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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, 1999
[ ] 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
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)
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. [ ]
The issuer's revenues for its most recent fiscal year were: $3,401,564.
As of June 1, 1999, 3,191,387 shares of the Registrant's common stock were
outstanding and the aggregate market value of such common stock held by
non-affiliates was approximately $1,893,618 based on the average of the bid
($0.75) and ask ($0.75) prices on that date of $0.75.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Proxy Statement relating to the Company's July 29, 1999 Annual Meeting of
Shareholders and to be filed with the Commission within 120 days of the end of
the fiscal year (the "Proxy Statement").
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
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PART I
This Annual Report on Form 10-KSB includes a number of forward-looking
statements which reflect the Company's current views with respect to business
strategies, products, 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," "intend," "may," "will," "expect" and
similar expressions as they relate to the Company are intended to identify such
forward-looking statements, but are not the exclusive means of identifying such
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 IN THE OTHER SECTIONS OF THIS DOCUMENT, 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 AND MARKED.
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.
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.
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 while
maintaining 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 vendor's 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
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newer systems.
The Company's Timeline(R) Analyst and Timeline(R) Server product lines
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 budgeting.
The Timeline products are designed to extend the life of an enterprise's
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 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 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 2000.*
At March 31, 1999, Timeline employed 35 full-time employees in the
United States.
The Company spent in the aggregate approximately $1,080,930 in fiscal
1999 and $1,001,000 in fiscal 1998 for research and development and capitalized
software costs, and received $41,000 and $381,000, 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's
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 transaction-based and the Timeline 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's 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 enterprise. On September
1, 1998 Timeline received a US Patent on this and other technology.
- Filter Technology. 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 two patents by the U.S. Patent and Trademark
Office on its technology and the Company believes additional US patents will be
granted during fiscal 2000*. 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 Analyst
and Timeline 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.
Timeline 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 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
Server as the data warehouse to handle larger volumes of data in conjunction
with Timeline Analyst.
In 1996, the Company made its first commercial release of Timeline
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 Analyst is also the client to Timeline's server-based software,
allowing the distribution of reporting databases to end-users throughout a
larger enterprise.
Also in 1996, the Company released the Manager upgrade to Timeline
Analyst designed for the "mid-level" market (i.e., businesses with approximately
six to 100 desktop users). This product completes the Timeline Analyst suite by
allowing the assignment of new reporting relationships at the desktop level and
the distribution of data marts between Timeline Analyst users without the
requirement of Timeline Server.
Timeline 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 starting in the third quarter of fiscal 2000.* Functionality
includes automatic dissemination of budget templates, consolidation of budget
input, allocations, and multiple spread methods.
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 the Digital division of
Compaq Computer 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 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.
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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 for the first
half of calendar 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 take place in the first half of calendar
1999.
5. A listing of printers, modems and other computer hardware is being
assembled, reviewed and 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.
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 70% 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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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 July 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.**
OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS
Accumulated Deficit; Recent Operating Results. The Company has
demonstrated an historical inability to operate profitably and had an
accumulated deficit of approximately $8,363,013 at March 31, 1999. In order to
achieve profitability, the Company must increase licensing and maintenance
revenues of its existing client/server products, licensing of patented
technology to third parties, and development of new products, and must 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 anticipated operating results are sufficient to fund the Company in
fiscal 2000, no assurance can be given that sufficient sales will be generated
or that sufficient financing will be obtained to enable the Company to obtain or
sustain profitability. 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, poor product performance, customer negative
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
increasingly is reliant on agreements with third party licensees and
distributors, and less on direct sales efforts, for sales and licensing 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. In addition, these third party licensees and distributors have shown a
weakness in new license sales due to Year 2000 compliance concerns on the part
of prospective licensees. There can be no assurance that these licensees and
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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 several years, 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 profitability or that they will not have adverse
effects on the Company. In addition, the Company currently is more reliant 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.
Future Capital Needs and Uncertainty of Additional Financing. The
Company's net working capital (excluding deferred revenue) at March 31, 1999 was
approximately $25,000. 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.
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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 Solutions, Inc., Comshare, Inc., FRX,
Cognos Corporation, and various budgeting vendors such as IBM and Unix 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 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.
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 two U.S. patents and Notice of
Issuance by the U.S. Patent Office of a Continuance and Continuance in Part
related to one of the patents, and has filed 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. The Company has
stated it intends to protect its patent rights against infringement through
negotiation and litigation, if necessary. Such litigation could be costly and
there are no assurances the Company would be successful.
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
Page 8
<PAGE> 9
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 another 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 a 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 12,354 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 to a third party for the
remainder of the term of the lease, under an agreement with a 60-day termination
provision.
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 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. 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.*
In October 1998, the Company filed an action in the US Federal District
Court for Western Washington against Clarus Corporation. In March 1999, the
Company filed an action in the US Federal District Court for Western Washington
against Sagent Technologies, Inc. Both of these actions seek monetary damages
and an injunction against the respective defendants 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.*
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.
Page 9
<PAGE> 10
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 (Nasdaq). 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 bid
information as reported by OTCBB and Nasdaq, for each quarter of fiscal 1998 and
1999. 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 1998 Fiscal 1999
--------------------------------------- ---------------------------------------
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 1 3/8 1 5/8 1 1/8 2 3/8 2 1/2 1 5/8 1 1/16 7/8
Low 5/8 25/32 3/8 9/16 7/8 11/16 7/16 3/8
Warrants
High 7/16 11/32 9/32 3/10 37/100 1/16 1/16 1/20
Low 1/4 1/4 3/100 3/100 13/100 1/16 1/50 1/50
</TABLE>
At June 1, 1999 there were 3,191,387 shares of common stock outstanding
held by approximately 77 holders of record. An additional 1,000,000 warrants to
purchase common stock were outstanding held by approximately 21 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 February 1999, the Company granted a performance-based stock option
to purchase 50,000 shares of common stock to Charles R. Osenbaugh, the Company's
President and CEO, at an exercise price of $1.00 per share. This option becomes
vested upon achieving 10 consecutive days of the Company's stock closing trading
at $5.00 per share or higher. At the same time, the vesting schedule was revised
on a prior grant of a performance-based option to purchase 75,000 shares made to
Mr. Osenbaugh in fiscal 1998. Under the revised vesting schedule, 50% vests and
becomes exercisable when the common stock closes trading at $2.00 or more per
share for 10 consecutive days and the remainder vests and becomes exercisable
when the Company's stock closes trading at $3.00 or more per share for 10
consecutive days. In any event, all options discussed in this paragraph shall
vest, if not otherwise vested, seven years from the date of grant provided Mr.
Osenbaugh is then employed by the Company.
In April 1999, the Company issued a warrant to acquire up to 21,000
shares of its common stock to Len Cereghino & Co. for services rendered, at an
exercise price of $1.00 per share.
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.
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, 1999, Timeline generated a net loss of
$366,000, compared to net income of $175,000 for the period ended March 31,
1998. This decrease was attributable, in large part, to recognition in fiscal
1998 of a $988,000 gain on the sale of a majority interest in Analyst Financials
Limited (formerly Timeline Europe Limited).
Page 10
<PAGE> 11
Other significant factors in the results for fiscal year ended March 31,
1999 were lower revenues generated from consulting and software development
activities, offset somewhat by a reduction in expenses from sales and marketing
and research and development. General and administrative expenses were the
exception, increasing slightly for the year.
GROSS REVENUE
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1999 1998 Change 1999 1998 Change
- ----------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Software license 362 979 (63%) 1,794 1,747 3%
Maintenance 188 176 7% 854 777 10%
Consulting 173 213 (19%) 713 979 (27%)
Software Development 12 6 100% 41 381 (89%)
--------------- -----------------
Net sales 736 1,374 (46%) 3,402 3,884 (12%)
- ----------------------------------------------------------------------------------------------
</TABLE>
Total revenue decreased 12% to $3,402,000 for the fiscal year ended
March 31, 1999. Revenues generated by license fees were slightly higher in
fiscal 1999 over fiscal 1998, despite lower average per license fees. Management
believes license fee revenue will continue to increase in fiscal 2000 due to the
increased opportunity to license and distribute its software in conjunction with
a number of third parties.* However, the Company may be exposed to more dramatic
swings in its revenue due to the unpredictability of license revenue generated
through sales by third party vendors.* Also, the impact of Year 2000 compliance
uncertainties on the industry as a whole may have a negative impact on license
revenue in the coming year.* The Company is currently working with Infinium
Software, Inc., Electronic Data Systems, Inc. (EDS), and Analyst Financials
Limited (formerly Timeline Europe Limited) to market the Company's products.
Starting July 1, 1999, Analyst Financials Limited's royalty payment rate to the
Company will increase from 10% to 11.5% of gross license fees.* In addition, the
Company and Navision a/s are developing software for licensing by Navision,
currently scheduled for delivery in the second quarter of fiscal 2000.*
Consulting revenues were negatively affected by reduced staffing for a
large part of the 1999 fiscal year. The Company hired additional consulting
personnel during the fourth quarter. However, due to the length of time required
to train new consulting personnel to enable them to be productive, fourth
quarter results were not greatly impacted by the increase in resources.
Management believes the demand will be sufficient to effectively utilize these
additional resources and revenues from consulting will increase in fiscal 2000.*
Nevertheless, as already noted, there may be a negative impact on consulting
revenues as a result of Year 2000 compliance concerns on the part of prospective
licensees.*
Maintenance revenue was also higher in fiscal 1999 than in fiscal 1998,
as the volume of fully-installed licensees of the Company's Financial Analytics
products continued to increase. However, management believes maintenance revenue
for fiscal 2000 will most likely be relatively flat.* The Company continues to
lose maintenance customers on its older VAX-based systems. In April 1999, the
single largest maintenance client in this category ($144,000 per annum)
completed its transition to new third-party software. Accordingly, maintenance
during the first several quarters of fiscal 2000 will likely be lower than in
fiscal 1999, but is expected to build as the year progresses and new licensees
are added.*
Software development revenues continued to decrease in fiscal 1999.
Management does not anticipate that software development revenue will constitute
a significant source of revenue in fiscal 2000 as there are no substantial
contracts currently in place or being pursued for development efforts.* The
Company does not consider software development for fees to be a line of business
that should be pursued except in exceptional situations.
Page 11
<PAGE> 12
GROSS MARGIN
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1999 1998 Change 1999 1998 Change
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in
Thousands)
Gross profit 504 991 (49%) 2,460 2,364 4%
Percentage of net sales 68% 72% 72% 61%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Gross profit increased during the 1999 fiscal year by $96,000
representing a 4% growth over the 1998 fiscal year. Fourth quarter margins for
fiscal 1998 were skewed by an unusually large license fee of $870,000 from
Seagate Software, Inc., making the results not directly comparable to fourth
quarter 1999. Cost of revenue decreased in both real terms and as a percentage
of sales for the 1999 fiscal year. This trend, which also occurred in fiscal
1998 when compared to fiscal 1997, continues to reflect the change in approach
to cooperative distribution in conjunction with third parties. These cost
savings also reflect a decreased amortization of capitalized software costs
($268,000 in fiscal 1999 compared to $393,000 in fiscal 1998). Amortization is
expected to increase in fiscal 2000 due to a higher level of capitalized
research and development which will be amortized as the Company completes
several development projects planned in fiscal 2000.*
SALES AND MARKETING & RESEARCH AND DEVELOPMENT EXPENSE
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1999 1998 Change 1999 1998 Change
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Sales and marketing 145 135 7% 599 714 (16%)
Percentage of net sales 20% 10% 18% 18%
- -----------------------------------------------------------------------------------------------------
Research & development 143 320 (55%) 657 776 (15%)
Percentage of net sales 19% 23% 19% 20%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Sales and marketing costs decreased 16% to $599,000 in fiscal 1999 from
$714,000 in fiscal 1998. This decrease was consistent for the first two quarters
of the fiscal year but the trend reversed in the final two quarters. This
reversal is due to increased personnel in these areas during the last two fiscal
quarters. Consequently, sales and marketing expenses are expected to increase in
fiscal 2000 over fiscal 1999.*
Research and development costs were $657,000 in fiscal 1999 compared to
$776,000 in fiscal 1998, a 15% decrease. This decrease was almost entirely the
result of increased capitalization of research and development cost in fiscal
1999; i.e. a lower percentage of the Company's expenses in the product group
were expensed against current income. The Company continues to add additional
product resources and management expects research and development expenses will
be higher in fiscal 2000 than fiscal 1999.*
GENERAL AND ADMINISTRATIVE EXPENSE
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1999 1998 Change 1999 1998 Change
- -----------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
General & administrative 363 220 65% 1,329 1,295 3%
Percentage of net sales 49% 16% 39% 33%
- -----------------------------------------------------------------------------------------------------
</TABLE>
General and administrative expenses increased to $1,329,000 in fiscal
1999 from $1,295,000 in fiscal 1998, an increase of 3%. A significant portion of
this increase occurred in the fourth fiscal quarter of the year, and primarily
reflects
Page 12
<PAGE> 13
an accrual for attorney's fees related to the shareholders' securities lawsuit.
It is hard to determine if these expenses will be greater or smaller in fiscal
2000 due to the unpredictability of the outcome of and expenses associated with
both the shareholders' lawsuit and lawsuits brought by the Company on alleged
patent infringements.*
Depreciation expense decreased in fiscal 1999 to $196,000 from $240,000
in fiscal 1998.
OTHER INCOME
Interest expense decreased to $57,000 in fiscal 1999 from $158,000 in
fiscal 1998, while interest income increased to $12,000 from $5,000 for fiscal
1998. These changes reflect the Company's positive cash flow in fiscal 1999 and
its significant reductions in debt. While the Company's debt balances decreased
in fiscal 1999 as compared to fiscal 1998, the Company is again utilizing
receivable financing. If this continues through fiscal 2000 year-end, management
believes interest costs for fiscal 2000 will be greater than in fiscal 1999 and
interest income will be lower.*
The Company did not record a tax benefit or cost in either fiscal 1999
or 1998, as the tax assets generated by the net operating losses from prior
years and fiscal 1999 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 2000.*
LIQUIDITY AND CAPITAL RESOURCES.
The Company's cash and cash equivalent balances at March 31, 1999 stood
at $59,000 compared to $59,000 at March 31, 1998. Despite the fact cash did not
increase for fiscal 1999, operating activities generated $771,000 of cash and
the Company received $161,000 from a note receivable. These proceeds were
expended on equipment ($79,000), capitalized research and development costs
($424,000), and net reduction of debt obligations ($429,000).
The $771,000 of cash flows from operating activities consisted of a net
loss of $366,000 increased by the non-cash depreciation and amortization of
$464,000, net collection of receivables of $812,000, and application of prepaid
and other non current assets of $138,000. These were offset by decreases in
payables and accrued expenses of $238,000 and increased deferred revenue of
$41,000. Net cash provided by operating activities of $771,000 in fiscal 1999
compares to $21,000 used in operating activities in fiscal 1998.
Total obligations, excluding deferred income items, totaled $669,000 at
March 31, 1999 compared to $1,254,000 at March 31, 1998. The fiscal 1999 and
1998 obligations include a corporate guarantee of a bank note payable by the
Timeline Employee Stock Ownership Trust to Silicon Valley Bank representing
$104,000 at March 31, 1999 and $229,000 at March 31, 1998. This note was paid in
full in June 1999.
Subsequent to the end of the 1999 fiscal year, the Company received a
payment of a one-time, nonrefundable license fee of $5,000,000 from Microsoft
Corporation in connection with a non-exclusive patent license agreement entered
into between the Company and Microsoft. Consequently, the Company has, as of
June 7, 1999, approximately $4,200,000 cash after payment of certain trade
payables and other obligations (see Note 11 in Notes to Financial Statements)
The Company believes its cash balances and anticipated operating results are,
sufficient to fund the Company in fiscal 2000.*
At March 31, 1999, the outstanding balance on the Company's line of
credit facility was $24,000. The Company has a bank line of credit of $500,000
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. The remaining balance of $28,000 is to be repaid in full during the
first quarter of fiscal 2000.
Page 13
<PAGE> 14
ITEM 7. FINANCIAL STATEMENTS
Financial Statements -
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants 16
Balance Sheets as of March 31, 1999 and 1998 17
Statements of Operations for the years ended
March 31, 1999 and 1998 18
Statements of Changes in Stockholders' Equity 19
for the years ended March 31, 1999 and 1998
Statements of Cash Flows for the years ended 20
March 31, 1999 and 1998
Notes to Financial Statements 21
</TABLE>
Page 14
<PAGE> 15
TIMELINE, INC.
FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND 1998
TOGETHER WITH AUDITORS' REPORT
Page 15
<PAGE> 16
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, 1999 and 1998, 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,
1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
April 30, 1999 (except with respect to Note 11, as to which the date is June
7, 1999)
Page 16
<PAGE> 17
TIMELINE, INC.
BALANCE SHEETS -- MARCH 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 59,453 $ 59,022
Accounts receivable (including $195,150 and $6,650 from affiliate),
net of allowance of $52,010 and $60,966 559,666 1,372,155
Note receivable from affiliate 13,567 174,864
Prepaid expenses and other 56,888 94,381
----------- -----------
Total current assets 689,574 1,700,422
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,624,597 and $1,469,026 371,850 490,167
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $1,131,458 and $863,339 628,508 472,496
OTHER ASSETS 2,185 21,072
----------- -----------
Total assets $ 1,692,117 $ 2,684,157
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 142,487 $ 352,392
Accrued expenses 355,125 399,386
Line of credit 23,705 146,872
Deferred revenues 418,827 460,191
Current portion of long-term debt 132,578 329,578
Current portion of obligations under capital leases 10,705 19,939
----------- -----------
Total current liabilities 1,083,427 1,708,358
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 4,309 5,781
----------- -----------
Total liabilities 1,087,736 1,714,139
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000 shares authorized,
3,191,368 and 3,214,622 issued and outstanding 31,946 32,147
Additional paid-in capital 9,070,865 9,205,706
Unearned ESOP shares (135,417) (270,833)
Accumulated deficit (8,363,013) (7,997,002)
----------- -----------
Total stockholders' equity 604,381 970,018
----------- -----------
Total liabilities and stockholders' equity $ 1,692,117 $ 2,684,157
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
Page 17
<PAGE> 18
TIMELINE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Software license $ 1,793,526 $ 1,747,398
Software development 41,163 381,079
Maintenance 854,290 776,565
Consulting 712,585 978,920
----------- -----------
Total revenues 3,401,564 3,883,962
COST OF REVENUES 941,857 1,519,623
----------- -----------
Gross profit 2,459,707 2,364,339
----------- -----------
OPERATING EXPENSES:
Sales and marketing 598,946 713,635
General and administrative 1,328,715 1,295,017
Research and development 656,798 776,086
Depreciation and amortization 196,239 240,312
----------- -----------
Total operating expenses 2,780,698 3,025,050
----------- -----------
Loss from operations (320,991) (660,711)
----------- -----------
OTHER INCOME (EXPENSE):
Gain on sale of Timeline Europe -- 988,409
Interest expense and other (57,010) (158,063)
Interest income and other 11,990 4,991
----------- -----------
Total other income (expense) (45,020) 835,337
----------- -----------
Income (loss) before income taxes (366,011) 174,626
Income tax provision -- --
----------- -----------
Net income (loss) $ (366,011) $ 174,626
=========== ===========
BASIC NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $ (.12) $ .06
=========== ===========
DILUTED NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $ (.12) $ .05
=========== ===========
SHARES USED IN CALCULATION OF BASIC EARNINGS PER SHARE 3,152,834 3,133,688
=========== ===========
SHARES USED IN CALCULATION OF DILUTED EARNINGS PER SHARE 3,152,834 3,204,706
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 18
<PAGE> 19
TIMELINE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional Unearned Stock Foreign
Paid-in ESOP Subscription Currency
Shares Amount Capital Shares Receivable Adjustment
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1997 3,216,153 $ 32,162 $ 9,266,159 $ (391,366) $ (95,603) $ (15,910)
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) -- 95,603 --
Sale of warrants to
purchase 300,000 shares
of common stock at $1.00 -- -- 100,000 -- -- --
Issuance of common stock
for expenses 20,764 208 20,556 -- -- --
Foreign currency
translation adjustment -- -- -- -- -- 15,910
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, March 31, 1998 3,214,622 32,147 9,205,706 (270,833) -- --
Net loss -- -- -- -- -- --
Exercise of common stock
options 556 37 337 -- -- --
Retirement of ESOP shares (23,810) (238) (135,178) 135,416 -- --
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, March 31, 1999 3,191,368 $ 31,946 $ 9,070,865 $ (135,417) $ -- $ --
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Deficit Total
----------- -----------
<S> <C> <C>
BALANCE, March 31, 1997 $(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 -- --
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
----------- -----------
BALANCE, March 31, 1998 (7,997,002) 970,018
Net loss (366,011) (366,011)
Exercise of common stock
options -- 374
Retirement of ESOP shares -- --
----------- -----------
BALANCE, March 31, 1999 $(8,363,013) $ 604,381
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 19
<PAGE> 20
TIMELINE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(366,011) $ 174,626
Adjustments to reconcile net income (loss) to net cash
used in operating activities-
Depreciation and amortization 464,359 650,810
Gain on sale of Timeline Europe -- (988,409)
Expenses paid with issuance of common stock -- 52,185
Loss on disposal of property and equipment 711 3,568
Changes in assets and liabilities:
Accounts receivable 812,489 (356,690)
Prepaid expenses and other 119,345 116,817
Accounts payable (147,403) 110,460
Accrued expenses (90,305) 77,880
Deferred revenues (41,364) 155,601
Other noncurrent assets 18,887 (18,246)
--------- ---------
Net cash provided by (used in) operating activities 770,708 (21,398)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (78,633) (17,867)
Investment in capitalized software development costs (424,132) (224,986)
Proceeds from note receivable 161,297 439,115
--------- ---------
Net cash provided by (used in) investing activities (341,468) 196,262
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (10,706) (19,938)
Borrowings under line of credit 134,155 806,237
Repayments under line of credit (257,322) (859,365)
Proceeds from notes payable -- 150,000
Payments on notes payable (295,310) (480,204)
Proceeds from exercise of stock options 374 --
Sale of warrants to purchase common stock -- 100,000
--------- ---------
Net cash used in financing activities (428,809) (303,270)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 431 (128,406)
CASH AND CASH EQUIVALENTS, beginning of year 59,022 187,428
--------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 59,453 $ 59,022
========= =========
SUPPLEMENTAL CASH AND NONCASH DISCLOSURES:
Cash paid during the year for interest $ 56,510 $ 164,188
Prepaid asset financed through accounts payable 81,852 80,360
Retirement of unallocated ESOP shares 135,416 117,050
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 20
<PAGE> 21
TIMELINE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
1. THE COMPANY:
Organization
The accompanying financial statements are for Timeline, Inc. (the Company). 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.
Operations
As of March 31, 1999, the Company had an excess of current liabilities over
current assets of $393,853 and had an accumulated deficit of $(8,363,013), with
total stockholders' equity of $604,381. 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.*
In June 1999, the Company entered into a patent licensing agreement with
Microsoft Corporation that provided the Company with a nonrefundable payment of
$5,000,000 in cash (see Note 11).
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 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 21
<PAGE> 22
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 1999 and 1998, the Company
capitalized $424,131 and $224,986, respectively, of software development costs.
Amortization expense for fiscal 1999 and 1998 was $268,120 and $393,363,
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
ratably 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, 1998. 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 1999, the effect of including outstanding options is antidilutive,
therefore, options have been excluded from the calculation of 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>
1999 1998
----------- -----------
<S> <C> <C>
Net income (loss) $ (366,011) $ 174,626
----------- -----------
Weighted average common shares outstanding 3,152,834 3,133,688
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 3,152,834 3,204,706
----------- -----------
Diluted net income (loss) per common and common equivalent share $ (.12) $ .05
=========== ===========
</TABLE>
The calculation of diluted net income (loss) per common and common equivalent
does not include 1,964,911 and 1,201,467 options and warrants in 1999 and 1998,
respectively, as they are antidilutive.
Page 22
<PAGE> 23
Reclassifications
Certain reclassifications have been made to the 1998 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
Ltd. (Analyst Financials). Under the agreement, Analyst Financials issued 87,500
shares of common stock to certain individuals for $1,633,760. The Company
contributed a portion of its intercompany receivable from Analyst Financials for
12,499 additional shares in Analyst Financials. The result of these transactions
reduced the Company's ownership interest in Analyst Financials to 12.5% and
caused the Analyst Financials management team and certain outside investors to
obtain an 87.5% ownership interest in Analyst Financials. Analyst Financials
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.
In connection with the sale of the majority interest in Analyst Financials, the
Company and Analyst Financials also executed a Distributorship Agreement and
Source Code License which allows Analyst Financials 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 Analyst Financials. During the term of this
agreement, Analyst Financials 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 Analyst Financials in the amount of $988,409. This amount
represents the elimination of the Company's negative investment in Analyst
Financials due to Analyst Financials no longer being a consolidated subsidiary
of Timeline, Inc.
4. MAJOR CUSTOMERS:
During fiscal 1999, two customers comprised approximately 28% and 14% of the
Company's total revenue. During 1998, one customer comprised approximately 23%
of the Company's total revenue. At March 31, 1999, approximately 32%, 14% and
12%, of the accounts receivable balance was due from the Company's three largest
customers. At March 31, 1998, approximately 70% of the accounts receivable was
due from one customer.
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Computer equipment $ 1,553,018 $ 1,525,461
Office equipment 443,429 433,732
----------- -----------
1,996,447 1,959,193
Less-- accumulated depreciation (1,624,597) (1,469,026)
----------- -----------
Total property and equipment $ 371,850 $ 490,167
=========== ===========
</TABLE>
6. FINANCING ARRANGEMENTS:
In May 1997, the Company entered into a line of credit agreement with its
primary lender. Under the agreement, the Company may sell receivables with
recourse in an amount up to $500,000. Interest on the line of credit is
calculated at 2.50% of the average monthly balance plus a 1% administration fee.
At March 31, 1999 and 1998, $23,705 and $146,872 was outstanding under this
agreement, respectively.
Page 23
<PAGE> 24
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, 1999, $28,411 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,
1999) to the ESOP. Financing for the purchase was provided by a $500,000 bank
loan which was a direct obligation of the Company's Employee Stock Ownership
Trust (the Trust) and was secured by a pledge of the shares purchased and was
guaranteed by the Company and the chief executive officer.
Funds for payment of the note principal and interest were obtained by the ESOP
from employee contributions and a Company match as well as Company advances to
the ESOP. The outstanding balance of $104,167 and $229,167 at March 31, 1999 and
1998, respectively, on the ESOP note is included as a liability on the balance
sheet. Subsequent to the fiscal year end, the Company paid the balance in full.
The Company has recorded the cost of unallocated shares as unearned ESOP shares.
During 1999 and 1998, the Company applied $135,416 and $117,050, respectively,
of its prepayments to the ESOP to repurchase and retire 23,810 and 22,295
shares, respectively, of its common stock.
The ESOP note bore interest at the prime rate plus 2% (10.5% at March 31, 1999
and 1998).
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>
1999 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforward $ 2,008,000 $ 1,832,000
Research and experimentation credit 300,000 300,000
Deferred revenues 142,000 156,000
Capitalized software costs (214,000) (161,000)
Other 70,000 96,000
----------- -----------
2,306,000 2,223,000
Less - valuation allowance (2,306,000) (2,223,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
The net operating loss carryforwards and research and experimentation credit
carryforwards expire through 2018.
The valuation allowance increased by $83,000 during the year ended March 31,
1999 and decreased by $489,000 during 1998.
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 of
$2,053,000 and $221,000, respectively, which may be used in any given year to
approximately $300,000.
Page 24
<PAGE> 25
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, 1999 or 1998.
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, 1999:
<TABLE>
<CAPTION>
Capital Operating
-------- --------
<S> <C> <C>
2000 $ 15,419 $263,678
2001 5,141 259,566
2002 -- 38,171
2003 -- 18,096
2004 -- 13,572
-------- --------
Total minimum lease payments 20,560 $593,083
========
Less-- amount representing interest and
tax costs (5,546)
--------
Present value of net minimum
lease payments 15,014
Less-- current portion 10,704
--------
$ 4,309
========
</TABLE>
Rent expense amounted to $246,303 and $326,727 for the years ended March 31,
1999 and 1998, respectively. The Company entered into a sublease agreement for a
portion of its office space during 1998. Cash collected from subleases in 1999
and 1998 was $62,496 and $40,504. respectively.
10. STOCKHOLDERS' EQUITY:
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
49,700 are available for grant as of March 31, 1999. 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. At March 31, 1999, the Company had granted
options to purchase 255,273 shares of common stock which are not part of these
option plans. As of March 31, 1999, no further option grants are available under
the Old Plan. Options under these plans generally 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.
Page 25
<PAGE> 26
Options outstanding as of each period are as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
--------- --------
<S> <C> <C>
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
Granted 172,500 1.23
Exercised (5,000) 1.00
Canceled (44,200) 2.35
-------- --------
Balance, March 31, 1999 607,911 $ 1.50
======== ========
</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 1999 and 1998, 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>
1999 1998
----------- -----------
<S> <C> <C>
Net income (loss) - as reported $ (366,011) $ 174,626
Net income (loss) - pro forma (466,352) 88,804
Basic net income (loss) per
common share - as reported (.12) .06
Basic net income (loss) per
common share - pro forma (.15) .03
Diluted net income (loss) per
common share - as reported (.12) .05
Diluted net income (loss) per
common share - pro forma (.15) .03
</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 1999 and 1998: zero dividend yield; expected
volatility of 95% and 100%, 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 1999 and 1998, was $.76
and $.78, 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. The warrants expire if unexercised on January 17, 2000.
Page 26
<PAGE> 27
Information relating to stock options outstanding and stock options exercisable
at March 31, 1999 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 4.4 .06 64,644 .06
$1.00-$2.19 ............. 448,104 8.7 1.18 112,604 1.32
$3.57-$6.75 ............. 95,163 6.4 4.06 88,788 3.95
------- ------- ------- ------- -------
Totals .................. 607,911 7.6 1.51 266,036 1.89
======= ======= ======= ======= =======
</TABLE>
11. SUBSEQUENT EVENT
In June 1999, the Company received $5,000,000 from Microsoft Corporation for a
fully paid, non-exclusive license to a patent owned by the Company.
Page 27
<PAGE> 28
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
10.6***** Calahan Agreement
10.7* Form of Indemnification Agreement with directors and
officers
10.8* Form of Employee (Confidentiality) Agreement
</TABLE>
Page 28
<PAGE> 29
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.A**** Lease Agreement dated September 8, 1995, as amended,
with G&W Investment Partners
10.15.B Amendment to Lease Agreement dated March 20, 1999, with
G&W Investment Partners
10.16*** Form of Consulting Partners Agreement
10.17 Patent License Agreement with Microsoft
10.18 Amended and Restated Accounts Receivable Purchase
Agreement with Silicon Valley Bank
21.1* Subsidiary of Timeline, Inc.
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule
* 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.
***** Incorporated herein by reference from Item 13 of
Registrant's Form 10-KSB for the year ended March 31, 1998.
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1999.
Page 29
<PAGE> 30
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 18, 1999
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>
Director
/s/ Charles R. Osenbaugh President June 18, 1999
- ------------------------------------- Chief Executive Officer
Charles R. Osenbaugh Chief Financial Officer
and Treasurer
Director
/s/ Frederick W. Dean Executive Vice President - June 18, 1999
- ------------------------------------- Operations
Frederick W. Dean
/s/ Donald K. Babcock Director June 18, 1999
- -------------------------------------
Donald K. Babcock
/s/ Kent L. Johnson Director June 18, 1999
- -------------------------------------
Kent L. Johnson
</TABLE>
Page 30
<PAGE> 1
Exhibit 10.15B
SECOND AMENDMENT TO LEASE
This Second Amendment To Lease ("Amendment") is made and entered into
this 20th day of March, 1999, by and between G & W Investments, a nini kumia
formed under the laws of Japan (hereinafter called "Landlord"), and Timeline,
Inc., (hereinafter called "Tenant").
RECITALS
A. Landlord and Tenant have entered into that certain Lease
dated September 8, 1995 as amended June 27, 1996 by Amendment of
Lease Commencement Date, (the "Lease") with respect to the
leasing of 17,025 net rentable square feet of space known as
Suite 106, 107, and 109 (the "Premises") in the building located
at 3055 112th NE, Bellevue, Washington ("Building"). Any
capitalized terms used herein and not otherwise defined shall
have the same meaning as in the Lease.
B. Landlord and Tenant now desire to enter into this
Amendment to amend the Lease in order to reduce the size of the
Premises pursuant to the terms provided herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained in the Lease and in this Amendment and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant hereby further covenant and agree as follows:
AGREEMENT
1. Effective March 31, 1999, ("Effective Date"), the
following sections of the Lease shall be amended as provided
below:
a. Premises. Section I.E. of the Lease shall be
amended to change the definition of the Premises to
include the reduction of 2,491 net rentable square feet
effective March 31, 1999 and the reduction of 2,180 net
rentable square feet effective April 30, 1999 shown as
"Reduction Space" on the floor plan attached hereto as
Exhibit A and incorporated herein so that on March
31,1999, the Premises shall consist of a total of 14,534
net rentable square feet and on April 30, 1999 the
Premises shall consist of a total of 12,354 net rentable
square feet.
b. Tenant's Proportionate Share. Section I. P. of
the Lease shall be amended to change the pro-rated share
so that on March 31, 1999, the Proportionate Share shall
decrease from 41% to 34.66% and on April 30, 1999, from
34.66% to 29.5%.
<PAGE> 2
c. Parking. Section I. Q. of the lease shall be
amended to change the number of parking spaces allocated
to the premises so that on the March 31, 1999, the total
number of parking spaces shall decrease from 62 to 53
located in such areas of the Project as Landlord
determines and divided as follows: Thirteen 13 covered and
forty one 41 non-covered or surface. On April 30, 1999,
the total number of parking spaces shall decrease from 53
to 45, eleven (11) covered and thirty-four (34)
non-covered or surface.
c. Monthly Rental. Section IV.A. and the Rental
Schedule contained in Exhibit D of the Lease shall be
amended to change the Monthly Rental payable under the
Lease to that specified in the following schedule:
The total Monthly Rental for the entire term is
equal to $505,423.75 and shall be payable monthly in
accordance with the provisions of the Lease in
installments as set forth below:
<TABLE>
<CAPTION>
Months RSF Monthly Rental Annual Rent Rate
------ --- -------------- ----------------
<S> <C> <C> <C>
April 1, 1999 14,534 $23,617.75 $19.50/RSF
April 30, 1999
May 1, 1999- 12,354 $20,075.25 $19.50/RSF
April 30, 2001
</TABLE>
2. Ratification. Except as hereby amended, all terms and
conditions of the Lease shall remain unchanged and Landlord and
Tenant hereby acknowledge and confirm that the same are in full
force and effect.
3. Entire Agreement. This Amendment embodies the entire
understanding between Landlord and Tenant with respect to the
subject matter hereof and can be changed only by an instrument in
writing executed by both Landlord and Tenant.
4. Conflict of Terms. In the event that there is any
conflict or inconsistency between the terms and conditions of the
Lease and those of this Amendment, the terms and conditions of
this Amendment shall control and govern the rights and
obligations of the parties.
2
<PAGE> 3
IN WITNESS WHEREOF, Landlord and Tenant caused this agreement to be duly
executed effective the day and year first above written.
"TENANT" "LANDLORD"
Timeline, Inc., a Washington corporation. G & W Investments, a nini kumia
formed under the laws of Japan
By: /s/ Charles R. Osenbaugh By: MONY Realty Partners, Inc.
------------------------------------ Its Agent
Its: President By: /s/ Mark Novack
------------------------------------ ------------------------
Mark E. Novack
Vice President
3
<PAGE> 4
EXHIBIT A
Blue print of first floor of Building with Reduction Space outlined in
yellow ink.
4
<PAGE> 1
Exhibit 10.17
PATENT LICENSE AGREEMENT
AGREEMENT dated this 1st day of June 1999, between Microsoft
Corporation, a corporation organized and existing under the laws of the State of
Washington ("Microsoft"), and Timeline, Inc., a corporation organized and
existing under the laws of the State of Washington ("Timeline");
WHEREAS, Timeline warrants that it is the owner of all right, title and
interest in United States Patent 5,802,511 (the "'511 Patent"), and that it has
not granted and is under no obligation to grant rights in the `511 Patent to any
other entity or person;
WHEREAS, Microsoft acknowledges that Timeline is the owner of all right,
title and interest in the `511 Patent, and further acknowledges that Microsoft
has no ownership interest in the `511 Patent;
WHEREAS, Microsoft desires to obtain a license to the `511 Patent, and
Timeline is willing to grant to Microsoft such a license upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, Microsoft and Timeline agree as follows:
1. Definitions
1.1 "Licensed Patent(s)" shall mean (i) United States Patent 5,802,511, for
"Data Retrieval Method and Apparatus With Multiple Source Capability," issued on
September 1, 1998, (ii) all other patents and patent applications filed as of
the Effective Date that are owned, controlled or licensable, in whole or in
part, by Timeline relating to the subject matter thereof, and (iii) all parents,
divisions, continuations, continuations-in-part, reexaminations, reissues,
foreign, European Patent Convention
<PAGE> 2
and Patent Cooperation Treaty counterparts (if any), and extensions of the
patents and applications identified in the foregoing subsections (i) and (ii).
1.2 "Subsidiary" and "Affiliates" shall mean and include any corporation,
company, joint venture, partnership, firm or other entity in which Microsoft or
its Subsidiaries (as defined herein), now or hereafter, directly or indirectly,
owns or controls:
1.2.1 in the case of corporate entities, fifty percent (50%) or more of
the stock or participating shares entitled to vote for the election of
directors; and
1.2.2 in the case of non-corporate entities, fifty percent (50%) or more
of the equity interest with power to direct management policies of such
non-corporate entities.
1.3 "Affiliate" shall also mean any of MSNBC, Dreamworks Interactive L.L.C.,
and MSFDC, L.L.C., if and so long as Microsoft or its Subsidiaries retain at
least as much ownership and control thereof as Microsoft and its Subsidiaries
have as of the Effective Date.
1.4 "Licensed Product(s)" shall mean any current or future product or
service developed, manufactured, offered or distributed by or for Microsoft or
its current or future Subsidiaries and Affiliates, and used, leased, licensed,
marketed, sold or otherwise transferred by or for Microsoft under a trademark
owned by Microsoft or its Subsidiaries or Affiliates.
1.5 "Effective Date" shall mean the later of: (a) the date (or the last of
the dates, if they are different) on which this Agreement is executed by
Microsoft and Timeline, and (b) the date Microsoft pays to Timeline the sum
stated in Section 4.1(a), which Effective Date will be entered in the preamble
of this Agreement.
1.6 "Microsoft Licensees" shall mean those persons or entities licensed by
Microsoft, or its Subsidiaries or Affiliates, including end users, distributors,
dealers, customers, Original Equipment Manufacturers (OEMs), private label
customers, independent software vendors (ISVs), value-added resellers (VARs),
replicators and the like who
CONFIDENTIAL 2
<PAGE> 3
purchase, license, acquire or otherwise obtain Licensed Product(s) from
Microsoft, or its Subsidiaries, Affiliates or other Microsoft Licensees.
1.7. "Infringement" shall include direct infringement, contributory
infringement and inducement to infringe.
2. License
2.1 Timeline hereby grants to Microsoft, and its Subsidiaries and Affiliates
and Microsoft Licensees, a non-exclusive, perpetual, irrevocable, fully paid,
worldwide right and license, under the Licensed Patents, to make, have made,
use, sell, import, lease, license, reproduce, distribute, transfer or
commercially exploit the Licensed Products.
2.2 Timeline hereby further grants to Microsoft, and its Subsidiaries and
Affiliates, a limited right to grant sublicenses of the license granted to the
Licensed Patents under Section 2.1 only to Microsoft's Licensees but only for
the manufacture, use, sale, license, importation, lease or other distribution or
transfer of Licensed Products and for the formation, use, sale, license,
importation, lease or other distribution or transfer of any combination which
includes a Licensed Product, provided, however, that such sublicensing rights
shall not cover or extend to any third party product in such combination if that
third party product itself directly infringes or contributorily infringes a
Licensed Patent. No license is granted herein to expressly or impliedly
sublicense any person or entity to add any software code or software product to
or in combination with any Licensed Product in a way that constitutes
Infringement of a Licensed Patent.
3. Release and Covenant
3.1 Timeline hereby irrevocably releases, acquits and forever discharges
Microsoft, its Subsidiaries and Affiliates, and Microsoft Licensees, from any
and all claims of infringement of the Licensed Patents, with respect to the
manufacture, use, offer to sell, sale, importation, lease, licensing,
reproduction, distribution, transfer, or commercial
CONFIDENTIAL 3
<PAGE> 4
exploitation of the Licensed Products occurring before the Effective Date of
this Agreement.
3.2 Timeline hereby irrevocably and without fee covenants not to sue and
releases, acquits and forever discharges Microsoft, its Subsidiaries and
Affiliates from any and all claims of Infringement of the Licensed Patents with
respect to the manufacture, use, offer to sell, sale, importation, lease,
licensing, reproduction, distribution, transfer, or commercial exploitation of
the Licensed Products occurring before, on or after the Effective Date of this
Agreement. Timeline also hereby irrevocably covenants not to sue Microsoft
Licensees for infringement of the Licensed Patents who use the Licensed Products
as designed.
3.3 No release, acquit, covenant not to sue or discharge is granted herein
to any Microsoft Licensee to add any software code or software product to or in
combination with a Licensed Product in a way that constitutes Infringement of a
Licensed Patent.
4. Payment
4.1 In consideration of the license granted under Section 2, Microsoft:
(a) shall pay Timeline, within 48 hours of the execution of this
Agreement, a fully paid-up, non-refundable license fee of Five Million
Dollars (US $5,000,000);
(b) shall enter into a Seventh Amendment with Timeline to that certain
Microsoft Corporation Software Development and License Agreement between
Microsoft Corporation and Timeline, Inc. dated June 20, 1995,
concurrently with the Effective Date hereof; and
(c) shall afford to Timeline "Partner" status in the Microsoft Solution
Providers program (or its successors or equivalents) for a period of 60
calendar months starting June 1, 1999. As such, Timeline shall be
entitled during such period to all the rights and privileges associated
with such status, most particularly
CONFIDENTIAL 4
<PAGE> 5
development software and support and marketing support as is then normal
and customary for firms of such status under Microsoft's then-standard
program (or its successors or equivalents).
4.2 The payment and other consideration set forth in Section 4.1 constitute
the total consideration due to Timeline under this Agreement. Microsoft affirms
that it will receive the benefits for which it has or will provide such
consideration, regardless of whether the Licensed Patents, or any of them, are
terminated or invalidated prior to their scheduled expiration.
5. Term
The term of the licenses and covenants granted herein shall be from the
Effective Date of this Agreement until the expiration of the last to expire
rights of the Licensed Patents.
6. Confidentiality
This Agreement, its terms and conditions, as well as the course and
content of negotiations leading thereto, shall remain confidential and shall not
be disclosed to other parties, except as may be required to carry out the terms
of this Agreement, to enforce its provisions, to comply with court process or
requirements of law, or as expressly permitted in this paragraph. Timeline may
disclose to third parties the fact that Microsoft has taken a license under the
Licensed Patents and been extended a covenant not to sue, and the nature and
scope of that license and covenant. Timeline may also disclose the amount of
payment by Microsoft to Timeline under this Agreement to the appropriate
regulatory, legal or governmental agency or entity, but solely to the extent
required under the securities laws or other law or regulation or in a legal
proceeding pursuant to a court approved protective order with appropriate
safeguards of confidentiality. Microsoft and its respective Subsidiaries and
Affiliates shall have the right (a) to refer to the existence of this Agreement,
and (b) to disclose the substance thereof in response to any inquiry,
CONFIDENTIAL 5
<PAGE> 6
whether direct or indirect, immediate or remote, by any actual or potential
Microsoft Licensee.
7. Representations and Warranties
7.1 Timeline represents and warrants that it has the full right and power to
enter into this Agreement, and to grant all rights, licenses, releases, and
covenants as set forth herein. Timeline further represents and warrants that it
is the owner of all right, title and interest in the Licensed Patents, and that
it has not granted and is under no obligation to grant rights in the Licensed
Patents to any other entity or person.
7.2 Timeline further warrants and represents (a) that there are no
outstanding liens, conveyances, mortgages, assignments, encumbrances or other
agreements inconsistent with the provisions of the foregoing license and release
or with any other provision of this Agreement, or which would prevent or impair
the full and complete exercise of all substantive rights, license, releases and
covenants granted by Timeline to Microsoft, its Subsidiaries and Affiliates, and
Microsoft Licensees, pursuant to the terms and conditions of this Agreement; (b)
that this Agreement does not violate or otherwise breach any license or other
agreement arising from or relating to the Licensed Patents that pre-dates the
Effective Date of this Agreement; (c) that no such prior license or other
agreement violates or otherwise breaches any of the rights, license, releases
and covenants granted in this Agreement, and (d) that Timeline will not enter
into any license or other agreement that violates or otherwise breaches any of
the rights, license, releases and covenants granted in this Agreement during the
full term of the Agreement.
7.3 Timeline further warrants and represents that if any claim is made by
any person or entity that this Agreement violates or otherwise breaches any
license or other agreement to which Timeline or any assignee, licensee, agent or
affiliate of Timeline is a party, then Timeline will indemnify Microsoft, and
its Subsidiaries and Affiliates, and Microsoft Licensees, and hold them harmless
from any such claim, including payment of
CONFIDENTIAL 6
<PAGE> 7
Microsoft's and its Subsidiaries', Affiliates', and Microsoft Licensees'
attorneys fees in responding to such claims.
7.4 Timeline warrants and represents that as of the Effective Date of this
Agreement, it does not, to the best of its knowledge, own, control, or have the
right to license or assign any rights in any patent application or patent (other
than the Licensed Patents) or inventions conceived but not yet filed as a patent
application which could be asserted against Microsoft, or any of its respective
Subsidiaries or Affiliates, with respect to any products or services provided
by, for, or to Microsoft, or its respective Subsidiaries or Affiliates.
8. Notices and Other Communications
8.1 Any notice or other communication required or permitted to be made or
given to either party hereto pursuant to this Agreement shall be deemed to have
been given upon posting if sent to such party by registered or certified mail,
postage prepaid, addressed to it at its address set forth below, or to such
other address as it shall designate by written notice given to the other party
in conformity with this Section 8:
In the case of Microsoft,
Associate General
Counsel, Intellectual Property
Microsoft Corporation
One Microsoft Way
Redmond,WA 98052
In the case of Timeline,
Charlie Osenbaugh, CEO
Timeline, Inc.
3055 112th Avenue NE
Bellevue, WA 98004
9. Assignments
9.1 Timeline shall not assign any rights in the Licensed Patents, unless
such assignment is specifically made subject to the terms and conditions of this
Agreement.
CONFIDENTIAL 7
<PAGE> 8
Any attempted assignment in derogation of this Agreement or this Section shall
be null and void.
9.2 This Agreement shall extend to and be binding upon the parties'
successors, estates, assigns and transferees.
10. Applicable Law
This Agreement shall be construed, and the legal relations between the
parties hereto shall be determined, in accordance with the domestic law of the
State of Washington. The parties each consent to exclusive jurisdiction and
venue in the federal courts sitting in King County, Washington, unless no
federal subject matter jurisdiction exists, in which case each party consents to
exclusive jurisdiction and venue in the Superior Court of King County,
Washington. The parties each waive all defenses of lack of personal jurisdiction
and forum nonconveniens.
11. Disclaimer of Agency
This Agreement shall not establish that Timeline or Microsoft is the
legal representative or agent of any other party to this Agreement. Neither
Timeline nor Microsoft shall have the right or authority to assume, create, or
incur any liability or any obligations of any kind, express or implied, against
or in the name of or on behalf of any other party hereto except as specifically
provided in this Agreement.
12. Miscellaneous
12.1 This Agreement will not be binding upon the parties until it has been
signed, below, by or on behalf of each party. No amendment or modification
hereof shall be valid or binding upon the parties unless made in writing and
signed as aforesaid. This Agreement sets forth the entire agreement and
understanding between the parties with respect to the subject matter hereof and
merges all prior discussions between them, and none of the parties shall be
bound by any conditions, definitions, warranties, understandings, or
representations with respect to the Licensed Patents or any other
CONFIDENTIAL 8
<PAGE> 9
subject matter hereof other than as expressly provided herein or as duly set
forth on, or subsequent to, the date hereof in writing and signed by the party
bound thereby or its duly authorized representative. Both Microsoft and Timeline
have prepared this Agreement, and no ambiguity shall be resolved against any of
them by virtue of its role in drafting this Agreement.
12.2 If any provision or provisions of this Agreement shall be held to be
illegal, invalid or unenforceable, the legality, validity and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
12.3 The headings of the several Sections are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
CONFIDENTIAL 9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
on their behalf as of the date first above written.
MICROSOFT CORPORATION
/s/ Paul Maritz
- ------------------------------------
By: Paul Maritz
--------------------------------
Title: Vice President
-----------------------------
Date: June 2, 1999
TIMELINE, INC.
/s/ Charles R. Osenbaugh
- ------------------------------------
By: Charles R. Osenbaugh
--------------------------------
Title: President
-----------------------------
Date: June 3, 1999
CONFIDENTIAL 10
<PAGE> 1
Exhibit 10.18
[SILICON VALLEY LOGO]
SILICON VALLEY FINANCIAL SERVICES
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, Ca. 95054
(408) 654-1000 - Fax (408) 980-6410
AMENDED AND RESTATED ACCOUNTS RECEIVABLE PURCHASE AGREEMENT
This Accounts Receivable Purchase Agreement (the "Agreement") is made on
this TWENTY-FIFTH day of FEBRUARY 1999, by and between Silicon Valley Financial
Services (a division of Silicon Valley Bank) ("Buyer") having a place of
business at the address specified above and TIMELINE, INC., a WASHINGTON
corporation, ("Seller") having its principal place of business and chief
executive office at 3055 112th Avenue NE, Bellevue, Washington 98004. The
parties agree as follows:
RECITALS
A. Seller and Buyer are parties to that certain Factoring Agreement
dated April 30, 1997 (the "Original Agreement"), as may be amended from time to
time.
B. Seller and Buyer desire in this Agreement to set forth their
agreement with respect to an accounts receivable purchase facility and to amend
and restate in its entirety without novation the Original Agreement in
accordance with the provisions herein.
1. DEFINITIONS. When used herein, the following terms shall have the
following meanings.
1.1. "Account Balance" shall mean, on any given day, the gross amount
of all Purchased Receivables unpaid on that day.
1.2. "Account Debtor" shall have the meaning set forth in the
California Uniform Commercial Code and shall include any person liable on any
Purchased Receivable, including without limitation, any guarantor of the
Purchased Receivable and any issuer of a letter of credit or banker's
acceptance.
1.3. "Adjustments" shall mean all discounts, allowances, returns,
disputes, counterclaims, offsets, defenses, rights of recoupment, rights of
return, warranty claims, or short payments, asserted by or on behalf of any
Account Debtor with respect to any Purchased Receivable.
1.4. "Administrative Fee" shall have the meaning as set forth in
Section 3.3 hereof.
1.5. "Advance" shall have the meaning set forth in Section 2.2 hereof.
1.6. "Business Day" shall mean a day on which Seller is open for
business.
1.7. "Collateral" shall have the meaning set forth in Section 8
hereof.
1.8. "Collections" shall mean all good funds received by Buyer from or
on behalf of an Account Debtor with respect to Purchased Receivables.
1.9. "Compliance Certificate" shall mean a certificate, in a form
provided by Buyer to Seller, which contains the certification of the chief
financial officer of Seller that, among other things, the representations and
warranties set forth in this Agreement are true and correct as of the date such
certificate is delivered.
1.10. "Event of Default" shall have the meaning set forth in Section 9
hereof.
1.11. "Finance Charges" shall have the meaning set forth in Section 3.2
hereof.
1.12. "Invoice Transmittal" shall mean a writing signed by an
authorized representative of Seller which accurately identifies the receivables
which Buyer, at its election, may purchase, and includes for each such
receivable the correct amount owed by the Account Debtor, the name and address
of the Account Debtor, the invoice number, the invoice date and the account
code.
1.13. "Obligations" shall mean all advances, financial accommodations,
liabilities, obligations, covenants and duties owing, arising, due or payable by
Seller to Buyer of any kind or nature, present or future, arising under or in
connection with this Agreement or under any other document, instrument or
agreement, whether or not evidenced by any note, guarantee or other instrument,
whether arising on account or by overdraft, whether direct or indirect
(including those acquired by assignment) absolute or contingent, primary or
secondary, due or to become due, now owing or hereafter arising, and however
acquired; including, without
<PAGE> 2
limitation, all Advances, Finance Charges, Administrative Fees, interest,
Repurchase Amounts, fees, expenses, professional fees and attorneys' fees and
any other sums chargeable to Seller hereunder or otherwise.
1.14. "Purchased Receivables" shall mean all those accounts,
receivables, chattel paper, instruments, contract rights, documents, general
intangibles, letters of credit, drafts, bankers acceptances, and rights to
payment, and all proceeds thereof (all of the foregoing being referred to as
"receivables"), arising out of the invoices and other agreements identified on
or delivered with any Invoice Transmittal delivered by Seller to Buyer which
Buyer elects to purchase and for which Buyer makes an Advance.
1.15."Prime Rate" shall mean the Seller's most recently announced "prime
rate," even if it is not Seller's lowest rate.
1.16. "Refund" shall have the meaning set forth in Section 3.5 hereof.
1.17. "Reserve" shall have the meaning set forth in Section 2.4 hereof.
1.18. "Repurchase Amount" shall have the meaning set forth in Section
4.2 hereof.
1.19. "Reconciliation Date" shall mean the last calendar day of each
Reconciliation Period.
1.20. "Reconciliation Period" shall mean each calendar month of every
year.
2. PURCHASE AND SALE OF RECEIVABLES.
2.1. OFFER TO SELL RECEIVABLES. During the term hereof, and provided
that there does not then exist any Event of Default or any event that with
notice, lapse of time or otherwise would constitute an Event of Default, Seller
may request that Buyer purchase receivables and Buyer may, in its sole
discretion, elect to purchase receivables. Seller shall deliver to Buyer an
Invoice Transmittal with respect to any receivable for which a request for
purchase is made. An authorized representative of Seller shall sign each Invoice
Transmittal delivered to Buyer. Buyer shall be entitled to rely on all the
information provided by Seller to Buyer on or with the Invoice Transmittal and
to rely on the signature on any Invoice Transmittal as an authorized signature
of Seller.
2.2. ACCEPTANCE OF RECEIVABLES. Buyer shall have no obligation to
purchase any receivable listed on an Invoice Transmittal. Buyer may exercise its
sole discretion in approving the credit of each Account Debtor before buying any
receivable. Upon acceptance by Buyer of all or any of the receivables described
on any Invoice Transmittal, Buyer shall pay to Seller 80 (%) percent of the face
amount of each receivable Buyer desires to purchase. Such payment shall be the
"Advance" with respect to such receivable. Buyer may, from time to time, in its
sole discretion, change the percentage of the Advance. Upon Buyer's acceptance
of the receivable and payment to Seller of the Advance, the receivable shall
become a "Purchased Receivable." It shall be a condition to each Advance that
(i) all of the representations and warranties set forth in Section 6 of this
Agreement be true and correct on and as of the date of the related Invoice
Transmittal and on and as of the date of such Advance as though made at and as
of each such date, and (ii) no Event of Default or any event or condition that
with notice, lapse of time or otherwise would constitute an Event of Default
shall have occurred and be continuing, or would result from such Advance.
Notwithstanding the foregoing, in no event shall the aggregate amount of all
Purchased Receivables outstanding at any time exceed FIVE HUNDRED THOUSAND AND
NO/100**** Dollars ($500,000.00).
2.3. EFFECTIVENESS OF SALE TO BUYER. Effective upon Buyer's payment of
an Advance, and for and in consideration therefor and in consideration of the
covenants of this Agreement, Seller hereby absolutely sells, transfers and
assigns to Buyer, all of Seller's right, title and interest in and to each
Purchased Receivable and all monies due or which may become due on or with
respect to such Purchased Receivable. Buyer shall be the absolute owner of each
Purchased Receivable. Buyer shall have, with respect to any goods related to the
Purchased Receivable, all the rights and remedies of an unpaid seller under the
California Uniform Commercial Code and other applicable law, including the
rights of replevin, claim and delivery, reclamation and stoppage in transit.
2.4. ESTABLISHMENT OF A RESERVE. Upon the purchase by Buyer of each
Purchased Receivable, Buyer shall establish a reserve. The reserve shall be the
amount by which the face amount of the Purchased Receivable exceeds the Advance
on that Purchased Receivable (the "Reserve"); provided, the Reserve with respect
to all Purchased Receivables outstanding at any one time shall be an amount not
less than 20 (%) percent of the Account Balance at that time and may be set at a
higher percentage at Buyer's sole discretion. The reserve shall be a book
balance maintained on the records of Buyer and shall not be a segregated fund.
3. COLLECTIONS, CHARGES AND REMITTANCES.
<PAGE> 3
3.1. COLLECTIONS. In computing Finance Charges on the Obligations, all
checks and other items of payment received by Buyer (including proceeds of
Purchased Receivables and payment of Obligations in full) shall be deemed
applied by Buyer on account of the Obligations three Business Days after receipt
by Buyer of immediately available funds provided, however, wire transfers shall
be deemed applied by Buyer on account of the Obligations the same Business Day
after receipt by Buyer. If Seller is in default under this Agreement, Buyer
shall apply all Collections to Seller's Obligations hereunder in such order and
manner as Buyer may determine. If an item of collection is not honored or Buyer
does not receive good funds for any reason, the amount shall be included in the
Account Balance as if the Collections had not been received and Finance Charges
under Section 3.2 shall accrue thereon.
3.2. FINANCE CHARGES. On each Reconciliation Date Seller shall pay to
Buyer a finance charge in an amount equal to 1.45 percentage points above Prime
Rate per annum of the gross average daily Account Balance outstanding during the
applicable Reconciliation Period (the "Finance Charges"). Notwithstanding the
foregoing, on each Reconciliation Date, Seller shall pay to Buyer a minimum
$500.00 Finance Charge. Buyer shall deduct the accrued Finance Charges from the
Reserve as set forth in Section 3.5 below.
3.3. ADMINISTRATIVE FEE. On each Reconciliation Date Seller shall pay
to Buyer an Administrative Fee equal to .50 (%) percent of the face amount of
each Purchased Receivable first purchased during that Reconciliation Period (the
"Administrative Fee"). Buyer shall deduct the Administrative Fee from the
Reserve as set forth in Section 3.5 below.
3.4. ACCOUNTING. Buyer shall prepare and send to Seller after the
close of business for each Reconciliation Period, an accounting of the
transactions for that Reconciliation Period, including the amount of all
Purchased Receivables, all Collections, Adjustments, Finance Charges, and the
Administrative Fee. The accounting shall be deemed correct and conclusive unless
Seller makes written objection to Buyer within thirty (30) days after the Buyer
mails the accounting to Seller.
3.5. REFUND TO SELLER. Provided that there does not then exist an
Event of Default or any event or condition that with notice, lapse of time or
otherwise would constitute an Event of Default, Buyer shall refund to Seller by
check after the Reconciliation Date, the amount, if any, which Buyer owes to
Seller at the end of the Reconciliation Period according to the accounting
prepared by Buyer for that Reconciliation Period (the "Refund"). The Refund
shall be an amount equal to:
(A) (1) The Reserve as of the beginning of that Reconciliation Period,
PLUS
(2) the Reserve created for each Purchased Receivable purchased
during that Reconciliation Period, MINUS
(B) The total for that Reconciliation Period of:
(1) the Administrative Fee;
(2) Finance Charges;
(3) Adjustments;
(4) Repurchase Amounts, to the extent Buyer has agreed to accept
payment thereof by deduction from the Refund;
(5) the Reserve for the Account Balance as of the first day of
the following Reconciliation Period in the minimum percentage set forth in
Section 2.4 hereof; and
(6) all amounts due, including professional fees and expenses, as
set forth in Section 13 for which oral or written demand has been made by Buyer
to Seller during that Reconciliation Period to the extent Buyer has agreed to
accept payment thereof by deduction from the Refund. In the event the formula
set forth in this Section 3.5 results in an amount due to Buyer from Seller,
Seller shall make such payment in the same manner as set forth in Section 4.3
hereof for repurchases. If the formula set forth in this Section 3.5 results in
an amount due to Seller from Buyer, Buyer shall make such payment by check,
subject to Buyer's rights under Section 4.3 and Buyer's rights of offset and
recoupment.
3.6. FACILITY FEE. A fully earned, non-refundable facility fee of
$5,000.00 shall be due upon execution of this Agreement.
3.7. PREPAYMENT FEE. A fully earned, non-refundable prepayment fee of
$5,000.00 shall be due upon voluntary or involuntary payment in full of Seller's
Obligations unless the Obligations are paid in full via initial advance from a
loan agreement entered into with Silicon Valley Bank.
4. RECOURSE AND REPURCHASE OBLIGATIONS.
<PAGE> 4
4.1. RECOURSE. Buyer's acquisition of Purchased Receivables from
Seller shall be with full recourse against Seller. In the event the Obligations
exceed the amount of Purchased Receivables and Collateral, Seller shall be
liable for any deficiency.
4.2. SELLER'S AGREEMENT TO REPURCHASE. Seller agrees to pay to Buyer
on demand, the full face amount, or any unpaid portion, of any Purchased
Receivable:
(A) which remains unpaid ninety (90) calendar days after the
invoice date; or
(B) which is owed by any Account Debtor who has filed, or has had
filed against it, any bankruptcy case, assignment for the benefit of creditors,
receivership, or insolvency proceeding or who has become insolvent (as defined
in the United States Bankruptcy Code) or who is generally not paying its debts
as such debts become due; or
(C) with respect to which there has been any breach of warranty
or representation set forth in Section 6 hereof or any breach of any covenant
contained in this Agreement; or
(D) with respect to which the Account Debtor asserts any
discount, allowance, return, dispute, counterclaim, offset, defense, right of
recoupment, right of return, warranty claim, or short payment; together with all
reasonable attorneys' and professional fees and expenses and all court costs
incurred by Buyer in collecting such Purchased Receivable and/or enforcing its
rights under, or collecting amounts owed by Seller in connection with, this
Agreement (collectively, the "Repurchase Amount").
4.3. SELLER'S PAYMENT OF THE REPURCHASE AMOUNT OR OTHER AMOUNTS DUE
BUYER. When any Repurchase Amount or other amount owing to Buyer becomes due,
Buyer shall inform Seller of the manner of payment which may be any one or more
of the following in Buyer's sole discretion: (a) in cash immediately upon demand
therefor; (b) by delivery of substitute invoices and an Invoice Transmittal
acceptable to Buyer which shall thereupon become Purchased Receivables; (c) by
adjustment to the Reserve pursuant to Section 3.5 hereof; (d) by deduction from
or offset against the Refund that would otherwise be due and payable to Seller;
(e) by deduction from or offset against the amount that otherwise would be
forwarded to Seller in respect of any further Advances that may be made by
Buyer; or (f) by any combination of the foregoing as Buyer may from time to time
choose.
4.4. SELLER'S AGREEMENT TO REPURCHASE ALL PURCHASED RECEIVABLES. Upon
and after the occurrence of an Event of Default, Seller shall, upon Buyer's
demand (or, in the case of an Event of Default under Section 9(B), immediately
without notice or demand from Buyer) repurchase all the Purchased Receivables
then outstanding , or such portion thereof as Buyer may demand. Such demand may,
at Buyer's option, include and Seller shall pay to Buyer immediately upon
demand, cash in an amount equal to the Advance with respect to each Purchased
Receivable then outstanding together with all accrued Finance Charges,
Adjustments, Administrative Fees, attorney's and professional fees, court costs
and expenses as provided for herein, and any other Obligations. Upon receipt of
payment in full of the Obligations, Buyer shall immediately instruct Account
Debtors to pay Seller directly, and return to Seller any Refund due to Seller.
For the purpose of calculating any Refund due under this Section only, the
Reconciliation Date shall be deemed to be the date Buyer receives payment in
good funds of all the Obligations as provided in this Section 4.4.
5. POWER OF ATTORNEY. Seller does hereby irrevocably appoint Buyer and its
successors and assigns as Seller's true and lawful attorney in fact, and hereby
authorizes Buyer, regardless of whether there has been an Event of Default, (a)
to sell, assign, transfer, pledge, compromise, or discharge the whole or any
part of the Purchased Receivables; (b) to demand, collect, receive, sue, and
give releases to any Account Debtor for the monies due or which may become due
upon or with respect to the Purchased Receivables and to compromise, prosecute,
or defend any action, claim, case or proceeding relating to the Purchased
Receivables, including the filing of a claim or the voting of such claims in any
bankruptcy case, all in Buyer's name or Seller's name, as Buyer may choose; (c)
to prepare, file and sign Seller's name on any notice, claim, assignment,
demand, draft, or notice of or satisfaction of lien or mechanics' lien or
similar document with respect to Purchased Receivables; (d) to notify all
Account Debtors with respect to the Purchased Receivables to pay Buyer directly;
(e) to receive, open, and dispose of all mail addressed to Seller for the
purpose of collecting the Purchased Receivables; (f) to endorse Seller's name on
any checks or other forms of payment on the Purchased Receivables; (g) to
execute on behalf of Seller any and all instruments, documents, financing
statements and the like to perfect Buyer's interests in the Purchased
Receivables and Collateral; and (h) to do all acts and things necessary or
expedient, in furtherance of any such purposes. If Buyer receives a check or
item which is payment for both a Purchased Receivable and another receivable,
the funds shall first be applied to the Purchased Receivable and, so long as
there does not exist an Event of Default or an event that with notice, lapse of
time or otherwise would constitute an Event of Default, the excess shall be
remitted to Seller. Upon the occurrence and continuation of an Event of Default,
all of the
<PAGE> 5
power of attorney rights granted by Seller to Buyer hereunder shall be
applicable with respect to all Purchased Receivables and all Collateral.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
6.1. RECEIVABLES' WARRANTIES, REPRESENTATIONS AND COVENANTS. To induce
Buyer to buy receivables and to render its services to Seller, and with full
knowledge that the truth and accuracy of the following are being relied upon by
the Buyer in determining whether to accept receivables as Purchased Receivables,
Seller represents, warrants, covenants and agrees, with respect to each Invoice
Transmittal delivered to Buyer and each receivable described therein, that:
(A) Seller is the absolute owner of each receivable set forth in
the Invoice Transmittal and has full legal right to sell, transfer and assign
such receivables;
(B) The correct amount of each receivable is as set forth in the
Invoice Transmittal and is not in dispute;
(C) The payment of each receivable is not contingent upon the
fulfillment of any obligation or contract, past or future and any and all
obligations required of the Seller have been fulfilled as of the date of the
Invoice Transmittal;
(D) Each receivable set forth on the Invoice Transmittal is based
on an actual sale and delivery of goods and/or services actually rendered, is
presently due and owing to Seller, is not past due or in default, has not been
previously sold, assigned, transferred, or pledged, and is free of any and all
liens, security interests and encumbrances other than liens, security interests
or encumbrances in favor of Buyer or any other division or affiliate of Silicon
Valley Bank;
(E) There are no defenses, offsets, or counterclaims against any
of the receivables, and no agreement has been made under which the Account
Debtor may claim any deduction or discount, except as otherwise stated in the
Invoice Transmittal;
(F) Each Purchased Receivable shall be the property of the Buyer
and shall be collected by Buyer, but if for any reason it should be paid to
Seller, Seller shall promptly notify Buyer of such payment, shall hold any
checks, drafts, or monies so received in trust for the benefit of Buyer, and
shall promptly transfer and deliver the same to the Buyer;
(G) Buyer shall have the right of endorsement, and also the right
to require endorsement by Seller, on all payments received in connection with
each Purchased Receivable and any proceeds of Collateral;
(H) Seller, and to Seller's best knowledge, each Account Debtor
set forth in the Invoice Transmittal, are and shall remain solvent as that term
is defined in the United States Bankruptcy Code and the California Uniform
Commercial Code, and no such Account Debtor has filed or had filed against it a
voluntary or involuntary petition for relief under the United States Bankruptcy
Code;
(I) Each Account Debtor named on the Invoice Transmittal will not
object to the payment for, or the quality or the quantity of the subject matter
of, the receivable and is liable for the amount set forth on the Invoice
Transmittal;
(J) Each Account Debtor shall promptly be notified, after
acceptance by Buyer, that the Purchased Receivable has been transferred to and
is payable to Buyer, and Seller shall not take or permit any action to
countermand such notification; and
(K) All receivables forwarded to and accepted by Buyer after the
date hereof, and thereby becoming Purchased Receivables, shall comply with each
and every one of the foregoing representations, warranties, covenants and
agreements referred to above in this Section 6.1.
6.2. ADDITIONAL WARRANTIES, REPRESENTATIONS AND COVENANTS. In addition
to the foregoing warranties, representations and covenants, to induce Buyer to
buy receivables and to render its services to Seller, Seller hereby represents,
warrants, covenants and agrees that:
(A) Seller will not assign, transfer, sell, or grant, or permit
any lien or security interest in any Purchased Receivables or Collateral to or
in favor of any other party, without Buyer's prior written consent;
(B) The Seller's name, form of organization, chief executive
office, and the place where the records concerning all Purchased Receivables and
Collateral are kept is set forth at the beginning of this Agreement, Collateral
is located only at the location set forth in the beginning of this Agreement,
or, if located at any additional location, as set forth on a schedule attached
to this Agreement, and Seller will give Buyer at least thirty (30) days prior
written notice if such name, organization, chief executive office or other
locations of Collateral or records concerning Purchased Receivables or
Collateral is changed or added and shall execute any documents necessary to
perfect Buyer's interest in the Purchased Receivables and the Collateral;
<PAGE> 6
(C) Seller shall (i) pay all of its normal gross payroll for
employees, and all federal and state taxes, as and when due, including without
limitation all payroll and withholding taxes and state sales taxes; (ii) deliver
at any time and from time to time at Buyer's request, evidence satisfactory to
Buyer that all such amounts have been paid to the proper taxing authorities; and
(iii) if requested by Buyer, pay its payroll and related taxes through a bank or
an independent payroll service acceptable to Buyer.
(D) Seller has not, as of the time Seller delivers to Buyer an
Invoice Transmittal, or as of the time Seller accepts any Advance from Buyer,
filed a voluntary petition for relief under the United States Bankruptcy Code or
had filed against it an involuntary petition for relief;
(E) If Seller owns, holds or has any interest in, any copyrights
(whether registered, or unregistered), patents or trademarks, and licenses of
any of the foregoing, such interest has been disclosed to Buyer and is
specifically listed and identified on a schedule to this Agreement, and Seller
shall immediately notify Buyer if Seller hereafter obtains any interest in any
additional copyrights, patents, trademarks or licenses that are significant in
value or are material to the conduct of its business;
(F) Seller shall provide Buyer with a Compliance Certificate (i)
on a quarterly basis to be received by Buyer no later than the fifth calendar
day following each calendar quarter, and; (ii) on a more frequent or other basis
if and as requested by Buyer;
(G) Seller shall provide Buyer with a deferred revenue listing on
a monthly basis to be received by Buyer no later than the fifth calendar day
following each calendar month and on a more frequent or other basis if and as
requested by Buyer; and (H) Seller will maintain its primary depository and
operating accounts with Buyer.
7. ADJUSTMENTS. In the event of a breach of any of the representations,
warranties, or covenants set forth in Section 6.1, or in the event any
Adjustment or dispute is asserted by any Account Debtor, Seller shall promptly
advise Buyer and shall, subject to the Buyer's approval, resolve such disputes
and advise Buyer of any adjustments. Unless the disputed Purchased Receivable is
repurchased by Seller and the full Repurchase Amount is paid, Buyer shall remain
the absolute owner of any Purchased Receivable which is subject to Adjustment or
repurchase under Section 4.2 hereof, and any rejected, returned, or recovered
personal property, with the right to take possession thereof at any time. If
such possession is not taken by Buyer, Seller is to resell it for Buyer's
account at Seller's expense with the proceeds made payable to Buyer. While
Seller retains possession of said returned goods, Seller shall segregate said
goods and mark them "property of Silicon Valley Financial Services."
8. SECURITY INTEREST. To secure the prompt payment and performance to Buyer
of all of the Obligations, Seller hereby grants to Buyer a continuing lien upon
and security interest in all of Seller's now existing or hereafter arising
rights and interest in the following, whether now owned or existing or hereafter
created, acquired, or arising, and wherever located (collectively, the
"Collateral"):
(A) All accounts, receivables, contract rights, chattel paper,
instruments, documents, letters of credit, bankers acceptances, drafts, checks,
cash, securities, and general intangibles (including, without limitation, all
claims, causes of action, deposit accounts, guaranties, rights in and claims
under insurance policies (including rights to premium refunds), rights to tax
refunds, copyrights, patents, trademarks, rights in and under license
agreements, and all other intellectual property);
(B) All inventory, including Seller's rights to any returned or
rejected goods, with respect to which Buyer shall have all the rights of any
unpaid seller, including the rights of replevin, claim and delivery,
reclamation, and stoppage in transit;
(C ) All monies, refunds and other amounts due Seller, including,
without limitation, amounts due Seller under this Agreement (including Seller's
right of offset and recoupment);
(D) All equipment, machinery, furniture, furnishings, fixtures,
tools, supplies and motor vehicles;
(E) All farm products, crops, timber, minerals and the like
(including oil and gas);
(F) All accessions to, substitutions for, and replacements of,
all of the foregoing;
(G) All books and records pertaining to all of the foregoing; and
(H) All proceeds of the foregoing, whether due to voluntary or
involuntary disposition, including insurance proceeds.
Seller is not authorized to sell, assign, transfer or otherwise
convey any Collateral without Buyer's prior written consent, except for the sale
of finished inventory in the Seller's usual course of business. Seller agrees to
sign UCC financing statements, in a form acceptable to Buyer, and any other
instruments and documents requested by Buyer to evidence , perfect, or protect
the interests of Buyer in the Collateral. Seller agrees to deliver to Buyer the
originals of all instruments, chattel paper and documents evidencing or related
to Purchased Receivables and Collateral.
9. DEFAULT. The occurrence of any one or more of the following shall
constitute an Event of Default hereunder.
(A) Seller fails to pay any amount owed to Buyer as and when due;
<PAGE> 7
(B) There shall be commenced by or against Seller any voluntary
or involuntary case under the United States Bankruptcy Code, or any assignment
for the benefit of creditors, or appointment of a receiver or custodian for any
of its assets;
(C) Seller shall become insolvent in that its debts are greater
than the fair value of its assets, or Seller is generally not paying its debts
as they become due or is left with unreasonably small capital;
(D) Any involuntary lien, garnishment, attachment or the like is
issued against or attaches to the Purchased Receivables or any Collateral;
(E) Seller shall breach any covenant, agreement, warranty, or
representation set forth herein, and the same is not cured to Buyer's
satisfaction within ten (10) days after Buyer has given Seller oral or written
notice thereof; provided, that if such breach is incapable of being cured it
shall constitute an immediate default hereunder;
(F) Seller is not in compliance with, or otherwise is in default
under, any term of any document, instrument or agreement evidencing a debt,
obligation or liability of any kind or character of Seller, now or hereafter
existing, in favor of Buyer or any division or affiliate of Silicon Valley Bank,
regardless of whether such debt, obligation or liability is direct or indirect,
primary or secondary, joint, several or joint and several, or fixed or
contingent, together with any and all renewals and extensions of such debts,
obligations and liabilities, or any part thereof;
(G) An event of default shall occur under any guaranty executed
by any guarantor of the Obligations of Seller to Buyer under this Agreement, or
any material provision of any such guaranty shall for any reason cease to be
valid or enforceable or any such guaranty shall be repudiated or terminated,
including by operation of law;
(H) A default or event of default shall occur under any agreement
between Seller and any creditor of Seller that has entered into a subordination
agreement with Buyer; or
(I) Any creditor that has entered into a subordination agreement
with Buyer shall breach any of the terms of or not comply with such
subordination agreement.
10. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default, (1)
without implying any obligation to buy receivables, Buyer may cease buying
receivables or extending any financial accommodations to Seller; (2) all or a
portion of the Obligations shall be, at the option of and upon demand by Buyer,
or with respect to an Event of Default described in Section 9(B), automatically
and without notice or demand, due and payable in full; and (3) Buyer shall have
and may exercise all the rights and remedies under this Agreement and under
applicable law, including the rights and remedies of a secured party under the
California Uniform Commercial Code, all the power of attorney rights described
in Section 5 with respect to all Collateral, and the right to collect, dispose
of, sell, lease, use, and realize upon all Purchased Receivables and all
Collateral in any commercial reasonable manner. Seller and Buyer agree that any
notice of sale required to be given to Seller shall be deemed to be reasonable
if given five (5) days prior to the date on or after which the sale may be held.
In the event that the Obligations are accelerated hereunder, Seller shall
repurchase all of the Purchased Receivables as set forth in Section 4.4.
11. ACCRUAL OF INTEREST. If any amount owed by Seller hereunder is not paid
when due, including, without limitation, amounts due under Section 3.5,
Repurchase Amounts, amounts due under Section 13, and any other Obligations,
such amounts shall bear interest at a per annum rate equal to the per annum rate
of the Finance Charges until the earlier of (i) payment in good funds or (ii)
entry of a final judgment thereof, at which time the principal amount of any
money judgment remaining unsatisfied shall accrue interest at the highest rate
allowed by applicable law.
12. EFFECT OF AMENDMENT AND RESTATEMENT. This Agreement is intended to and
does completely amend and restate, without novation, the Original Agreement. All
advances or loans outstanding under the Original Agreement are and shall
continue to be outstanding under this Agreement. All security interests granted
under the Original Agreement and Factoring Agreement are hereby confirmed and
ratified and shall continue to secure all Obligations under this Agreement.
13. FEES, COSTS AND EXPENSES; INDEMNIFICATION. The Seller will pay to Buyer
immediately upon demand all fees, costs and expenses (including fees of
attorneys and professionals and their costs and expenses ) that Buyer incurs or
may from time to time impose in connection with any of the following: (a)
preparing, negotiating , administering, and enforcing this Agreement or any
other agreement executed in connection herewith, including any amendments,
waivers or consents in connection with any of the foregoing, (b) any litigation
or dispute (whether instituted by Buyer, Seller or any other person) in any way
relating to the Purchased Receivables, the Collateral, this Agreement or any
other agreement executed in connection herewith or therewith, (c) enforcing any
rights against Seller or any guarantor, or any Account Debtor, (d) protecting or
enforcing its interest in the Purchased Receivables or the Collateral, (e)
collecting
<PAGE> 8
the Purchased Receivables and the Obligations, and (f) the representation of
Buyer in connection with any bankruptcy case or insolvency proceeding involving
Seller, any Purchased Receivable, the Collateral, any Account Debtor, or any
guarantor. Seller shall indemnify and hold Buyer harmless from and against any
and all claims, actions, damages, costs, expenses, and liabilities of any nature
whatsoever arising in connection with any of the foregoing.
14. SEVERABILITY, WAIVER, AND CHOICE OF LAW. In the event that any provision
of this Agreement is deemed invalid by reason of law, this Agreement will be
construed as not containing such provision and the remainder of the Agreement
shall remain in full force and effect. Buyer retains all of its rights, even if
it makes an Advance after an Event of Default. If Buyer waives an Event of
Default, it may enforce a later default. Any consent or waiver under, or
amendment of, this Agreement must be in writing. Nothing contained herein, or
any action taken or not taken by Buyer at any time, shall be construed at any
time to be indicative of any obligation or willingness on the part of Buyer to
amend this Agreement or to grant to Seller any waivers or consents. This
Agreement has been transmitted by Seller to Buyer at Buyer's office in the State
of California and has been executed and accepted by Buyer in the State of
California. This Agreement shall be governed by and interpreted in accordance
with the internal laws of the State of California.
15. ACCOUNT COLLECTION SERVICES. Certain Account Debtors may require or
prefer that all of Seller's receivables be paid to the same address and/or
party, or Seller and Buyer may agree that all receivables with respect to
certain Account Debtors be paid to one party. In such event Buyer and Seller may
agree that Buyer shall collect all receivables whether owned by Seller or Buyer
and (provided that there does not then exist an Event of Default or event that
with notice, lapse or time or otherwise would constitute an Event of Default,
and subject to Buyer's rights in the Collateral) Buyer agrees to remit to Seller
the amount of the receivables collections it receives with respect to
receivables other than Purchased Receivables. It is understood and agreed by
Seller that this Section does not impose any affirmative duty on Buyer to do any
act other than to turn over such amounts. All such receivables and collections
are Collateral and in the event of Seller's default hereunder, Buyer shall have
no duty to remit collections of Collateral and may apply such collections to the
obligations hereunder and Buyer shall have the rights of a secured party under
the California Uniform Commercial Code.
16. NOTICES. All notices shall be given to Buyer and Seller at the addresses
or faxes set forth on the first page of this Agreement and shall be deemed to
have been delivered and received: (a) if mailed, three (3) calendar days after
deposited in the United States mail, first class, postage pre-paid, (b) one (1)
calendar day after deposit with an overnight mail or messenger service; or (c)
on the same date of confirmed transmission if sent by hand delivery, telecopy,
telefax or telex.
17. JURY TRIAL. SELLER AND BUYER EACH HEREBY (a) WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL ON ANY CLAIM OR ACTION ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY; (b) RECOGNIZE AND AGREE THAT THE FOREGOING
WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT;
AND (c) REPRESENT AND WARRANT THAT IT HAS REVIEWED THIS WAIVER, HAS DETERMINED
FOR ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS LEGAL COUNSEL, AND
KNOWINGLY AND VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL.
18. TERM AND TERMINATION. The term of this Agreement shall be for one (1)
year from the date hereof, and from year to year thereafter unless terminated in
writing by Buyer or Seller. Seller and Buyer shall each have the right to
terminate this Agreement at any time. Notwithstanding the foregoing, any
termination of this Agreement shall not affect Buyer's security interest in the
Collateral and Buyer's ownership of the Purchased Receivables, and this
Agreement shall continue to be effective, and Buyer's rights and remedies
hereunder shall survive such termination, until all transactions entered into
and Obligations incurred hereunder or in connection herewith have been completed
and satisfied in full.
19. TITLES AND SECTION HEADINGS. The titles and section headings used herein
are for convenience only and shall not be used in interpreting this Agreement.
20. OTHER AGREEMENTS. The terms and provisions of this Agreement shall not
adversely affect the rights of Buyer or any other division or affiliate of
Silicon Valley Bank under any other document, instrument or agreement. The terms
of such other documents, instruments and agreements shall remain in full force
and effect notwithstanding the execution of this Agreement. In the event of a
conflict between any provision of this Agreement and any provision of any other
document, instrument or agreement between Seller on the one hand, and Buyer or
any other division or affiliate of Silicon Valley Bank on the other hand, Buyer
shall
<PAGE> 9
determine in its sole discretion which provision shall apply. Seller
acknowledges specifically that any security agreements, liens and/or security
interests currently securing payment of any obligations of Seller owing to Buyer
or any other division or affiliate of Silicon Valley Bank also secure Seller's
obligations under this Agreement, and are valid and subsisting and are not
adversely affected by execution of this Agreement. Seller further acknowledges
that (a) any collateral under other outstanding security agreements or other
documents between Seller and Buyer or any other division or affiliate of Silicon
Valley Bank secures the obligations of Seller under this Agreement and (b) a
default by Seller under this Agreement constitutes a default under other
outstanding agreements between Seller and Buyer or any other division or
affiliate of Silicon Valley Bank.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the
day and year above written.
SELLER: TIMELINE, INC.
By /s/ Charles R. Osenbaugh
---------------------------------------
Title President
------------------------------------
BUYER: SILICON VALLEY FINANCIAL SERVICES
A division of Silicon Valley Bank
By /s/ Lee Shodiss
---------------------------------------
Title Vice President
------------------------------------
<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
Registration Statements No. 333-4386 and 333-2190.
/s/ Arthur Andersen LLP
Seattle, Washington
June 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED MARCH
31, 1999 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 59,453
<SECURITIES> 0
<RECEIVABLES> 611,676
<ALLOWANCES> 52,010
<INVENTORY> 0
<CURRENT-ASSETS> 689,574
<PP&E> 1,996,447
<DEPRECIATION> 1,624,597
<TOTAL-ASSETS> 1,692,117
<CURRENT-LIABILITIES> 1,083,427
<BONDS> 0
0
0
<COMMON> 31,946
<OTHER-SE> 572,435
<TOTAL-LIABILITY-AND-EQUITY> 1,692,117
<SALES> 1,793,526
<TOTAL-REVENUES> 3,401,564
<CGS> 0
<TOTAL-COSTS> 941,857
<OTHER-EXPENSES> 2,780,698
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,010
<INCOME-PRETAX> (366,011)
<INCOME-TAX> 0
<INCOME-CONTINUING> (366,011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (366,011)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
