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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 COMMISSION FILE NUMBER 1-13524
TIMELINE, INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
WASHINGTON 91-1590734
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
</TABLE>
3055 112TH AVENUE N.E., SUITE 106
BELLEVUE, WA 98004
(Address of principal executive offices)
(425) 822-3140
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS JULY 30, 2000
<S> <C>
Common Stock, $.01 Par Value 3,755,926
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIMELINE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, 2000 MARCH 31, 2000
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 701,814 $ 1,470,703
Marketable securities - trading 1,644,659 1,546,256
Short-term investments 1,837,080 3,030,000
Securities held for others 170,000 170,000
Accounts receivable net of allowance of $43,328 and $38,500 728,982 323,387
Prepaid expenses and other 66,935 69,856
Receivables from affiliates 1,446 516
----------- -----------
Total current assets 5,150,916 6,610,718
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,841,411 and $1,794,311 261,497 266,073
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $215,200 and $171,051 652,256 655,199
INTANGIBLE ASSETS, net 1,102,185 2,185
GOODWILL, net 213,190 --
----------- -----------
Total assets $ 7,380,044 $ 7,534,175
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,162,142 $ 303,885
Accrued expenses 530,458 487,921
Notes payable 41,967 --
Deferred revenue 229,197 372,000
Current portion of capital leases 1,633 4,309
----------- -----------
Total current liabilities 1,965,397 1,168,115
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 37,535 34,492
Additional paid-in capital 9,919,160 9,124,178
Other comprehensive income 1,539,405 2,658,825
Accumulated deficit (6,081,453) (5,451,435)
----------- -----------
Total stockholders' equity 5,414,647 6,366,060
----------- -----------
Total liabilities and stockholders' equity $ 7,380,044 $ 7,534,175
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
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TIMELINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Software license $ 112,391 $ 5,076,656
Maintenance 154,262 205,069
Consulting and other 78,158 206,519
----------- -----------
Total revenues 344,811 5,488,244
COST OF REVENUES: 178,439 390,537
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Gross profit 166,372 5,097,707
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OPERATING EXPENSE:
Sales and marketing 234,338 246,200
Research and development 321,477 307,180
General and administrative 571,420 719,446
Depreciation 47,100 48,000
----------- -----------
Total operating expenses 1,174,335 1,320,826
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(Loss) income from operations (1,007,963) 3,776,881
OTHER INCOME (EXPENSE):
Gain on securities 273,641 --
Interest expense and other (4,508) (8,051)
Interest income and other 10,099 961
=========== ===========
Net (loss) income $ (728,731) $ 3,769,791
=========== ===========
Basic net (loss) income per common share $ (0.21) $ 1.19
=========== ===========
Diluted net (loss) income per common and common
equivalent share $ (0.21) $ 1.17
=========== ===========
Shares used in calculation of basic earnings per share 3,449,612 3,159,432
=========== ===========
Shares used in calculation of diluted earnings per
share 3,449,612 3,221,099
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
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TIMELINE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash (used in) provided by operating activities $(1,080,266) $ 4,025,666
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in Analyst Financials Ltd. acquisition 29,056 --
Purchase of property and equipment (18,954) (13,261)
Capitalized software costs (41,208) (30,857)
Purchase of short-term investments (586,150) (3,799,551)
Proceeds from sale of short-term investments 933,600 --
Proceeds from note receivable (930) --
----------- -----------
Net cash provided by (used in) investing activities 315,414 (3,843,669)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit -- 287,012
Payments on notes payable (1,861) (132,578)
Payments on line of credit -- (278,915)
Payments on capital lease obligations (2,676) (2,676)
Proceeds from exercise of common stock options 500 1,940
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Net cash (used in) financing activities (4,037) (125,217)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (768,889) 56,780
CASH AND CASH EQUIVALENTS, beginning of period 1,470,703 59,453
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 701,814 $ 116,233
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 4,508 $ 11,886
Non-cash transactions:
Equity consideration for Analyst Financials Ltd. acquisition 797,525 --
Unrealized gain of available for sale securities 1,119,420 --
</TABLE>
The accompanying notes are an integral part of these financial statements
4
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TIMELINE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of Timeline, Inc. (the Company) are
unaudited. In the opinion of the Company's management, the financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial information set forth therein. Results
of operations for the three-month period ended June 30, 2000 are not necessarily
indicative of future financial results.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-QSB.
Accordingly, these financial statements should be read in conjunction with the
Company's annual financial statements for the year ended March 31, 2000,
previously reported.
2. BASIS OF PRESENTATION
On June 30, 2000, the Company acquired the assets and liabilities of Analyst
Financial Ltd. (AFL), a United Kingdom company (the AFL Acquisition) (See Note
7). AFL is a wholly-owned subsidiary of the Company. The accompanying
consolidated financial statements include the accounts of AFL. All intercompany
balances and transactions have been eliminated in consolidation.
3. MARKETABLE SECURITIES
The Company invests in various marketable securities through investment accounts
with brokers. At June 30, 2000, these investments included common and preferred
stock and had a fair market value of $1,644,659. The Company has classified
these investments as trading securities under Statement of Accounting Standards
(SFAS) 115 as it is the Company's intent to actively buy and sell individual
securities within these investment accounts.
4. RESTRICTED INVESTMENTS
In September, 1999, the Company settled a patent infringement lawsuit filed
against Broadbase Software, Inc. (Broadbase). As part of the settlement, the
Company received 80,000 shares of Broadbase restricted common stock with a fair
market value of $392,000 at the date of the settlement. The Company is subject
to restrictions on the sale of these securities for a period of one year from
the date that they were received.
In March 2000, the Company entered into an agreement with two shareholders to
reacquire 75,000 shares of its outstanding common stock. In exchange, the
shareholders will receive 4,250 shares of Broadbase common stock after the
transfer restrictions lapse in September 2000. The shareholders also received a
cash payment of $130,000 at the date of that agreement. In connection with this
transaction, the Company recognized the unrealized gain of $149,175 on these
shares. This amount is included as a component of the gain on securities in the
accompanying statement of operations. The Company has
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recorded a liability of $170,000, which represents the fair value of the shares
to be transferred at the date of this agreement. This amount is included in
accrued expenses in the accompanying Balance Sheet.
In June, 2000, the Company sold 15,000 shares of Broadbase common stock to their
investment broker at a price of $30.24 per share. In connection with this
transaction the Company recognized the unrealized gain of $380,100 on these
shares. This amount is included as a component of the gain on securities in the
accompanying statement of operations.
The total value of noncommitted Broadbase restricted common stock was $1,837,080
at June 30, 2000. The Company has accounted for these shares as available for
sale securities as required under SFAS 115. Accordingly, the unrealized gain on
this stock of $1,539,405 at June 30, 2000, is included in other comprehensive
income in the accompanying balance sheet. Broadbase completed a two-for-one
stock split on April 10, 2000. All per share amounts have been adjusted to
reflect this stock split.
5. NET INCOME PER COMMON SHARE
Basic net income per share is the net income divided by the average number of
shares outstanding during the year. Diluted net income per share is calculated
as the net income divided by the sum of the average number of shares outstanding
during the year plus the net additional shares that would have been issued had
all dilutive options been exercised, less shares that would be repurchased with
the proceeds from such exercise (Treasury Stock Method).
The computation of diluted net income (loss) per common and common equivalent
share is as follows for the three-month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
June 30, June 30,
2000 1999
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<S> <C> <C>
Net income (loss) $ (728,731) $ 3,769,791
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Weighted average common shares outstanding 3,449,612 3,159,432
Plus: dilutive options and warrants -- 781,822
Less: shares assumed repurchased with proceeds
from exercise -- (720,155)
----------- -----------
Weighted average common and common equivalent
shares outstanding 3,449,612 3,221,099
=========== ===========
Diluted net income (loss) per common and common
equivalent share $ (0.21) $ 1.17
=========== ===========
</TABLE>
6. LITIGATION
In March 1999, the Company filed an action in the U.S. Federal District Court
for Western Washington against Sagent Technologies, Inc., seeking monetary
damages and an injunction from further unauthorized licensing of certain
products that Timeline believes infringe on Timeline's patent rights under U.S.
Patent #5,802,511. The litigation process is in the discovery phase, and the
trial is set for January 2001.
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<PAGE> 7
In July 1999, the Company was served a complaint by Microsoft Corporation in the
Superior Court of Washington for King County alleging breach of contract
regarding a Patent License Agreement signed by both companies in June 1999. The
Company believes the claims made by Microsoft have no merit and intends to
vigorously defend itself in this lawsuit. This litigation process is in the
discovery phase, and the trial is set for December 2000.
In July 2000, the Company filed a lawsuit against Oracle Corporation seeking
monetary damages and injunctive relief. The Company's claims are based on
Oracle's alleged introduction of elements in its product family that utilize
technology similar to the Company's patented technology licensed to Microsoft.
The litigation process is in the discovery phase.
From time to time, the Company may pursue litigation against other third parties
to enforce or protect its rights under this patent or its intellectual property
rights generally.*
7. ACQUISITION OF ANALYST FINANCIAL LTD.
The AFL Acquisition included, among other things, the purchase of all of the
common stock of AFL, a noncompete agreement from the Seller, the hiring of
certain employees who were previously employees of the Seller and certain
indemnifications.
The total purchase consideration, including costs of approximately $20,000 to
complete the acquisition, was approximately $1,862,419. The purchase
consideration consisted of 303,814 shares of Timeline common stock with a total
fair market value of $797,525, cash of $20,000 and the assumption of certain
liabilities.
In connection with the AFL Acquisition, assets acquired and liabilities assumed
were allocated based on estimated fair values of assets and settlement amounts
of liabilities as follows (amounts in thousands):
<TABLE>
<S> <C>
Cash $ 29,056
Accounts receivable 496,603
Property and equipment 23,570
Intangible assets 1,313,190
Accounts payable (980,905)
Accrued expenses (63,989)
-----------
Net assets acquired $ 817,525
===========
</TABLE>
Intangible assets consist primarily of software source code, customer contracts,
skilled workforce and goodwill. These intangible assets are being amortized on a
straight-line basis over their estimated useful lives of up to three years.
The following table summarizes the pro forma results of the Company's operations
for the quarters ended June 30, 2000 and 1999 assuming that the AFL Acquisition
occurred as of the beginning of each quarter. The pro forma results are
presented for the purposes of additional analysis only and do not purport to
present the results of operations that would have occurred for the periods
presented or that may occur in the future.
<TABLE>
<CAPTION>
Quarter Ended June 30,
-------------------------------------
2000 1999
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<S> <C> <C>
Revenue $ 823,081 $ 5,854,908
Net (loss) income (1,051,870) 3,452,362
Diluted net (loss) income per share $ (0.30) $ 1.07
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This Quarterly Report on Form 10-QSB includes a number of forward-looking
statements that 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
those described from time to time in the Company's press releases and other
communications, which attempt to advise interested parties of the risks and
factors that may affect the Company's business.
RESULTS OF OPERATIONS
REVENUES
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999 Change
----------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
License 113 5,077 (98)%
Maintenance 154 205 (25)%
Consulting 78 206 (62)%
------------------------
Total Revenues 345 5,488 (94)%
----------------------------------------------------------------------------------
</TABLE>
Quarter to quarter license revenues are not directly comparable because software
license revenue for the quarter ended June 30, 1999 included a one-time patent
license fee from Microsoft Corporation of $5,000,000. Excluding this one-time
patent license fee, revenue for the quarter ended June 30, 2000 would have been
relatively flat as compared to the same period in fiscal 2000. We believe
license fee revenue will be erratic as a large portion of the license fees
generated in fiscal 2000 were for patent licenses.* While we are vigorously
pursuing additional patent license agreements, we cannot predict the outcome of
ongoing and future negotiations and there are no assurances that we will be
successful in entering into additional patent licenses, or the timing of any
such licenses. In addition, we are currently in litigation regarding our
patents, the ultimate outcome of which could adversely affect our ability to
enter into additional patent licenses and our existing patent licenses.
Both quarters reflect software license fee revenue lower than the average of
fees per quarter over the last several years. Weakness in the enterprise
resource planning (ERP) and accounting software markets is
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well documented by the weakness in financial results for most ERP vendors. Since
Timeline software is either distributed by such vendors as an additional module
on their products or as an "after-market" add-on, our results directly reflect
any weakness in their markets. Our license revenue for software (as opposed to
patent) licenses was generated almost exclusively by Infinium Software, Inc.,
Electronic Data Systems, Inc. (EDS), Navision a/s, and Analyst Financials
Limited (Analyst Financials) during fiscal 2000. We also have in place
distribution agreements with Intuitive Manufacturing Systems, Inc., Open
Systems, Inc. and Primark, Inc., and we expect to see an increase in
contribution to revenue from these distributors throughout fiscal 2001.*
Maintenance revenue decreased 25% for the first quarter of fiscal 2001 as
compared to the first quarter of fiscal 2000. The decrease in maintenance
revenue is due in large part to our subcontracting all maintenance of our VAX
operating system-based software to Timeline Business Services LLP, an
unaffiliated contractor, effective May 31, 2000. Under the terms of the
contract, we receive no fees (other than cost reimbursement) during the initial
three months of the contract, and will receive only a portion of the total
maintenance fees charged on such software after the inception of the contract.
One month of the initial three-month period fell in the June 30, 2000 quarter.
We continue to experience increased maintenance revenue from maintenance
contracts for our Microsoft-based product lines in the year-to-year quarterly
comparisons. Future comparative statements between fiscal quarters may show
mixed results for the rest of fiscal 2001 depending upon the timing of new
licenses and the expiration of existing maintenance agreements.*
Consulting fees decreased 62% for the first quarter of fiscal 2001 over fiscal
2000. We experienced a substantial decrease in the number of consultants
employed in fiscal 2001 as compared to fiscal 2000. Additionally, the level of
consulting revenue is directly related to the number of new software licenses
signed as the majority of our consulting revenue is generated from installation
and training on new licensee implementations.
GROSS PROFIT
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999 Change
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(Dollars in Thousands)
<S> <C> <C> <C>
Gross profit 166 5,098 (97)%
Percentage of revenues 48% 93%
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</TABLE>
Our gross profit for the first quarter of fiscal 2001 was 97% less than in the
comparable period in fiscal 2000 primarily due to the one-time license fee of
$5,000,000 paid by Microsoft to the Company in fiscal 2000, which resulted in
unusually high gross profits as a percentage of revenue. Without this one-time
license fee, our gross profit actually increased 69% in the first quarter of
2001, which continues to reflect an increase of higher-margin software licenses
over lower-margin and labor intensive consulting and maintenance revenue.
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SALES AND MARKETING EXPENSE
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999 Change
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(Dollars in Thousands)
<S> <C> <C> <C>
Sales and marketing 234 246 (5)%
Percentage of revenues 68% 4%
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</TABLE>
Sales and marketing expenses in actual dollar amounts decreased by 5% between
the periods ended June 30, 2000 and June 30, 1999. The sales and marketing
expenses for fiscal 2000 included increased bonuses and commissions paid to
Company executives in connection with the one-time license fee paid to the
Company by Microsoft. Sales and marketing expenses are expected to increase in
fiscal 2001 over fiscal 2000 as we intend to increase the number of employees in
our sales department.* This is reflective of the increased number of
distribution partners who are expected to require representation in fiscal
2001.*
Sales and marketing expenses as a percentage of revenues increased substantially
in fiscal 2001 over fiscal 2000 due, in large part, to the higher sales revenue
in fiscal 2000 from the Microsoft license. We anticipate that actual costs of
sales and marketing will increase dramatically in the future due to our recent
acquisition of Analyst Financials, the European distributor of our products.
Analyst Financials will serve as a major sales and account management center,
thereby increasing the number of sales and marketing employees.* However, such
costs as a percentage of revenue may vary widely based upon the level of gross
revenue in each quarter.*
In addition, Analyst Financials relies in part on its direct sales force for
some of its sales and licensing efforts, especially in the greater London area.
We expect to continue this direct sales effort through Analyst Financials.* Over
the last several years, we have moved away from the direct sales model in the
U.S. and have relied more on licensing through our third-party distribution
channels. There are no assurances that we will be able to profitably or
successfully maintain the direct sales model through Analyst Financials.
RESEARCH AND DEVELOPMENT EXPENSE
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999 Change
-----------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Research & development 321 307 5%
Percentage of revenues 93% 6%
-----------------------------------------------------------------------------------
</TABLE>
Research and development expenses increased during the quarter ended June 30,
2000 in actual dollar amounts by 5% over the period ended June 30, 1999. The
increase is due to normal increases in the cost of labor rather than a
significant increase in head count. The period ended June 30, 1999 includes a
bonus paid as a result of the one-time license fee paid by Microsoft, without
which research and development expense would have increased 12%. While the
acquisition of Analyst Financials will increase the number of employees
dedicated to research and development, we do not expect this increase to be
material. Research and development cost as a percentage of revenue will continue
to be far more dependent on the fluctuations in volume of revenue than to an
increase in head count.
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Research and development expenses during the quarters ended June 30, 2000 and
June 30, 1999 were primarily attributable to the enhancement of the
functionality of the current product lines and to integration of our products
with various accounting packages. We anticipate such efforts will continue
throughout the remainder of the fiscal year.* Consequently, we believe research
and development expenses will continue to increase slightly over comparable
periods of fiscal 2000.*
GENERAL AND ADMINISTRATIVE EXPENSE
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999 Change
-----------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
General & administrative 571 719 (21)%
Percentage of revenues 166% 13%
-----------------------------------------------------------------------------------
</TABLE>
General and administrative expenses decreased by 21% between the comparable
three-month periods ended June 30, 2000 and June 30, 1999. A significant portion
of this decrease is the result of discretionary bonuses to executives in
connection with the $5,000,000 license fee from Microsoft in fiscal 2000.
Excluding the one-time discretionary bonuses in fiscal 2000, general and
administrative expenses actually increased by approximately $102,000 or 21%
between the comparable quarters. This increase is in part due to increased legal
fees incurred in connection with the various patent lawsuits in which we are
involved.
Except for attorneys and expert witness fees associated with ongoing and
anticipated patent licensing and enforcement actions, we expect general and
administrative expenses to remain relatively steady throughout the remainder of
fiscal 2001 at levels similar to those experienced in fiscal 2000.* Due to the
uncertainties associated with patent litigation and negotiations, it is hard to
estimate the level of litigation expenses on an ongoing basis. We anticipate,
based upon the current level of activity, that litigation expenses, including
expert witness fees, may exceed $200,000 per quarter until the trials currently
scheduled for December 2000 and January 2001 are either completed or settled.*
Depreciation expense decreased in the quarter ended June 30, 2000 to $47,000
from $48,000 in the quarter ended June 30, 1999. Due to the acquisition of
Analyst Financials at June 30, 2000, depreciation and amortization of intangible
assets will greatly increase in future quarters, as the excess purchase price is
amortized at a rate of approximately $100,000 per quarter.*
OTHER INCOME (EXPENSE)
Other income (expense) increased from a net expense in the first quarter of
fiscal 2000 of approximately $7,000 to a net income in the first quarter of
fiscal 2001 of approximately $279,000. The increase was due to realized and
unrealized gains on securities of approximately $274,000 and an increase in
interest income of approximately $9,000 during the quarter ended June 30, 2000.
INCOME TAX
Income taxes are provided in the statement of operations in accordance with the
asset and liability method. We have determined that the tax assets generated by
the net operating losses and research and experimentation credits do not satisfy
the recognition criteria set forth under the liability method. Accordingly, a
valuation allowance is recorded against the applicable deferred tax assets and
therefore no tax benefit is recorded. This valuation allowance was increased by
approximately $230,000 during the quarter ended June 30, 2000.
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<PAGE> 12
In connection with our initial public offering in January 1995, we experienced a
significant change in ownership, which limits the amount of net operating loss
carry forwards and credits which may be used in any given year. However, we do
not expect this to be a factor in fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalent and marketable securities balances at June 30, 2000
stood at approximately $2,346,000 compared to approximately $3,017,000 at March
31, 2000. At June 30, 2000 we also maintained a balance of approximately
$1,837,000 of restricted but unencumbered public securities in addition to our
cash and short-term investment balances. At March 31, 2000, the balance of such
restricted securities stood at $3,030,000. The decrease in cash is attributable
to the loss for the quarter. The decrease in restricted securities is due in
part to the decrease in price of the underlying securities and holding fewer
such restricted securities due to a previously disclosed stock exchange
transaction with two of our shareholders. In addition, we sold 15,000 shares of
the restricted securities in June, 2000. Total obligations, excluding deferred
income items, totaled approximately $1,736,000 at June 30, 2000 as compared to
approximately $796,000 at March 31, 2000. The June 30, 2000 obligations include
approximately $784,000 of obligations of Analyst Financials that was
consolidated at June 30, 2000.
Net cash used in operating activities was $1,080,000 in the quarter ended June
30, 2000. This was primarily due to our net loss in the quarter. We generated
$315,000 from investing activities and used $4,037 for financing activities.
Based on current cash and cash equivalent balances along with our ability to
sell restricted securities starting in September 2000, we believe we have
adequate resources to fund operations, as well as continued costs and expenses
of litigation, through fiscal 2001.*
OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS
Our operating results may fluctuate due to a number of factors, including, but
not limited to, the success and revenue growth of our products, our ability to
continue to develop and expand distribution channels and to develop
relationships with third-party distributors and licensees of our products, our
ability to successfully integrate our business operations with Analyst
Financials, our ability to manage growth, our ability to integrate our products
with those of its third-party distributors and licensees, our ability to hire
qualified sales and marketing personnel and to generate revenue from such sales
and marketing personnel, the outcome of the litigation involving Microsoft
Corporation, Sagent Technologies, Inc. and Oracle Corporation, the outcome and
costs of pursuing patent litigation against third parties, the availability of
additional financing or capital resources, the volume and timing of systems
sales and licenses, reductions in the size or volume of maintenance contracts
with clients, changes in the product mix of revenues, changes in the level of
operating expenses, and general economic conditions in the software industry.
All of the above factors are difficult for us to forecast, and can materially
adversely affect our business and operating results for one quarter or a series
of quarters.**
YEAR 2000 COMPLIANCE
We experienced no material issues or problems as a result of the transition into
the year 2000 with regard to internal operations or our software products. We
will continue to monitor our software products to ensure no problems arise
either with regard to Leap Year or Y2K issues, but anticipate no material
additional costs.*
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PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1999, we filed an action in the U.S. Federal District Court for Western
Washington against Sagent Technologies, Inc., seeking monetary damages and an
injunction from further unauthorized licensing of certain products that we
believe infringe on our patent rights under U.S. Patent Nos. 5,802,511,
6,023,694 and 6,026,392. The litigation process is in the discovery phase, and
the trial is set for January 2001.
In July 1999, we were served a complaint by Microsoft Corporation in the
Superior Court of Washington for King County alleging breach of contract
regarding a Patent License Agreement signed by both companies in June 1999. We
believe the claims made by Microsoft have no merit and intend to vigorously
defend against this lawsuit.* This litigation process is in the discovery phase,
and the trial is set for December 2000.
In July 2000, we filed a lawsuit against Oracle Corporation seeking monetary
damages and injunctive relief. Our claims are based on Oracle's alleged
introduction of elements in its product family that utilize technology similar
to the patented technology that we licensed to Microsoft. The litigation process
is in the discovery phase.
From time to time, we may pursue litigation against other third parties to
enforce or protect our rights under these patents or our intellectual property
rights generally.*
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In June, 2000, we issued 3,000 shares of Common Stock upon exercise of an option
at $1.00 per share. The option was granted under the Timeline Employee Stock
Option Plan and issued in reliance on Rule 701 under the Securities Act of 1933.
Effective June 30, 2000, we acquired all of the outstanding equity of Analyst
Financials Limited, the European distributor for our products. Upon completion
of the transaction, Analyst Financials became a wholly-owned subsidiary of
Timeline, responsible for our operations throughout Europe, the Middle East and
Africa. We completed the transaction on a stock-for-stock basis and issued
303,814 shares of our common stock to certain shareholders of Analyst Financials
in reliance on Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months ended June 30,
2000.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Timeline, Inc.
(Registrant)
Date: August 14, 2000 By: /s/ Charles R. Osenbaugh
---------------------------------
Charles R. Osenbaugh
President/Chief Financial Officer
Signed on behalf of
registrant and as principal
financial officer.
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