the quarter ended June 30, 1999 to $48,000
from $36,000 in the quarter ended June 30, 1998.
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INCOME TAX
Income taxes are provided in the statement of operations in accordance with the
asset and liability method. The Company has determined that the tax assets
generated by the net operating losses and research and experimentation credits
do not satisfy the recognition criteria set forth under the liability method.
Accordingly, a valuation allowance is recorded against the applicable deferred
tax assets and therefore no tax benefit is recorded. This valuation allowance
was reduced by approximately $1,280,000 during the quarter ended June 30, 1999.
In connection with the Company's initial public offering in January 1995, the
Company experienced a significant change in ownership, which limits the amount
of net operating loss carry forwards and credits which may be used in any given
year. However, the Company does not expect this to be a factor in fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalent and short-term investment balances at
June 30, 1999 stood at approximately $3,916,000 compared to approximately
$59,000 at March 30, 1999. The increase in cash is attributable to a substantial
one-time patent license fee received during the quarter. Total obligations,
excluding deferred income items, totaled approximately $493,000 at June 30, 1999
as compared to approximately $669,000 at March 31, 1999. The March 31, 1999
obligations include a corporate guarantee of a $104,000 bank note between the
Timeline Employee Stock Ownership Trust and Silicon Valley Bank. This note was
fully paid prior to June 30, 1999.
Net cash generated in operating activities was $4,026,000 in the quarter ended
June 30, 1999. This was primarily due to the Company generating net income
offset by payment of current and long-term liabilities. The Company used
$3,844,000 for investing activities and $125,000 for financing activities.
Based on current cash and cash equivalent balances, the Company believes it has
adequate resources to fund operations during fiscal 2000.*
At June 30, 1999, the outstanding balance on the Company's line of credit
facility was $31,802. Timeline has a bank line of credit of up to $500,000
secured by qualified accounts receivable. As of June 30, 1999, the Company had
approximately $202,000 available on this line of credit, based upon qualified
accounts receivable.
OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS
The Company's operating results may fluctuate due to a number of factors,
including, but not limited to, the ability of the Company to continue to develop
and expand distribution channels and to develop relationships with third-party
distributors and licensees of the Company's products, the ability of the Company
to integrate its products with those of its third-party distributors and
licensees, the ability of the Company to hire qualified sales and marketing
personnel and to generate revenue from such sales and marketing personnel, the
outcome of the litigation involving Microsoft Corporation, the outcome and costs
of pursuing patent litigation against third parties, the availability of
additional financing or capital
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resources, the volume and timing of systems sales and licenses, reductions in
the size or volume of maintenance contracts with clients, changes in the product
mix of revenues, issues relating to the Year 2000 problem including the impact
on new sales and licensing agreements, changes in the level of operating
expenses, and general economic conditions in the software industry. All of the
above factors are difficult for the Company to forecast, and can materially
adversely affect the Company's business and operating results for one quarter or
a series of quarters.**
YEAR 2000 COMPLIANCE
The statements in the following section include "Year 2000 readiness disclosure"
within the meaning of the Year 2000 Information and Readiness Act. The Company
has undertaken a plan to address the potential impact to its business of "Year
2000 issues" (i.e., issues that may arise as a result of computer programs that
use only the last two, rather than all four, digits of the year). The plan
addresses Internal Matters, which are under the Company's operation and over
which the Company exercises some control, and External Matters, which are
outside the Company's control and influence.
INTERNAL MATTERS. The Company's review of Internal Matters falls into two
categories which are identified and addressed separately below.
Computer Hardware and Software:
1. The Y2K compliance status of the Microsoft products used by the
Company is found at http://www.microsoft.com/technet/topics/year2k/default.htm.
All products used by the Company are deemed compliant by Microsoft with one
exception. Microsoft Access 2.0 requires an update be applied in order to pass
Microsoft's Y2K compliance test. However, the Company's use of Access 2.0 as
required for its Financial Server products has been tested and it is the
Company's belief that Financial Server using Access 2.0 is Y2K compliant.
2. The DEC VAX system and a DEC AXP system run OpenVMS. The AXP has
been upgraded to V7.1 and the upgrade of the VAX to V7.1 is scheduled to be
completed by September 30, 1999. Compaq's Y2K position on OpenVMS V7.1
(compliant) is stated at
http://www.openvms.digital.com/openvms/products/year2000/ index.html. The BASIC
compiler and the C Compiler that is used for maintenance of the Company's VMS
products will be upgraded during the third quarter of calendar 1999.*
3. PC hardware. The Company has less than 75 PC's in use and estimates
that fewer than 25% of those will need upgrades to be compliant. This upgrade
project is expected to be completed by September 30, 1999.*
4. Various other software packages. Certain employees of the Company
require software products to assist them in their jobs. The number of these
products is estimated to be fewer than ten, and assessment of the products for
Year 2000 compliance is scheduled to be completed by September 30, 1999.
5. A listing of printers, modems and other computer hardware has been
assembled, reviewed and is being assessed for Year 2000 compliance. After the
review is completed, a determination will be made regarding the need to upgrade
or replace the various hardware products.
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<PAGE> 12
The Company estimates that the cost for the upgrades listed above and any
replacements will not exceed $15,000. The Company intends to fund Year 2000
upgrades and changes through operating cash flow and indebtedness.**
Timeline Software Products:
The Company's current versions of its products and services are designed
to be Year 2000 compliant. Following is a list showing the current version
number of the software products that are believed to be Year 2000 compliant:
Vax/Alpha Version 6.0
Financial Analytics Version 2.5 and higher
MV Server Versions 2.4d and 2.5c
Analyst 1.5 compatible suite(1)
Third-Party Alliance Partner Filters
(1)Designed to be Y2K compliant, but no testing performed. Upgrade
recommended to Financial Analytics
The Company recognizes that certain customers may have made custom,
site-specific changes to software provided by the Company. The Company cannot
assess the number or nature of such customizations nor their Y2K compliance. To
the extent the customization work was performed by the Company, customers may
request a review and, if possible, an upgrade to the customization on a time and
materials basis. While the Company's above-listed 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, a re-testing of the current release of the
software is scheduled to be completed by September 1999.* However, 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 with whom it does business will be Year
2000 compliant and would not have an adverse effect on the Company's business.*
Timeline makes no representation or warranty as to, and will not address,
the Year 2000 readiness of any hardware, firmware, software, services protocols,
data, interfaces to third party systems, or user-customized functions or
features that may be used with Timeline software other than those Company
products discussed above. The Company does not plan to test any products other
than the current version and will not provide Year 2000 support for any products
other than those identified on the list. The information contained on the list
is based on data available to the Company at the time of its preparation. From
time to time, Timeline may change the information on the list without notice to
the customer.
The Company estimates that the cost to date for upgrading its products to
be Year 2000 compliant is approximately $160,000. These costs have been incurred
over a several year period and have been funded by operating cash flow. Although
future expenses are not known at this time, the Company believes they will not
be material.*
The Company estimates that it has completed approximately 75% of its Year
2000 Plan regarding Internal Matters. The Internal Matter review process is
planned for completion by the end of the September 1999.*
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<PAGE> 13
EXTERNAL MATTERS. The Company has commenced a review of External Matters
which are outside the Company's control and influence. This process consists of
a determination of the customer and supplier relationships and third-party
alliance partners that could have a potential material impact upon the Company
and its ongoing operations. Confirmation of Y2K compliance has been received
from the building management with regard to building systems, the telephone
system and service providers, and the Company's business equipment such as
copiers, postage and fax machines. Additional vendors and suppliers may be added
if further analysis determines the impact on the Company would be material in
the event of a Year 2000 compliance failure. The Company will be contacting its
third-party alliance partners with regard to their Year 2000 compliance status
and any compatibility issues that may arise.*
A contingency plan for External Matters has not yet been completed and
there can be no assurance that Year 2000 problems resulting from customer,
supplier or third-party alliance partner relationships will not have a material
adverse impact on the Company. The Company anticipates completion of this
process by September 30, 1999.**
The Company estimates that it has completed approximately 70% of its Year
2000 plan for External Matters. To date, it has incurred expenses of less than
$15,000, and anticipates future direct costs to be no more than an additional
$20,000.*
Although the Company believes that it has an effective plan in place that
will resolve any Year 2000 issues in a timely manner, the Company may be
adversely impacted by Year 2000 issues if its re-testing of its software
products indicate Year 2000 processing problems, or if upgrades to internal
computer hardware and software are not completed on schedule. In the event that
third parties do not complete the necessary remediation, the Company could be
subject to interruption of its normal business activities, including its ability
to meet product development deadlines, maintain consulting schedules, generate
revenue through third-party alliance partners, deliver software to customers,
invoice customers, collect payments or engage in similar business activities.
Such an event could result in a material adverse effect on the Company's
revenues or in litigation surrounding such business interruptions. In addition,
disruptions in the economy generally resulting from the Year 2000 issue could
materially adversely affect the Company. The amount of potential liability and
revenues cannot reasonably be estimated at this time.**
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PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1999, the Company filed an action in the U.S. Federal District Court
for Western Washington against Sagent Technologies, Inc. In July 1999, the
Company filed an action in the U.S. Federal District Court for Western
Washington against Broadbase, Inc. These actions seek monetary damages and an
injunction against each defendant from further unauthorized licensing of certain
products that Timeline believes infringe on Timeline's U.S. Patent rights under
U.S. Patent #5,802,511. From time to time, the Company may pursue litigation
against other third parties to enforce or protect its rights under this patent
or its intellectual property rights generally.*
In July 1999, the Company settled a securities lawsuit filed in May 1998,
Tennant v. Timeline, Inc., et al., Case No. 9805-03737, in the Circuit Court of
the State of Oregon for Multnomah County, in which the Company, certain of its
directors, former directors and officers, were named as defendants. The total
amount of the settlement did not exceed the amount of reserves previously
accrued.
In July 1999, the Company was served a complaint by Microsoft Corporation in the
Superior Court of Washington for King County alleging breach of contract
regarding a Patent License Agreement signed by both companies in June 1999. The
Company believes the claims made by Microsoft have no merit and intends to
vigorously defend itself in this lawsuit.
In July 1999, the Company voluntarily dismissed without prejudice a lawsuit
filed against Clarus Corporation in October 1998, in the US Federal District
Court for Western Washington. This action sought monetary damages and an
injunction against the defendant from unauthorized licensing of certain products
that Timeline believed infringed on Timeline's U.S. Patent rights under U.S.
Patent #5,802,511. The Company determined there was not sufficient sales revenue
generated by the product which was subject of this dispute to justify further
expenditures on this lawsuit.*
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In June, 1999, the Company issues 32,322 shares of Common Stock upon
exercise of a warrant at $.06 per share. The warrant was previously
granted in 1993 and was issued in reliance on Rule 701 under the
Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months ended June
30, 1999.
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Timeline, Inc.
(Registrant)
Date: August 12, 1999 By: /s/ Charles R. Osenbaugh
------------------------------------
Charles R. Osenbaugh
President/Chief Financial Officer
Signed on behalf of registrant and
as principal financial officer.
16
<PAGE> 17
EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED JUNE
30, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 116,233
<SECURITIES> 3,799,551
<RECEIVABLES> 480,725
<ALLOWANCES> 119,173
<INVENTORY> 0
<CURRENT-ASSETS> 4,437,717
<PP&E> 2,007,208
<DEPRECIATION> 1,672,597
<TOTAL-ASSETS> 5,278,793
<CURRENT-LIABILITIES> 871,917
<BONDS> 0
0
0
<COMMON> 32,270
<OTHER-SE> 8,966,195
<TOTAL-LIABILITY-AND-EQUITY> 5,278,793
<SALES> 5,076,656
<TOTAL-REVENUES> 5,488,244
<CGS> 0
<TOTAL-COSTS> 390,537
<OTHER-EXPENSES> 1,320,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,051
<INCOME-PRETAX> 3,769,791
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,769,791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,769,791
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.17
</TABLE>
