1
As filed with the Securities and Exchange Commission on September _____, 2000
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1 ON FORM SB-2
TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
TIMELINE, INC.
Name of Small Business Issuer in Its Charter
STATE OF WASHINGTON 7372 95-1590734
State or Jurisdiction of Primary Standard Industrial I.R.S. Employer Identification
Incorporation or Organization Classification Code Number Number
3055 - 112TH AVENUE N.E., SUITE 106 CHARLES R. OSENBAUGH, CHIEF EXECUTIVE OFFICER
BELLEVUE, WASHINGTON 98004 TIMELINE, INC.
(425) 822-3140 3055 - 112TH AVENUE N.E., SUITE 106
BELLEVUE, WASHINGTON 98004
Address and Telephone Number of Principal (425) 822-3140
Executive Offices Name, Address and Telephone Number of
Principal Place of Business and Agent for Service
Copies of all communications to the foregoing to be sent to:
TIMOTHY M. WOODLAND
CAIRNCROSS & HEMPELMANN, P.S.
701 FIFTH AVENUE, SUITE 7000
SEATTLE, WASHINGTON 98104-7014
(206) 587-0700
Approximate date of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box:..... [XX]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering:.................................................................. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: ............................. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering:.............................. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box:.............................................. [ ]
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Securities to Amount to be Offering Price Aggregate Amount of
be Registered Registered Per Unit(1) Offering Price(1) Registration Fee
- ---------------------------------------------------------------------------------------------------
COMMON STOCK, $.01 PAR
VALUE PER SHARE 300,000 SHARES (2) (2) (2)
- ---------------------------------------------------------------------------------------------------
COMMON STOCK, $.01 PAR
VALUE PER SHARE 303,814 SHARES $2.6563 $807,021 $213
- ---------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee, based
on the average of the ask and bid prices of the common stock on the OTC
Bulletin Board on September 7, 2000, pursuant to Rule 457(c).
(2) The registration fee for these shares was previously paid in connection with
the original filing on Form S-3 on June 30, 2000.
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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TIMELINE, INC.
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED
BY ITEMS IN PART I OF FORM SB-2
Item in Form SB-2 Location or Caption in Prospectus
----------------- ---------------------------------
1. Front of Registration Statement and
Outside Front Cover of Prospectus......... Front of Registration Statement; Outside Front Cover
of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors...... Prospectus Summary; Risk Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Not Applicable
6. Dilution.................................. Not Applicable
7. Selling Security Holders.................. Selling Shareholders
8. Plan of Distribution...................... Plan of Distribution
9. Legal Proceedings......................... Business
10. Directors, Executive Officers, Promoters
and Control Persons....................... Management; Principal Shareholders
11. Security Ownership of Certain Beneficial
Owners and Management..................... Management; Principal Shareholders
12. Description of Securities................. Description of Securities
13. Interest of Named Experts and Counsel..... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Description of Securities
15. Organization Within Last Five Years....... Not Applicable
16. Description of Business................... Prospectus Summary; Risk Factors; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business
17. Management's Discussion and Analysis of
Plan of Operation......................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property................... Business
19. Certain Relationships and Related
Transactions.............................. Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters....................... Market for Common Equity and Related
Stockholder Matters
21. Executive Compensation.................... Management
22. Financial Statements...................... Financial Statements
23. Changes In and Disagreements With
Accountants and Financial Disclosure...... Not Applicable
3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER ___, 2000
PROSPECTUS
603,814 SHARES
TIMELINE, INC.
COMMON STOCK
This prospectus relates to 603,814 shares of our common stock that are
being offered for sale by shareholders of the Company. The share ownership of
the selling shareholders is described in greater detail below in the section
entitled "Selling Shareholders." The shares are being registered to permit the
selling shareholders to sell the shares from time to time in the public market.
We cannot assure you that the selling shareholders will sell all or any portion
of the common stock offered hereby.
The selling shareholders may from time to time sell the shares on the
OTC Bulletin Board or on any other national securities exchange or automated
quotation system on which the common stock may be listed or traded, in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. The shares may be sold
directly by or through brokers or dealers.
The Company will receive no part of the proceeds of any sales of shares
made hereunder. All expenses of registration incurred in connection with this
offering are being borne by the Company, but all selling and other expenses
incurred by the selling shareholders will be borne by the selling shareholders.
The selling shareholders and any broker-dealers participating in the
distribution of the shares may be deemed to be "underwriters" within the meaning
of the Securities Act, and any commissions or discounts given to any such
broker-dealer may be regarded as underwriting commissions or discounts under the
Securities Act.
The shares have not been registered for sale by the selling shareholders
under the securities laws of any state as of the date of this prospectus.
Brokers or dealers effecting transactions in the shares should confirm the
registration thereof under the securities laws of the States in which
transactions occur or the existence of any exemption from registration.
Our common stock is traded on the OTC Bulletin Board under the symbol
"TMLN." On September 6, 2000, the last sale price of the common stock as
reported on the OTC Bulletin Board was $2.562 per share.
-------------------
SEE "RISK FACTORS" ON PAGE 4 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
The date of this prospectus is September ___, 2000
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AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
with respect to the shares of common stock offered hereby (together with the
exhibits and schedules thereto, the "Registration Statement"). This prospectus,
filed as a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the shares
of Common stock offered hereby, reference is made to the Registration Statement.
Statements made in this prospectus as to the contents of any contract or
document are not necessarily complete and, in each instance, reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement and each such statement is qualified in its entirety by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission at Room 1024, Judiciary Plaza Building, 450 Fifth Street, N.W.,
Washington D.C. 20549, and the regional offices of the Commission at Seven World
Trade Center, Suite 1300, New York, New York 10048, and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may be obtained at prescribed rates from the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza Building, 450 Fifth Street, N.W.
Washington D.C. 20549. The Commission maintains a Web site that contains
registration statements, reports, proxy statements and other information
regarding registrants (including the Company) that file electronically with the
Commission. The address of the Commission's Web site is www.sec.gov.
Following the effective date of the Registration Statement, we will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). So long as we are subject to the
informational reporting requirements of the Exchange Act, the Company will
provide its shareholders with annual reports containing audited financial
statements.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements discuss our
business, prospects, current plans, intentions, beliefs and expectations and
statements of future economic performance. Statements containing terms such as
"believes," "does not believe," "plans," "expects," "intends," "estimates,"
"anticipates" and other phrases of similar meaning are considered to contain
uncertainty and are forward-looking statements. To assist readers in identifying
forward-looking statements, we have attempted to mark sentences containing such
statements with a single asterisk (*) and paragraphs containing only
forward-looking statements with double asterisks (**). However, we cannot assure
you that all forward-looking statements have been identified.
Forward-looking statements involve known and unknown risks and
uncertainties that may cause our actual results in future periods to differ
materially from what is currently anticipated. We make cautionary statements in
the "Our Company" and "Risk Factors" sections of this prospectus and in other
parts of this prospectus. You should read these cautionary statements as being
applicable to all related forward-looking statements wherever they appear in
this prospectus, in the materials referred to in this prospectus, in the
materials incorporated by reference into this prospectus, or in our press
releases.
No forward-looking statement is a guarantee of future performance, and
you should not place undue reliance on any forward-looking statement. We are not
obligated to revise any forward-looking statements in order to reflect events or
circumstances that may happen in the future. Please carefully review and
consider the various disclosures we are making in this report and in our other
reports to be filed with the Securities and Exchange Commission that attempt to
advise you of the risks and factors that may affect our business.
PROSPECTUS SUMMARY
We develop, market and support company-wide financial reporting,
budgeting and management software. Our software products enable customers to
automatically access and distribute business and accounting information in a
secure environment and with full accounting controls. Although we have products
that permit the processing of transactions, our marketing and development
strategy is focused on products that report accounting data in meaningful and
flexible formats.
We believe that our proprietary technology allows customers to avoid
time-consuming, error-prone and expensive data entry.* Our products allow
customers to avoid data entry by facilitating an efficient exchange of
information between the desktop computer and the underlying hardware platform
and accounting system. Our products also work with both new and old accounting
systems. Many customers are changing their accounting systems from larger
mainframe- and minicomputer-based systems to newer "client/server" systems that
store information on a server that in turn makes the information available to a
desktop computer (the "client"). Our products facilitate an efficient exchange
of information between the client and server.
Our 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. Our
products enable our customers to:
- perform financial reporting and management functions;
- connect to multiple types of operating systems;
- efficiently distribute data to desktop computers;
- perform consolidations and allocations; and
- perform budgeting functions.
We have been granted three patents by the U.S. Patent and Trademark
Office on our technology and have a total of 70 issued claims. We believe
additional International patents will be granted during fiscal 2001.*
Shareholders of the Company are offering a total of 603,814 shares of
common stock in connection with this prospectus. Of this total, 300,000 shares
of common stock are being offered for the account of Infinium Software, Inc.
These shares were issued to Infinium in February 2000, upon exercise by Infinium
of stock purchase warrants to purchase 300,000 shares of common stock. In March
1998, in connection with a software development agreement between Timeline and
Infinium, Infinium purchased, at a purchase price of $100,000, non-tradable
warrants to acquire up to 300,000 shares of common stock at an exercise price of
$1.00 per share.
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The remaining 303,814 shares were issued to certain shareholders of
Analyst Financials Limited, the European distributor of our products. Effective
June 30, 2000, we acquired all of the outstanding equity of Analyst Financials
Limited. Upon completion of the transaction, Analyst Financials became a
wholly-owned subsidiary responsible for our operations throughout Europe, the
Middle East and Africa.
RISK FACTORS
In addition to other information in this prospectus or incorporated in
this prospectus by reference, you should consider carefully the following
factors in evaluating Timeline and our business:
OUR ABILITY TO OPERATE PROFITABLY IS UNCERTAIN.
Our historical operations have not been consistently profitable. We have
an accumulated deficit of $6,180,166 at June 30, 2000. Our license revenues have
fluctuated substantially from quarter to quarter in the past and are likely to
continue to fluctuate substantially in the future. To become consistently
profitable, we must:
- increase the licensing and maintenance revenues of our existing
client/server products;
- increase the licensing of patented technology to third parties;
- develop new products; and
- control our expenses.
We cannot assure you that we will meet these objectives or achieve
sustained profitability. Although we believe that current cash balances and
anticipated operating results are sufficient to fund our operations in fiscal
2001, we can give no assurances that sufficient sales will be generated or that
sufficient financing will be obtained to enable us to obtain or sustain
profitability.* This could have a detrimental effect on the market price of our
stock.
OUR PROFITABILITY DEPENDS ON THE SUCCESS OF OUR PRODUCTS.
Our future profitability will depend upon the successful development,
marketing and licensing of our existing product line and other new products.* We
cannot give you any assurances that:
- our products will achieve or sustain revenue growth;
- enhancements to our products and other applications can be
successfully developed;
- demand for our products will continue to grow or be sustained; or
- our products will successfully compete with the products of others.
To the extent demand for our products does not develop due to competition, poor
product performance, negative assessments by our customers of our financial
resources and expertise, technological change or other factors, our operations
may be materially and adversely affected.
WE RELY ON LICENSING AND DISTRIBUTION RELATIONSHIPS.
We rely on agreements with third-party licensees and distributors for
sales and licensing of our products. Our agreements with licensees and
distributors are generally 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 and distribution
agreements depends in part on:
- market acceptance and distribution channels of our third-party
licensee's and distributor's products and services;
- our ability to integrate our products with those of the third party;
and
- the continued viability and financial stability of such third
parties, which, in turn, depends on the overall economic health of
the software industry.
We cannot assure you that these licensees and distributors will perform
their contractual obligations as expected or that we will derive any additional
revenue licensing and distribution arrangements. Also, we can give no assurances
that we will successfully develop new relationships or maintain existing
relationships with third-party licensees and distributors. Finally we cannot
assure you that such licensees and distributors will be able to market our
products effectively, or that any
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existing licensee or distributor will continue to represent our products. A
failure of any of these events to occur could materially adversely affect our
results of operations.
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.
WE MAY NOT BE SUCCESSFUL IN INTEGRATING OUR BUSINESS OPERATIONS WITH
ANALYST FINANCIALS, AND WE MAY FACE ADDITIONAL RISKS FOLLOWING THE
ACQUISITION.
Effective June 30, 2000, we acquired Analyst Financials Limited, the
European distributor for our products. Integrating our operations with those of
Analyst Financials after the acquisition may be difficult and time consuming.
The integration of our combined operations may temporarily distract management
from the day-to-day business of the combined company, and we may fail to manage
this integration effectively or to achieve any of the anticipated benefits that
both companies hope will result from the acquisition. A failure to effectively
integrate Analyst Financials could materially and adversely affect our business.
The acquisition of Analyst Financials is subject to the risks commonly
encountered in such transactions, including, among others:
- difficulties associated with assimilating the personnel and
operations of the acquired business;
- the risk that we will not achieve expected financial results or
strategic goals for the acquired business;
- the potential disruption of its ongoing business;
- the diversion of significant management and other resources; and
- the need to impose and maintain uniform standards, controls,
procedures and policies.
The acquisition of Analyst Financials is also subject to risks related
to international operations, including, among others:
- unexpected changes in regulatory requirements;
- difficulties in staffing and managing foreign operations;
- differing employment laws and practices, and cultural barriers in
foreign countries;
- longer payment cycles and seasonal reductions in business activity
during the summer months in Europe and some other parts of the world;
- currency exchange fluctuations; and
- potentially adverse tax consequences.
Any of these factors could adversely affect the success of our operations, our
financial condition and results of operations.
WE ARE SUBJECT TO PENDING LEGAL PROCEEDINGS.
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business.* Such legal
proceedings could expose us to liability and require the expenditure of
significant financial and managerial resources, which could harm our business.
In March 1999, we filed a lawsuit against Sagent Technologies, Inc.,
seeking monetary damages and injunctive relief. Our claims are based on the
alleged unauthorized licensing by Sagent 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. 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.*
In July 1999, Microsoft Corporation sued us and claimed that we violated
a June 1999 patent license agreement between Microsoft and us. We believe that
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 October 2000.
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In July 2000, we filed a lawsuit against Oracle Corporation seeking
monetary damages and injunctive relief. Our claims are based on Oracle's alleged
development of products that use technology similar to our patented database
technology. The litigation process is in the discovery phase.
WE MAY NOT BE ABLE TO ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS, AND
OTHERS MAY CLAIM THAT WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY
RIGHTS.
We rely on a combination of patents, copyright, trademark and trade
secrecy laws, confidentiality procedures and contractual provisions to protect
our intellectual property rights. We attempt to protect our software,
documentation and other written materials under patent, trade secret and
copyright laws, which afford only limited protection. We have received three
U.S. patents and have filed for patent protection in certain foreign countries.
Despite our efforts to protect our intellectual property rights:
- laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies;
- current federal laws that prohibit unauthorized copying and
distribution of software provide only limited protection from
software "pirates", and effective patent, trademark, copyright and
trade secret protection may be unavailable or limited in foreign
countries;
- other companies may claim common law trademark rights based upon
state or foreign laws that precede the federal registration of our
trademarks; and
- policing unauthorized use of our products and trademarks is
difficult, expensive and time-consuming, and we may be unable to
determine the extent of this unauthorized use.
Spending additional resources on research and development could
adversely affect our financial condition and results of operation. We intend to
protect our patent rights against infringement through negotiation and
litigation, if necessary.* As described above, we are currently involved in a
number of lawsuits, including claims against Sagent Technology, Inc. and Oracle
Corporation for infringement of our patents and a suit against us by Microsoft
Corporation for a claim of breach of contract. Such litigation is costly and we
cannot assure you that we will be successful.
We cannot assure you that our intellectual property protections will be
adequate or that third parties will not independently develop substantially
similar products, services and technology. Although we believe our products,
services and technology do not infringe on any proprietary rights of others, as
the number of software products available in the market increases and the
functions of these products further overlap, we may become increasingly subject
to infringement claims. These claims, with or without merit, could result in
costly litigation or might require us to enter into royalty or licensing
agreements, which may not be available on terms acceptable to us.**
WE RELY ON LICENSE REVENUE FROM A LIMITED LINE OF PRODUCTS.
While in the immediate future we expect revenue from licensing our
patent rights, this is viewed as a temporary market situation.* Product-license
revenues and related services from our Timeline Analyst and Timeline Server
products accounted for a large percentage of our total revenues during fiscal
2000. We expect revenues from our Timeline Analyst and Timeline Server products
to account for substantially all of our long-term future revenues.* As a result,
factors adversely affecting the demand for our Timeline Analyst and Timeline
Server products, such as competition, pricing or technological change, could
materially adversely affect our business, financial condition and operating
results. Our future financial performance will substantially depend on our
ability to sell current versions of the Timeline Analyst and Timeline Server
products and our ability to develop and sell enhanced versions of Timeline
Analyst and Timeline Server products.
WE RELY ON MICROSOFT PRODUCTS.
We have developed all of our client/server products to function in the
Microsoft Windows and/or Windows NT environments, including the recently
introduced Windows 2000. We anticipate that our future products will also be
designed for use in connection with Microsoft software products such as its
Windows ME, expected to be introduced later this year.* In light of this product
strategy, sales of our new products would be materially and adversely affected
by market developments adverse to Microsoft Windows, Windows NT, Windows 2000,
Windows ME or other future Microsoft software products. Our success in
developing products for use with Microsoft software products depends on our
ability to gain timely access to, and to develop expertise in, current and
future Microsoft software products. We cannot assure you that we will be able to
develop expertise in, and continue to develop products for, Microsoft software
products. Moreover, the abandonment by Microsoft of, or any adverse change to,
its current operating system product line, strategy or business
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operations would materially and adversely affect our business. We cannot predict
the impact, if any, that the current anti-trust lawsuit against Microsoft will
have on our business or products.
OUR OPERATING RESULTS MAY VARY SIGNIFICANTLY.
Our results of operations have historically varied substantially from
period to period (quarterly or otherwise), and we expect they will continue to
do so.* Fluctuations in our operating results have resulted, and may result in
the future, from the following factors:
- the size and timing of product or patent licensing agreements and
customer orders for our products;
- the timing of the introduction and customer acceptance of new
products or product enhancements by us or our competitors;
- changes in pricing policies by us or our competitors; and
- changes in general economic conditions.
Over the past several years, we have made great efforts to reduce our operating
and other expenses, including significant reductions in our sales and marketing
staff and research and development activities. We cannot assure you that these
expense reductions will have the desired result of enabling us to achieve
profitability or that they will not have adverse effects on us. In addition, we
are currently more reliant on licensing and distribution arrangements and less
on direct sales, and accordingly we expect that timing of revenues will
fluctuate from quarter to quarter.* If we increase our direct sales and
marketing efforts or undertake research and development not funded by third
parties, our operating expenses would increase and may have an adverse impact on
our results of operations. Any of these fluctuations may cause significant
variations in periodic results of operations. We do not take any actions
specifically designed to limit fluctuations in our periodic results of
operations. Because a significant portion of our expenses, particularly
personnel costs and rent, are relatively fixed in advance of any particular
quarter, shortfalls in revenue caused by a fluctuation of licensing and
distribution revenue may cause significant variation in operating results in any
particular quarter.
OUR ABILITY TO MANAGE GROWTH SUCCESSFULLY IS UNCERTAIN.
Our acquisition of Analyst Financials will place significant demands on
our management and other resources. To manage growth effectively, we must
continue to improve our operational, financial and other management processes
and systems. Our success also depends largely on management's ability to
maintain high levels of employee utilization, project and instructional quality
and competitive pricing for our services. We cannot assure you that we will be
successful in managing our growth.
WE MAY NEED ADDITIONAL FINANCING.
Our net working capital (excluding deferred revenue) at June 30, 2000
was approximately $3,316,000. Our capital needs in the future will depend upon
factors such as:
- market acceptance of our products and any other new products we
develop;
- the success of our third-party software licensing and distribution
arrangements;
- our ability to license our patents; and
- our ability to develop and maintain sustained maintenance and support
revenue.
None of these factors can be predicted with certainty.
We may need substantial additional financing in the future for which we
have no commitments or arrangement. We cannot assure you that any additional
financing, if required, will be available on terms acceptable to us. If we raise
additional funds by selling stock, the percentage ownership of our then current
stockholders will be reduced.* Our inability to obtain required financing could
have a material adverse effect on our results of operations and could cause us
to significantly reduce or suspend our operations, seek a merger partner, sell
certain of our assets, sell additional securities on terms which are highly
dilutive to existing investors, or obtain funds through arrangements that are
unfavorable to us.
OUR INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE.
To remain competitive, we must develop new software products while
enhancing and improving our existing software programs. The development of
software products is characterized by rapid technological change, changes in
user and customer requirements and preferences, frequent new product and service
introductions embodying new technologies
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and the emergence of new industry standards and practices that could render our
existing proprietary technology and systems obsolete. Our success will depend on
our ability to maintain compatibility with existing and future Microsoft
Windows, Windows NT, Windows 2000 and other operating environments, database
systems and development tools.* There will be a material adverse effect on our
results of operations if we fail to anticipate or respond promptly and
adequately to changes in technology and customer preferences, or if there are
any significant delays in our product development or introductions.* We cannot
assure you that we will be successful in developing new products or enhancing
our existing products on a timely basis, or that such new products or product
enhancements will achieve market acceptance.
WE MAY BE SUBJECT TO LIABILITIES ASSOCIATED WITH NEW PRODUCTS.
Software products frequently contain errors or defects, especially when
first introduced or when new versions or enhancements are released. Although we
intend to subject our new software products and new versions and enhancements to
vigorous testing prior to their release, our products may contain errors or
defects.* These errors or defects may result in unexpected re-programming costs,
shipping costs and other expenses. Although our license agreements with our
customers contain provisions designed to limit our exposure to potential product
liability claims, any errors or defects could also result in liability claims
against us by the consumers of our products. Also, Microsoft, our competitors,
or we may announce new products, capabilities or technologies which have the
potential to replace or shorten life cycles of our existing products and which
may cause customers to defer purchasing our existing products. Delays or
difficulties associated with new product introductions or product enhancements
could have a material adverse effect on our results of operations. Any of the
foregoing events could have a negative impact on our business or financial
condition.
WE FACE INTENSE COMPETITION IN OUR BUSINESSES.
The business information software market is highly competitive. We
believe that our primary competition is software vendors such as Hyperion
Solutions, Inc., Comshare, Inc., FRX Software Corporation, Cognos Corporation,
and various budgeting vendors such as Adaytum, Inc. and Pillar by Hyperion.*
Many of our competitors in the consulting arena have substantially greater
financial, management, marketing and technical resources than we do. Because
there are minimal barriers to entry into the software market, we believe that
competition will continue to proliferate.* The market for our products is
characterized by significant price competition, and we expect that our products
will face increasing pricing pressures.*
Many of our current and potential competitors have well-established
relationships with our potential customers, have extensive knowledge of the
markets serviced by our customers, and more extensive development, sales and
marketing resources. As a result, our competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development, promotion and sale of their
products than we are able to. Such competition could seriously harm our ability
to sell products on favorable terms. We cannot assure you that we will be able
to compete successfully against current and future competition, and the failure
to do so would negatively impact our business and financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO RECRUIT AND RETAIN QUALIFIED
INFORMATION TECHNOLOGY PROFESSIONALS AND SALES AND MARKETING PERSONNEL.
Our future success depends in large part on our ability to attract,
develop and retain highly skilled information technology professionals,
particularly project managers, consultants, software engineers and programmers.
Highly skilled information technology professionals are in high demand and are
likely to remain a limited resource for the foreseeable future. In addition, one
of the keys to the success of our acquisition of Analyst Financials will be our
ability to retain Analyst Financials' executives and employees, and attract
additional skilled employees. If we are unable to keep our current technical
employees, we may be unable to adequately service current projects or bid for
new projects. If we are unable to recruit additional technical employees, we may
not be able to expand or grow our business. We compete for the services of
information technology professionals with other consulting firms, software
vendors and consumers of information technology services, many of which have
greater financial resources than we have. We may not be successful in hiring and
retaining a sufficient number of information technology professionals to staff
our consulting projects. To attract qualified technical employees, we may need
to substantially increase the compensation, bonuses, stock options or other
benefits we offer to employees. These additional costs may negatively affect our
business and operating results.
THE FUTURE SUCCESS OF OUR BUSINESS IS HEAVILY DEPENDENT ON THE CONTINUED
SERVICES OF CERTAIN KEY EMPLOYEES.
Our future success depends to a significant extent on the skills,
experience and efforts of our senior management. In particular, we depend on
Charles Osenbaugh, our Chief Executive Officer and Chief Financial Officer. Mr.
Osenbaugh
- 8 -
12
is not subject to an employment agreement and we have not obtained key person
life insurance or disability insurance policies on him. If Mr. Osenbaugh ends
his employment with us, or becomes incapacitated and unable to perform his
duties, then our business and financial condition could be seriously harmed.
We also depend on the services of qualified and experienced information
technology professionals, creative personnel, and sales and marketing personnel.
We typically do not enter into employment agreements with these individuals. Any
of these employees could leave their employment with us, and could offer their
services to our competitors. Our business and financial condition could be
negatively impacted if any of these events occur.
THE MARKET FOR OUR SHARES IS LIMITED.
Our common stock is 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, our securities than if the
securities were traded on the Nasdaq Stock Market or another national exchange.
In addition, our common stock is also listed for trading on the Boston Stock
Exchange. If we 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, our securities.
Our securities are subject to certain rules and regulations relating to
"penny stock" (generally defined as any equity security that is not quoted on
the Nasdaq Stock Market 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 our securities are subject to the
rules on penny stocks, the market liquidity for such securities could be
materially and adversely affected.
OUR STOCK PRICE IS VOLATILE.
The trading price of our common stock has fluctuated significantly in
the past. The future trading price of our common stock may continue experiencing
wide price fluctuations in response to such factors as:
- actual or anticipated fluctuations in revenues or operating results;
- changing information technology spending habits of our clients and
prospective clients;
- failure to meet expectations of performance;
- announcements of technological innovations or new products by our
competitors;
- developments in or disputes regarding copyrights, trademarks, patents
and other proprietary rights;
- product and services pricing, discounts and margins; and
- general economic conditions.
WE DO NOT INTEND TO PAY DIVIDENDS.
We have not declared dividends on our common stock in the past, and do
not intend to declare dividends on our common stock in the foreseeable future.*
THERE ARE A NUMBER OF STATE LAW PROVISIONS THAT COULD DELAY OR PREVENT
AN ACQUISITION OF OUR COMPANY.
We are subject to the provisions of Chapter 23B.19 of the Washington
Business Corporation Act, which prohibit a corporation registered under the
Securities Exchange Act of 1934, as amended, from engaging in certain
significant transactions with a 10% shareholder. Significant transactions
include, among others, a merger with or disposition of assets to the 10%
shareholder. These provisions have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock, or delaying
such an acquisition, even if the takeover by a third party would be beneficial.
- 9 -
13
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock offered by the selling shareholders. We will pay any expenses incurred in
connection with the registration of all shares of common stock offered by this
prospectus. See "Plan of Distribution."
SELLING SHAREHOLDERS
The following table sets forth the aggregate number of shares of common
stock held by the selling shareholders as of June 30, 2000 and the number of
shares being offered for sale.
NO. OF SHARES NO. OF SHARES NO. OF SHARES PERCENTAGE
OWNED OFFERED FOR OWNED OWNED
NAME BEFORE OFFERING SALE AFTER OFFERING AFTER OFFERING
Infinium Software, Inc.(1) 300,000 300,000 0 0
Terry and Jean Harvey(2) 214,741 214,741 0 0
Michael Evans(2) 13,462 13,462 0 0
Bill Seddon(2) 10,937 10,937 0 0
Mark Gray(2) 9,877 9,877 0 0
Tracy Ellesmere(2) 5,185 5,185 0 0
Ian McNaught-Davis(2) 14,777 14,777 0 0
Mark Buckler(2) 9,071 9,071 0 0
John Walder(2) 9,740 9,740 0 0
Nigel Pendse(2) 14,472 14,472 0 0
Darren Bourget(2) 1,552 1,552 0 0
TOTAL: 603,814 603,814 0 0
- ----------
(1) The 300,000 shares of common stock being offered for the account of
Infinium Software, Inc. were issued to Infinium in February 2000, upon
exercise by Infinium of stock purchase warrants to purchase 300,000
shares of common stock. In March 1998, in connection with a software
development agreement between Timeline and Infinium, Infinium purchased,
at a purchase price of $100,000, non-tradable warrants to acquire up to
300,000 shares of common stock at an exercise price of $1.00 per share.
This per share exercise price represented the fair market value of the
common stock at the time of the original agreement. The warrants were
sold to Infinium in conjunction with an agreement that called for us to
develop integrated financial reporting and budgeting applications for
Infinium.
(2) Effective June 30, 2000, Timeline 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 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.
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14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2000
REVENUES
Three Months Ended June 30,
2000 1999 Change
- -----------------------------------------------------------------------------------------
(Dollars in Thousands)
License 113 5,077 (98)%
Maintenance 154 205 (25)%
Consulting 78 206 (62)%
----------------------------------
Total Revenues 345 5,488 (94)%
- -----------------------------------------------------------------------------------------
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 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.
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15
GROSS PROFIT
Three Months Ended June 30,
2000 1999 Change
- -----------------------------------------------------------------------------------------
(Dollars in Thousands)
Gross profit 166 5,098 (97)%
Percentage of revenues 48% 93%
- -----------------------------------------------------------------------------------------
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.
SALES AND MARKETING EXPENSE
Three Months Ended June 30,
2000 1999 Change
- -----------------------------------------------------------------------------------------
(Dollars in Thousands)
Sales and marketing 234 246 (5)%
Percentage of revenues 68% 4%
- -----------------------------------------------------------------------------------------
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
Three Months Ended June 30,
2000 1999 Change
- -----------------------------------------------------------------------------------------
(Dollars in Thousands)
Research & development 321 307 5%
Percentage of revenues 93% 6%
- ------------------------------------- ----------------- ---------------- ----------------
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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16
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
Three Months Ended June 30,
2000 1999 Change
- -----------------------------------------------------------------------------------------
(Dollars in Thousands)
General & administrative 571 719 (21)%
Percentage of revenues 166% 13%
- -----------------------------------------------------------------------------------------
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.
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.
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17
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalent and marketable securities balances at June
30, 2000 stood at approximately $2,247,000 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.*
FISCAL YEAR ENDED MARCH 31, 2000
RESULTS OF OPERATIONS
For the fiscal year ended March 31, 2000, we generated net income of
$2,912,000, compared to a net loss of $366,000 for the year ended March 31,
1999. This increase was attributable, in large part, to recognition in fiscal
2000 of a $5,000,000 license fee from Microsoft Corporation for the licensing of
U.S. Patent No. 5,802,511 and subsequent patents issued or which may be issued
in the future based upon extensions of the same technology.
Other significant factors in our results for the fiscal year ended March
31, 2000 were higher expenses on relatively flat operating revenues. The
greatest increase in expenses was in the area of general and administrative
expenses to account for attorneys' fees, costs, and expert fees associated with
patent enforcement and contract litigation, as well as bonus and non-cash stock
compensation expenses associated with executive bonuses triggered by achievement
of a number of long-term profitability objectives.
GROSS REVENUE
Twelve Months Ended
March 31,
2000 1999 Change
- ---------------------------------------------------------------------------------------------
(Dollars in Thousands)
License 6,329 1,794 253%
Maintenance 833 854 (3%)
Consulting 735 713 3%
Software Development 49 41 20%
-----------------------------------------
Total Revenues 7,946 3,402 134%
- ---------------------------------------------------------------------------------------------
Our total revenue increased 134% to $7,946,000 for the fiscal year ended
March 31, 2000. Revenues generated by license fees were substantially higher in
fiscal 2000 over fiscal 1999, while all other categories of revenue were not
materially different than the prior year. This increase was attributable, in
large part, to recognition in fiscal 2000 of a one-time $5,000,000 license fee
from Microsoft Corporation. License revenues for fiscal 1999 consisted of
software license revenues through our distribution partners, including a
one-time software license fee of $650,000 from Seagate Software, Inc. 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 arrangements, 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.
- 14 -
18
Software license revenues for fiscal 2000 were lower than in fiscal 1999. We
believe the impact of Year 2000 compliance uncertainties on the industry as a
whole may have had a negative impact on software license revenue in fiscal 2000.
It is too early to discern whether fiscal 2001 activity in software licenses for
our distribution channels will show a significant increase. 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 (formerly Timeline Europe Limited) during fiscal
2000. As we enter fiscal 2001, 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 the coming year.*
Consulting and maintenance revenues for the 2000 fiscal year were
relatively consistent with fiscal 1999. Consulting revenue is directly related
to the amount of software license activity. Accordingly, consulting revenues for
fiscal 2000 were affected by a slowdown in software license revenues, which we
believe were due in part to uncertainties surrounding Year 2000 compliance.
Consulting revenues for fiscal 1999 were affected by reduced staffing during
much of the fiscal year, offset by limited hiring in the fourth quarter of the
fiscal year. We believe the demand for consulting and maintenance services in
fiscal 2001 will be reduced by greater use of distribution channels that have
existing agreements with Value Added Resellers.* These VARs seek to provide such
services to end-users who may use our software in conjunction with software
provided by the distribution channel.
Software development revenues increased in fiscal 2000, but were not
material to overall revenue. We do not anticipate that software development
revenue will contribute significantly to revenue in fiscal 2001 as there are no
substantial contracts currently in place or being pursued for development
efforts.* We do not consider software development for fees to be a line of
business that should be pursued except in exceptional situations.
GROSS PROFIT
Twelve Months Ended
March 31,
2000 1999 Change
- ---------------------------------------------------------------------------------------------
(Dollars in Thousands)
Gross profit 6,790 2,460 176%
Percentage of total revenues 85% 72%
- ---------------------------------------------------------------------------------------------
Our gross profit increased during the 2000 fiscal year by $4,330,000,
which represents a 176% growth over the 1999 fiscal year. However, an unusually
large license fee of $5,000,000 from Microsoft Corporation makes the results for
fiscal 2000 not directly comparable to fiscal 1999. In the fourth quarter of
fiscal 2000, our gross profit was lower in both actual dollars and as a
percentage of gross revenue compared to fourth quarter 1999. Our cost of revenue
increased in both real terms and as a percentage of sales for the 2000 fiscal
year (excluding patent licensing). This reflects greater amortization expense in
fiscal 2000, in part due to a change in the estimated useful life of certain
software products, and amortization of more products during the fourth quarter
of fiscal 2000. Gross profit in fiscal 1999 represented a decrease in cost of
revenue due to lower amortization expense and continued savings associated with
our shift to third-party distribution channels. We expect amortization expense
to decrease in fiscal 2001 due to certain software products becoming fully
amortized in fiscal 2000.* Nevertheless, this decrease could be reversed if we
acquire capitalized software outright or through a merger or acquisition.*
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19
SALES AND MARKETING & RESEARCH AND DEVELOPMENT EXPENSE
Twelve Months Ended
March 31,
2000 1999 Change
- ---------------------------------------------------------------------------------------------
(Dollars in Thousands)
Sales and marketing 617 599 3%
Percentage of total revenues 8% 18%
- ---------------------------------------------------------------------------------------------
Research & development 1,161 657 77%
Percentage of total revenues 15% 19%
- ---------------------------------------------------------------------------------------------
Our sales and marketing costs increased 3% in fiscal 2000. This increase
was mainly due to a large increase in costs in the first quarter of the fiscal
year as a result of a large commission/bonus. For the fourth quarter, these
costs were 25% lower than in fiscal 1999, mainly due to a lower head count.
Sales and marketing costs for fiscal 1999 were affected by reduced staffing
during much of the fiscal year, offset by limited hiring in the fourth quarter
of the fiscal year. 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.*
Our costs for research and development were $1,161,000 in fiscal 2000
compared to $657,000 in fiscal 1999, a 77% increase. This increase in costs was
the result of a decrease in capitalization of research and development cost in
fiscal 2000; i.e. a higher percentage of our expenses in the product group were
capitalized in fiscal 1999. Also, we increased the number of employees working
in development for fiscal 2000 as compared to fiscal 1999. We continue to add
additional product resources and expect research and development expenses will
be higher in fiscal 2001 than fiscal 2000.*
GENERAL AND ADMINISTRATIVE EXPENSE
Twelve Months Ended
March 31,
2000 1999 Change
- ---------------------------------------------------------------------------------------------
(Dollars in Thousands)
General & administrative 2,365 1,329 78%
Percentage of total revenues 30% 39%
- ---------------------------------------------------------------------------------------------
Our general and administrative expenses increased by 78% for the full
fiscal year and 81% for the fourth quarter during fiscal 2000. A significant
portion of this increase is a result of attorneys' fees related to patent
enforcement and contract litigation, and payment of incentive compensation to
executives upon reaching relevant objectives in the first and fourth quarter,
respectively. It is hard to determine if these expenses will be greater or
smaller in fiscal 2001 because we cannot predict the outcome of and expenses
associated with the lawsuits in which we are involved on alleged patent
infringements and contract disputes.*
Our depreciation expense decreased in fiscal 2000 to $182,000 from
$196,000 in fiscal 1999 due to certain fixed assets becoming fully depreciated.
OTHER INCOME
Interest expense decreased to $33,000 in fiscal 2000 from $57,000 in
fiscal 1999, while interest income increased to $105,000 from $12,000 for fiscal
1999. These changes reflect our positive cash flow in fiscal 2000 and our
significant reductions in debt. We believe interest costs for fiscal 2001 will
be less than in fiscal 2000 as the balance outstanding on debts continues to
decline in the ordinary course.* If no additional large cash license fees are
received in fiscal 2001, interest income will likely be lower as we are funding
operations and legal fees and costs related to patent enforcement through
utilization of cash and liquid investments.*
We did not record a tax benefit or cost in fiscal 1999 but we did record
a tax cost of $56,000 in fiscal 2000. All taxes expensed in fiscal 2000 are for
alternative minimum taxes that could not be offset by net operating loss
carryforwards from prior years. Tax assets generated by net operating losses
from prior years and fiscal 1999 did not satisfy the
- 16 -
20
recognition criteria set forth by generally accepted accounting principles in
either fiscal 1999 or fiscal 2000. Accordingly, we have established a valuation
allowance that offsets net deferred tax assets. As taxable income is accrued,
which is offset by previously unrecognized net operating loss carryforwards, we
offset tax costs with such net operating losses. We do not anticipate
recognition of federal income taxes other than alternative minimum taxes in the
near future as existing net operating loss carryforwards are considered adequate
to cover taxable income, if any, for fiscal 2001.* During fiscal 2000
approximately $2,600,000 of net operating loss carryforwards were so utilized.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalent and trading marketable securities balances
at March 31, 2000 stood at $3,017,000 compared to $59,000 at March 31, 1999. At
March 31, 2000, we also held approximately $3,030,000 of publicly-traded stock
that is restricted from sale until approximately September 1, 2000. As of May
18, 2000, these shares were valued at approximately $1,500,000 based on
then-current market prices.
The $3,854,000 of cash flows from operating activities consisted of net
income of approximately $2,912,000 increased by the noncash compensation,
depreciation and amortization of $729,000. Changes in operating assets and
liabilities and ESOP contributions generated the remaining net positive change
of $213,000. Net cash provided by operating activities of $3,854,000 in fiscal
2000 compares to $771,000 provided in fiscal 1999. Net cash used in investing
activities of $2,455,000 consisted of $79,000 for property and equipment,
$302,000 for capitalized software and development costs and $2,876,000 for
purchase of short-term investments. These amounts were offset by $801,000 in
proceeds from a note receivable and the sale of short-term investments. The
$2,455,000 of net cash used in investing activities compares to $341,000 used in
fiscal 1999. Net cash used in financing activities of $13,000 consisted of
payments on capital lease obligations, line of credit, notes payable and
retirement of treasury stock in the amount of $584,000, offset by borrowings
under the line of credit and sales of common stock and exercise of stock options
of $597,000. Net cash used in financing activities of $13,000 compares to
$(429,000) in fiscal 1999.
Our total obligations, excluding deferred income items, totaled $796,000
at March 31, 2000 compared to $669,000 at March 31, 1999.
At March 31, 2000, we had no outstanding balance on our line of credit
facility. We have a bank line of credit of $500,000 based upon selling our
accounts receivable with recourse. We believe current cash and cash equivalent
balances, along with our ability to sell restricted securities starting in
September 2000, are adequate to fund operations as well as continued costs and
expenses of litigation, through fiscal 2001.*
BUSINESS
OUR BUSINESS
We develop, market and support company-wide financial reporting,
budgeting and management software. Our software products enable customers to
automatically access and distribute business and accounting information in a
secure environment and with full accounting controls. Although we have products
that permit the processing of transactions, our marketing and development
strategy is focused on products that report accounting data in meaningful and
flexible formats. These reporting products allow our customers to gather and
distribute business information throughout their companies while maintaining
maximum flexibility in determining the types of transaction processing systems
they will use. We allow the end-user to receive information through a web
browser, distributed Microsoft(R) Excel workbooks, data marts or actual reports
delivered via e-mail.
Many financial and management reporting products are focused on the
presentation, either electronically or on paper, of processed data in formatted
reports. While our products can present information in formatted reports, our
technology can also distribute an actual database of information (a "data mart")
to an end-user's computer. These databases or data marts are built through
selective criteria that limit the data mart to relevant data for 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 in a standard
corporate report format or through a personal library of customized report
formats. 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.
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We believe that our proprietary technology allows customers to avoid
time-consuming, error-prone and expensive data entry.* Our products allow
customers to avoid data entry by facilitating an efficient exchange of
information between the desktop computer and the underlying hardware platform
and accounting system. Our products also work with both new and old accounting
systems. Many customers are changing their accounting systems from larger
mainframe- and minicomputer-based systems to newer "client/server" systems that
store information on a server that in turn makes the information available to a
desktop computer (the "client"). Our products facilitate an efficient exchange
of information between the client and server.
Other businesses have elected to retain their existing, or "legacy"
accounting systems. Our business strategy is focused on meeting the financial
management needs of customers with both types of accounting systems by providing
products that accept and report on data from both legacy and newer client/server
systems.
Our 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. Our
products enable our customers to:
- perform financial reporting and management functions;
- connect to multiple types of operating systems;
- efficiently distribute data to desktop computers;
- perform consolidations and allocations; and
- perform budgeting functions.
The flexibility of our Timeline products make it possible for our customers to
deliver data for reporting and analysis throughout their business enterprise
without purchasing a new, expensive computer system.
In addition to providing an infrastructure to deliver data, Timeline
provides a number of processes to enhance or augment sophisticated financial
reporting. These include budgeting, allocations, consolidations, foreign
currency conversion and security.
We believe that our products can improve the accounting and reporting
software of other software vendors.* Our products are designed to enhance
existing accounting and reporting software by adding functions and flexibility
that the software may not have. As a result, our products can eliminate
weaknesses or competitive disadvantages in other accounting and reporting
software. Our preferred method of product distribution is through
transaction-based software vendors that bundle our products or distribute our
products in conjunction with their accounting and reporting systems. We believe
that a majority of our license fee revenue in fiscal year 2001 will be generated
by licensing and distribution agreements with these third-party vendors.*
At June 30, 2000, we employed 32 full-time employees and two part-time
employees.
OUR TECHNOLOGY
Our software works with a customer's entire computing infrastructure to
create a reporting engine that can accept and organize data, with full
accounting controls, from both new and old accounting systems. Our proprietary
architecture, in conjunction with our proprietary generation engine, is designed
to accomplish this task. The compatibility of our software with older legacy
accounting systems allows a customer to preserve existing computer hardware and
software systems or transition to a client/server environment while providing
enhanced reporting capabilities. If a customer is already using client/server
systems, our technology provides distributed packets of data that enhance the
productivity of reporting, budgeting and analysis professionals throughout the
enterprise. Our products use patent-protected driver technology that not only
automates the transfer of data from accounting and information systems into
desktop databases, but can automate rebuilding databases to reflect changes in
the underlying accounting information. This eliminates the costly process of
maintaining databases in both our software and the underlying accounting system.
The following is a brief discussion of our three primary proprietary
technologies:
- Timeline Architecture. Our architecture contains a multi-dimensional
data segmentation capacity that exceeds the capacity of all
accounting data structures known to the Company. This capacity
enables our reporting products to accept data from multiple
transaction processing systems concurrently, to combine data into a
single database and to add reporting relationships not present in the
source system(s). For example, we can (a) take data from a customer's
general ledger, human
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resources/payroll, sales and order processing systems, (b) combine
all of the data in one database, and (c) allow the customer to use
the combined data for payroll and sales analysis.
- Generation Engine. Our generation engine enables our products to
automate the building of Microsoft-compatible databases. Prior
technologies required substantial human intervention to manually
build tables, input forms and manipulate other attributes of the
data. The generation engine allows a customer to build a wide range
of databases for distribution throughout the business enterprise.
- Interface Technology. Our interface technology allows our products to
(a) discern the structure of existing transaction-based systems, (b)
extract data from one or more transaction processing systems, and (c)
feed data to the generation engine. Our product is tied directly to
the underlying accounting systems and changes made in these
underlying systems (such as adding a new accounting relationship for
a newly purchased company) are automatically reflected in our data
marts. Prior technologies required substantial human intervention to
manually maintain structures in both the transaction and reporting
systems, and maintain the synchronization of the accounting and
information systems.
We have been granted three patents by the U.S. Patent and Trademark
Office on our technology and have a total of 70 issued claims. We believe
additional international patents will be granted during fiscal 2001.*
OUR PRODUCTS
Our products make it possible to distribute information and data marts
from an underlying accounting system to the desktop. Our primary products,
Timeline Analyst and Timeline Server, consist 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 Microsoft or Timeline-enhanced technology. The
personalized data on the desktop is as accurate as is the data in the underlying
accounting system.
Timeline Server is the central warehouse of financial and management
reporting data structured in a multi-dimensional relational database. Timeline
Server includes traditional financial reporting features including budgeting,
foreign currency conversion, consolidations and allocations. The various
Timeline Server functions provide desktop and network reporting based on
information contained in one or more underlying accounting systems. While this
product can provide many transaction-driven benefits, our market focus is to use
Timeline Server as a data warehouse to handle large volumes of data in
conjunction with Timeline Analyst.
Timeline Analyst is a stand alone "data mart," which enables the user to
view, create and distribute reports in Microsoft Excel based on data from one or
more underlying accounting systems. Timeline Analyst also works with our
server-based software to distribute reporting databases to desktop end-users
throughout a business enterprise.
Manager is a product designed for the "mid-level" market (businesses
with approximately six to 100 desktop users). This product completes the
Timeline Analyst suite by allowing Timeline Analyst users to distribute packets
of information and assign new reporting relationships at the desktop level.
Timeline Budgeting consists of applications and tools that access and
manipulate the underlying Timeline information and data marts. Timeline
Budgeting offers our customers a combination of Microsoft Excel interfaces and
flexible access to and manipulation of information. The functions offered by
Timeline Budgeting include automatic dissemination of budget templates,
consolidation of budget input, allocations, and multiple spread methods.
ACQUISITIONS
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 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.
The software industry has experienced and is expected to continue to
experience a significant amount of consolidation. While we expect that the
Company will grow internally, we continually evaluate potential acquisitions of
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complementary businesses, products and technologies that among other things,
could expand the breadth and depth of our products and organization.
YEAR 2000 DISCLOSURE
We experienced no material Y2K issues or problems in connection with our
internal operations, third-party relationships or software products. We will
continue to monitor our software products to ensure no problems arise either
with regard to leap year or Y2K issues. We anticipate no material additional
costs.*
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
We anticipate that we will retain future earnings for use in the operation and
expansion of our business and do not anticipate paying cash dividends on the
shares in the foreseeable future. Any future determination with regard to the
payment of dividends will be at the discretion of the Board of Directors and
will be dependent upon our future earnings, financial condition, applicable
dividend restrictions and capital requirements and other factors deemed relevant
by the Board of Directors.
DESCRIPTION OF PROPERTY
We lease approximately 12,354 square feet of office space at 3055 112th
Ave. N.E., Bellevue, Washington, under a lease that expires April 30, 2004. We
do not own any real estate.
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 2000, we filed a lawsuit against Oracle Corporation seeking
monetary damages and injunctive relief. Our claims are based on Oracle's alleged
development of products that use technology similar to our patented database
technology. The litigation process is in the discovery phase.
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 the lawsuit.* This litigation process is in the discovery phase,
and the trial is set for October 2000.
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.*
MANAGEMENT
The following table sets forth the names and ages of our current
directors and executive officers and the principal offices and positions with
the Company held by each person. Our Board of Directors currently consists of
four directors, divided into three classes. The members of each class serve
three-year terms, with one class elected annually. The terms of office for
Donald K. Babcock and Kent L. Johnson expire at the Annual Meeting of
Shareholders to be held in 2003; the term of office for Charles R. Osenbaugh
expires at the Annual Meeting of Shareholders to be held in 2002, and the term
of office for Frederick W. Dean expires at the Annual Meeting of Shareholders to
be held in 2001. Our executive officers are elected annually by the Board of
Directors and serve terms of one year or until their death, resignation or
removal by the Board of Directors. There are no family relationships between any
of the directors and executive officers.
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NAME AGE POSITION
Charles R. Osenbaugh 51 Chief Executive Officer, Chief Financial
Officer, President, Treasurer, and Director
Donald K. Babcock 63 Senior Technologist and Director
Kent L. Johnson 56 Director
Frederick W. Dean 48 Executive Vice President and Director
Craig R. Perkins 44 Vice President of Products and Technology
Set forth below is biographical information for the directors and
executive officers:
CHARLES R. OSENBAUGH, age 51, has served as Chief Financial Officer,
Treasurer and a Director since the Company's inception in April 1993, and has
held the position of President and Chief Executive Officer since November 1996.
Mr. Osenbaugh also previously served as Secretary of the Company. From April
1988 to April 1993, Mr. Osenbaugh served as Executive Vice President, Chief
Executive Officer and a Director, and from April 1993 to July 1994 as President
and a Director, of Timeline Services, Inc. From 1975 to 1988, Mr. Osenbaugh was
a partner of Lasher & Johnson, a Seattle law firm. From 1973 to 1975, Mr.
Osenbaugh practiced public accounting with Arthur Andersen & Co. He holds a
B.B.A. degree in economics and a J.D. degree, both from the University of Iowa,
and received his CPA certificate in 1974.
DONALD K. BABCOCK, age 63, is a founder of the Company and has served as
a Director since its inception in April 1993. Mr. Babcock returned to the
position of Senior Technologist with the Company in October 1999 after working
for Seagate Software, Inc. for 18 months as a Program Manager. He previously was
Senior Vice President of Research & Development and Chief Technologist for
Timeline, Inc. He was also a founder of Timeline Services, Inc. and served as a
director from its inception in 1977 until its merger into the Company in July
1994. From 1977 to April 1993, Mr. Babcock also served as Senior Vice President
and Chief Technologist of Timeline Services, Inc. From 1970 to 1977, he was a
consultant with Riggs, Babcock & Mishko, a Tacoma, Washington-based data
processing and consulting firm to the property and casualty insurance industry.
Mr. Babcock was Manager of Systems Programming at United Pacific Insurance
Company from 1965 to 1970, and a data processor in the U.S. Air Force from 1955
to 1965.
KENT L. JOHNSON, age 56, has been a Director of the Company since its
inception. He is Chairman and Managing Partner of Alexander Hutton Venture
Partners, LP, a Seattle-based venture capital firm he co-founded in 1999. From
October 1994 to December 1999, Mr. Johnson was President and co-founder of
Alexander Hutton Capital, L.L.C., an investment banking firm that specializes in
equity capital formation for emerging growth companies. From April 1989 to June
1994, he served as Senior Vice President and Chief Operating Officer of Brazier
Forest Industries, Inc., a Seattle-based forest products company. From 1987 to
1989, he was President and Chief Executive Officer of OverDrive Systems, Inc.,
an electronic publishing software company based in Cleveland, Ohio, and from
1982 to 1987, was President and Chief Executive Officer of Microrim, Inc., a
database software company located in Bellevue, Washington. Prior to entering the
software industry, Mr. Johnson was Chief Financial Officer of Fiberchem, Inc., a
wholesale distributor, from 1977 to 1982. Following his military tenure as an
officer in the U.S. Army, Mr. Johnson began his professional career as a
management consultant with Arthur Andersen LLP., where he was employed from 1970
to 1977. Mr. Johnson currently serves as a director of several private
companies, and devotes considerable time to private investment activities. Mr.
Johnson has a B.B.A. degree in Business Administration from the University of
Washington and an M.B.A. degree from Seattle University, where he serves on the
Business Advisory Board. He received his CPA certificate in 1970.
FREDERICK W. DEAN, age 48, has served as a Director of the Company since
April 1998. He also serves as Executive Vice President and has been a Vice
President since the Company's inception in April 1993. From 1979 to April 1993,
Mr. Dean served as Vice President at Timeline Services, Inc. He practiced public
accounting at Calahan, Reed & Gunn from 1978 to 1979, and at Arthur Andersen &
Co. from 1973 to 1977. From 1977 to 1978, Mr. Dean was the Controller of the
Seattle Mariners Baseball Club. Mr. Dean holds a B.A. degree in accounting from
the University of Washington.
CRAIG R. PERKINS, age 44, and has been with the Company since its
inception in April 1993. He served as Director of Consulting Services until 1998
and Director of Product Management until 1999. In November 1999, Mr. Perkins was
named Vice President of Products and Technology. From 1988 to April 1993, he was
a member of the Consulting department for Timeline Services, Inc. Mr. Perkins
previously practiced public accounting with Ernst Young & Co. in Winnipeg,
Canada and Bermuda. He has a Bachelors degree with honors in accounting from the
University of Manitoba and is a Chartered Accountant.
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EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the three fiscal years ended March 31,
2000, 1999, and 1998, respectively, certain compensation awarded or paid to, or
earned by, the Named Executive Officers. Other than the Named Executive Officers
listed below, no executive officer earned more than $100,000 in salary and bonus
for the 2000 fiscal year:
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual ------------ All Other
Compensation Securities Compensation
Fiscal ------------ Underlying ------------
Name and Principal Position Year Salary ($) Option(1) ($)(2)
- -------------------------------- -------- ------------- ---------------- --------------
Charles R. Osenbaugh, 2000 $400,500(3) 50,000(4) $ --
President, Chief Executive 1999 153,611 125,000(5) --
Officer, Chief Financial 1998 70,670 86,000(5)(6) 6,000
Officer
Frederick W. Dean, Executive 2000 180,506(7) -- --
Vice President 1999 99,167 25,000 26,656
1998 108,109(8) 19,000(9) --
Craig R. Perkins, Vice 2000 125,000(10) -- --
President 1999 108,161(10) 38,000 --
1998 110,345(10) 2,000 --
- ----------
(1) All referenced options granted are exercisable at prices equal to or
higher than the fair market value of the common stock on the respective
dates of grant. Certain options were repriced in November 1997, see
footnotes (6) and (9) below.
(2) Represents dollar value of medical, disability, and life insurance
premiums we paid for the benefit of the respective Named Executive
Officers.
(3) Includes a performance-based bonus of $250,000 paid to Mr. Osenbaugh.
(4) Mr. Osenbaugh received a grant of a performance-based option to purchase
50,000 shares of common stock on November 1, 1999. This option will vest
when our stock closes trading at $5.00 or more per share for 10
consecutive days. In any event, all options shall vest if Mr. Osenbaugh
is employed by us on the seventh anniversary of their original grant.
(5) Mr. Osenbaugh received a grant of a performance-based option to purchase
50,000 shares of common stock on February 1, 1999. This option will vest
when our stock closes trading at $5.00 or more per share for 10
consecutive days, or on the seventh anniversary of their original grant
if Mr. Osenbaugh is employed by us. In addition, on February 1, 1999 the
vesting schedule was revised on a grant of a performance-based option to
purchase 75,000 shares made to Mr. Osenbaugh in fiscal 1998. Under the
revised vesting schedule, 50% vested and became exercisable when the
common stock closed trading at $2.00 or more per share for 10
consecutive days and the remainder vested and became exercisable when
our stock closed trading at $3.00 or more per share for 10 consecutive
days.
(6) Includes 9,000 shares underlying options granted in fiscal 1996
originally priced at $3.57 per share that were repriced at $1.00 per
share in fiscal 1998.
(7) Includes a performance-based bonus of $80,506 paid to Mr. Dean.
(8) Includes $19,125 of deferred salary earned in fiscal 1998 by Mr. Dean.
(9) Includes 12,000 shares underlying options granted in fiscal 1996 at an
exercise price of $3.57, and 5,000 shares underlying options granted in
fiscal 1997 at an exercise price of $2.19 per share, each of which were
repriced at $1.00 per share in fiscal 1998.
(10) Includes a performance-based bonus paid to Mr. Perkins of $25,000 in
fiscal 2000, $5,869 in fiscal 1999 and $11,178 in fiscal 1998.
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STOCK OPTION GRANTS
The following table shows certain information regarding options granted
to the Named Executive Officers during the 2000 fiscal year:
No. of Percentage of
Shares Total
Underlying Options Exercise
Options Granted to Price Per Expiration
Name Granted Employees Share Date
- ---------------------- ------------ ------------- ------------- --------------
Charles R. Osenbaugh 50,000(1) 38.6% $1.875 10/31/2009
Fred Dean -- -- -- --
Craig Perkins -- -- -- --
(1) Mr. Osenbaugh received a grant of a performance-based option to purchase
50,000 shares of common stock on November 1, 1999. This option will vest
when our stock closes trading at $5.00 or more per share for 10
consecutive days. In any event, all options shall vest if Mr. Osenbaugh
is in our employment on the seventh anniversary of their original grant.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END 2000 OPTION VALUES
The following table shows certain information regarding the value of
unexercised options held at fiscal year end by each of the Named Executive
Officers. No stock options were exercised by any of the Named Executive Officers
during the 2000 fiscal year.
No. of Shares of Common Stock Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End
------------------------------ ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ------------ --------------- ------------ ---------------
Charles R. Osenbaugh 111,101 101,000 $266,481 $246,625
Frederick W. Dean 32,900 21,000 68,452 60,375
Craig R. Perkins 43,850 11,750 85,560 26,086
COMPENSATION OF DIRECTORS
During the fiscal year ended March 31, 2000, we did not compensate our
directors for their service as directors. Pursuant to the terms of the
Directors' Nonqualified Stock Option Plan, each of our non-employee directors
receives an automatic one-time grant of options to purchase 3,000 shares of
common stock 90 days after he or she becomes a director.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Osenbaugh is a 50% shareholder of SoftForce Inc., an Iowa-based
distributor of software that currently employs six persons. The remaining shares
of SoftForce Inc. are owned by a brother of Mr. Osenbaugh. SoftForce Inc.
distributes our products pursuant to our standard distribution agreement. We
believe our distribution agreement with SoftForce Inc. was made on terms no less
favorable to us than could have been obtained from unaffiliated third party
distributors.
In March 1998, in connection with a software development agreement
between Timeline and Infinium Software, Inc., Infinium purchased, at a purchase
price of $100,000, non-tradable warrants to acquire up to 300,000 shares of
common stock at an exercise price of $1.00 per share. This per share exercise
price represented the fair market value of the common stock at the time of the
original agreement. In February 2000, Infinium exercised the stock purchase
warrant for 300,000 shares of our common stock.
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27
On March 31, 1998, we entered into a Development and License Agreement
with Seagate Software, Inc., pursuant to which we released Donald K. Babcock
from his obligations under his employment agreement with us and Mr. Babcock
accepted employment with Seagate Software as a Program Manager, effective April
15, 1998. In October 1999, Seagate released Mr. Babcock from his employment
agreement, and we rehired him.
On March 31, 2000, we reacquired an aggregate of 75,000 shares of our
outstanding common stock from Frederick R. Dean and Donald K. Babcock, two
members of our Board of Directors. In exchange, Messrs. Dean and Babcock
received derivative ownership rights to 4,250 shares of restricted Broadbase
Software, Inc. stock held by us; i.e., Messrs. Dean and Babcock assume all
market risk and reward for the Broadbase shares to be delivered in the future.
Based on the closing bid/ask prices of both stocks and the restricted nature of
the forward position in the Broadbase stock, the difference in the valuations of
the two stock positions was determined to be $130,000, which we paid in cash to
Messrs. Dean and Babcock.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
ownership of our common stock as of June 30, 2000 by: (i) each current director;
(ii) our Chief Executive Officer and each of the executive officers identified
in the Summary Compensation Table (collectively, the "Named Executive
Officers"); (iii) all of our directors and executive officers as a group; and
(iv) each person known by us to beneficially own more than 5% of our common
stock. Unless otherwise indicated, each person's address is: c/o Timeline, Inc.,
3055 112th Avenue N.E., Ste. 106, Bellevue, WA 98004.
Shares of Common Stock
Beneficially Owned(1)
------------------------------
Number Percent
Beneficial Owner of Shares of Total
- -------------------------------------------------------- -------------- --------------
Charles R. Osenbaugh(2) 530,838 14.5%
Frederick W. Dean(3) 147,286 4.2
Donald K. Babcock(4) 138,176 4.0
Kent L. Johnson(5) 66,649 1.9
Craig R. Perkins(6) 55,656 1.6
Infinium Software, Inc. 300,000 8.7
25 Communications Way
Hyannis, MA 02601
All directors and executive officers as a group (five 938,605 24.7%
persons)(7)
- ----------
(1) This table is based upon information supplied by executive officers,
directors and principal shareholders. Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, each of the shareholders named in this table has sole voting
and investment power with respect to the shares shown as beneficially
owned by him.
(2) Includes (i) 93,776 shares issuable under stock options held by Mr.
Osenbaugh which are exercisable within 60 days of June 30, 2000, (ii) an
aggregate of 100,000 shares issuable under two performance-based stock
options held by Mr. Osenbaugh which vest and become exercisable when the
common stock closes trading at $5.00 or more per share for 10
consecutive days, or on the seventh anniversary of their original grant
provided Mr. Osenbaugh is currently in our employment; (iii) 17,325
shares issuable upon exercise of warrants granted to Mr. Osenbaugh in
connection with certain Company loan guarantees, and (iv) 1,301 shares
held in the Timeline, Inc. Employee Stock Ownership Plan. Does not
include 15,015 shares held in an individual retirement account belonging
to Mr. Osenbaugh's spouse, 5,000 shares held in trust for Mr.
Osenbaugh's niece, and 500 shares held in each of Mr. Osenbaugh's two
daughters' accounts, for which shares Mr. Osenbaugh disclaims beneficial
interest.
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(3) Includes (i) 26,300 shares issuable under stock options held by Mr. Dean
which are exercisable within 60 days of June 30, 2000, (ii) 6,600 shares
issuable upon exercise of warrants granted to Mr. Dean in connection
with certain Company loan guarantees, and (iii) 986 shares held in the
Timeline, Inc. Employee Stock Ownership Plan.
(4) Includes (i) 500 shares issuable under stock options held by Mr. Babcock
that are exercisable within 60 days of June 30, 2000.
(5) Includes 44,098 shares issuable under stock options held by Mr. Johnson
that are exercisable within 60 days of June 30, 2000.
(6) Includes (i) 53,350 shares issuable under stock options held by Mr.
Perkins which are exercisable within 60 days of June 30, 2000, and (ii)
986 shares held in the Timeline, Inc. Employee Stock Ownership Plan.
(7) Consists of Messrs. Osenbaugh, Dean, Babcock, Perkins and Johnson.
Includes an aggregate of 341, 949 shares issuable under stock options
and warrants held by such persons which are exercisable within 60 days
of June 30, 2000, and an aggregate of 3,273 shares held in the Timeline,
Inc. Employee Stock Ownership Plan.
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 20,000,000 shares of common stock, par value
$.01 per share. As of July 30, 2000, there were 3,755,926 shares of common stock
outstanding, held by approximately 71 holders of record. All outstanding shares
of common stock are, and all shares of common stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
The holders of common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of shareholders. Subject to
preferential rights with respect to any outstanding preferred stock, holders of
common stock are entitled to receive ratably such dividends as may be declared
by our Board of Directors out of funds legally available therefore. In the event
of a liquidation, dissolution or winding up of the Company, holders of common
stock are entitled to share ratably all assets remaining after payment of
liabilities and the liquidation preference of any outstanding preferred stock.
Holders of common stock have no preemptive rights and have no rights to convert
their common stock into any other securities.
PREFERRED STOCK
Our Board of Directors has the authority to issue up to 2,000,000 shares
of preferred stock, par value $.01 per share, in one or more series and to fix
the rights, preferences, privileges, and restrictions, including the dividend
rights, dividend rates, conversion rights, voting rights, rights and terms of
redemption, liquidation preferences, sinking fund terms and other rights,
preferences, privileges and restrictions, and the number of shares constituting
any such series or the designation of such series, without any further action by
the shareholders. As of the date of this prospectus, there are no shares of
preferred stock outstanding.
ANTI-TAKEOVER PROVISIONS
Our Articles of Incorporation and Bylaws include a number of provisions
that may have the effect of discouraging non-negotiated takeover attempts by
delaying or preventing changes in control of our management. These provisions
include, in addition to the provision for preferred stock, a classified Board of
Directors and no cumulative voting.
We are also be subject to the Business Corporation Act of Washington,
which contains provisions that have the effect of discouraging non-negotiated
takeover attempts. RCW 23B.19 generally prohibits any "significant business
transaction" within five years of the date a person acquires ten percent or more
of the outstanding voting shares of a company, unless the transaction first
receives the approval of a majority of the disinterested directors prior to the
time the ten percent ownership threshold is crossed.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Section 23B.08.320 of the Washington Business Corporation Act authorizes
a corporation to limit a director's liability to the corporation or its
shareholders for monetary damages for acts or omissions as a director, except in
certain circumstances involving intentional misconduct, self dealing or illegal
corporate loans or distributions, or any transaction from which the director
personally receives a benefit in money, property or services to which the
director is not legally entitled. Our Articles of Incorporation, as amended,
contain provisions implementing, to the fullest extent permitted by
- 25 -
29
Washington law, such limitations on a director's liability to the Company and
its shareholders. Any amendment or repeal of such provisions may not adversely
affect any right or protection of a director of the Company for or with respect
to any acts or omissions of such director occurring prior to such amendment or
repeal.
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorizes a court to award, or a corporation's Board of
Directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended. Under the
WBCA, a corporation has the power to indemnify a director or officer made a
party to a proceeding, or advance or reimburse expenses incurred in a
proceeding, under any circumstances, except that no such indemnification shall
be allowed on account of: (i) acts or omissions of a director or officer finally
adjudged to be intentional misconduct or a knowing violation of the law; (ii)
conduct of a director or officer finally adjudged to be an unlawful
distribution; or (iii) any transaction with respect to which it was finally
adjudged that such director or officer personally received a benefit in money,
property or services to which the director or officer was not legally entitled.
Article 9 of our Articles provides for indemnification of our directors and
officers, including those who serve at our request as trustees with respect to
employee benefit plans, to the maximum extent permitted by Washington law.
Our directors and officers are covered by insurance (with certain
exceptions and limitations) which indemnifies them against losses and
liabilities arising from certain alleged "wrongful acts," including alleged
errors or misstatements or misleading statements, or certain other alleged
wrongful acts or omissions constituting neglect or breach of duty.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing, or otherwise, we have been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER 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. We initiated trading of our common stock on January 18, 1995, the
effective date of our initial public offering of common stock, and our common
stock traded on the Nasdaq SmallCap Market (Nasdaq) from its effective date
until November 1997, following which time it is has been quoted on the OTCBB.
The following table contains the high and low bid information as reported by
OTCBB, for each quarter of fiscal 1999 and 2000, and the first quarter of fiscal
2001. The quotations from the OTCBB reflect inter-dealer prices without retail
mark-up, mark-down, or commissions and may not represent actual transactions.
Fiscal
Fiscal 1999 Fiscal 2000 2001
----------------------------------- ----------------------------------- -------
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- ------- -------
Common Stock
High 2 1/2 1 5/8 1 1/16 7/8 2 2 11/16 2 3/4 6 1/4 4
Low 7/8 11/16 7/16 3/8 3/8 1 5/16 1 7/16 1 7/16 2 1/16
Warrants to purchase our common stock, which were issued in connection
with our initial public offering and which were traded on both OTCBB and BSE
under the symbols "TMLNW" and "TMLW", respectively, expired on January 18, 2000.
At July 30, 2000 there were 3,755,926 shares of common stock outstanding
held by approximately 71 holders of record.
In November 1999, Charles R. Osenbaugh, our President and CEO, was
granted a performance-based stock option to purchase 50,000 shares of common
stock, at an exercise price of $1.875 per share. This option becomes vested upon
achieving 10 consecutive days of our stock closing trading at $5.00 per share or
higher. In any event, this option shall vest, if not otherwise vested, seven
years from the date of grant provided Mr. Osenbaugh is then employed by
Timeline.
No cash dividends have been paid on our stock and no dividends are
currently contemplated by management. There are no restrictions on the payment
of dividends.
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30
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from time
to time by the selling shareholders. The selling shareholders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale. The selling shareholders may sell the shares being offered
hereby on the OTC Bulletin Board or Boston Stock Exchange, or otherwise, at
prices and under terms then prevailing or at prices related to the then current
market price or at negotiated prices. Shares may be sold by one or more of the
following means of distribution:
- block trades in which the broker-dealer so engaged will attempt to
sell such shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this prospectus;
- over-the-counter distributions in accordance with the rules of the
NASD;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
- privately negotiated transactions.
We will not receive any of the proceeds from the sale of shares by the
selling shareholders, but we will be responsible for expenses incurred in
connection with the registration of the shares. The selling shareholders will be
responsible for all selling commissions, underwriting fees and stock transfer
taxes applicable to the sale of shares pursuant to this prospectus.
To the extent required, this prospectus may be amended and supplemented
from time to time to describe a specific plan of distribution. In connection
with distributions of such shares or otherwise, the selling shareholders may
enter into hedging transactions with broker-dealers or other financial
institutions. In connection with such transactions, broker-dealers or other
financial institutions may engage in short sales of our common stock in the
course of hedging the positions they assume with the selling shareholders. The
selling shareholders may also sell our common stock short and redeliver the
shares to close out such short positions. The selling shareholders may also
enter into option or other transactions with broker-dealers or other financial
institutions which require the delivery to such broker-dealer or other financial
institution of the shares offered hereby, which shares such broker-dealer or
other financial institution may resell pursuant to this prospectus (as
supplemented or amended to reflect such transaction). The selling shareholders
may also pledge such shares to a broker-dealer or other financial institution,
and, upon a default, such broker-dealer or other financial institution, may
affect sales of such pledged shares pursuant to this prospectus (as supplemented
or amended to reflect such transaction). In addition, any such shares that
qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than
pursuant to this prospectus.
In effecting sales, brokers, dealers or agents engaged by the selling
shareholders may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
selling shareholders in amounts to be negotiated prior to the sale. Such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with such sales, and any such commissions, discounts or concessions may be
deemed to be underwriting discounts or commissions under the Securities Act of
1933. We will pay all reasonable expenses incident to the registration of the
shares being offered hereby other than any commissions and discounts of
underwriters, dealers or agents.
In order to comply with the securities laws of certain states, if
applicable, the shares being offered hereby must be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states such shares may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and there has been compliance thereof.
We have advised the selling shareholders that the anti-manipulation
rules of Regulation M under the Securities Exchange Act of 1934 may apply to
sales of shares in the market and to the activities of the selling shareholders
and their affiliates. In addition, we will make copies of this prospectus
available to the selling shareholders and have informed them of the need for
delivery of copies of this prospectus to purchasers at or prior to the time of
any sale of the shares offered hereby. The selling shareholders may indemnify
any broker-dealer that participates in transactions involving the sale of the
shares against certain liabilities, including liabilities arising under the
Securities Act of 1933.
At the time a particular offer of shares is made, if required, a
prospectus supplement will be distributed that will set forth the number of
shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, and the
proposed selling price to the public.
- 27 -
31
In connection with the 300,000 shares of common stock being offered for
the account of Infinium Software, Inc., we have agreed to indemnify Infinium,
and any person controlling it against certain liabilities, including liabilities
under the Securities Act of 1933. Infinium has agreed to indemnify us and
certain related persons against certain liabilities, including liabilities under
the Securities Act of 1933. We have agreed with Infinium to keep the
registration statement of which this prospectus constitutes a part effective
until the earlier of the sale of all the shares or 120 days after the effective
date of the registration statement.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of
common stock offered hereby are being passed upon for us by Cairncross &
Hempelmann, P.S., Seattle, Washington. Cairncross & Hempelmann has not
represented the selling shareholders in connection with such registration.
EXPERTS
The financial statements of the Company at March 31, 2000 and 1999 and
for the years then ended appearing in this registration statement have been
audited by Arthur Andersen LLP, independent accountants, as indicated in their
report theron appearing elsewhere herein, and are included in reliance upon the
authority of such firm as experts in accounting and auditing in giving said
reports.
- 28 -
32
FINANCIAL STATEMENTS
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, 2000 and 1999, 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 auditing standards generally accepted
in the United States. 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,
2000 and 1999, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
April 28, 2000 (except with respect to Note 12, as to which the date is
June 30, 2000)
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33
TIMELINE, INC.
BALANCE SHEETS
ASSETS
June 30, March 31, March 31,
2000 2000 1999
----------- ----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 701,814 $ 1,470,703 $ 59,453
Marketable securities -- trading 1,545,947 1,546,256 --
Short-term restricted investments 1,837,080 3,030,000 --
Securities held for others 170,000 170,000 --
Accounts receivable (including $0, $8,345 and$195,150 from
affiliates), net of allowance of $43,328, $38,500 and $52,010 728,982 323,387 559,666
$ 52,010
Note receivable from affiliate 1,446 516 13,567
Prepaid expenses and other 66,935 69,856 56,888
----------- ----------- -----------
Total current assets 5,052,204 6,610,718 689,574
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,841,411, $1,794,311 and $1,624,597 261,497 266,073 371,850
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $215,200, $171,051 and $1,131,458 652,256 655,199 628,508
INTANGIBLE ASSETS, net 1,102,185 2,185 2,185
GOODWILL, net 213,190 -- --
----------- ----------- -----------
Total assets $ 7,281,332 $ 7,534,175 $ 1,692,117
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,162,142 $ 303,885 $ 142,487
Accrued expenses 530,458 487,921 355,125
Line of credit -- -- 23,705
Notes payable 41,967 -- --
Deferred revenues 229,197 372,000 418,827
Current portion of long-term debt -- -- 132,578
Current portion of obligations under capital leases 1,633 4,309 10,705
----------- ----------- -----------
Total current liabilities 1,965,397 1,168,115 1,083,427
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion -- -- 4,309
----------- ----------- -----------
Total liabilities 1,965,397 1,168,115 1,087,736
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000 shares
authorized, 3,753,426; 3,449,112 and 3,191,368 issued and 37,535 34,492 31,946
outstanding
Additional paid-in capital 9,919,161 9,124,178 9,070,865
Unearned ESOP shares -- -- (135,417)
Other comprehensive income 1,539,405 2,658,825 --
Accumulated deficit (6,180,166) (5,451,435) (8,363,013)
----------- ----------- -----------
Total stockholders' equity 5,315,935 6,366,060 604,381
----------- ----------- -----------
Total liabilities and stockholders' equity $ 7,281,332 $ 7,534,175 $ 1,692,117
=========== =========== ===========
The accompanying notes are an integral part of these balance sheets.
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34
TIMELINE, INC.
STATEMENTS OF OPERATIONS
3 Months 3 Months Fiscal Year Fiscal Year
Ended Ended Ended Ended
June 30, June 30, March 31, March 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
REVENUE
Software license $ 112,391 $ 5,076,656 $ 6,329,477 $ 1,793,526
Software development -- -- 49,340 41,163
Maintenance 154,262 205,069 833,361 854,290
Consulting 78,158 206,519 733,741 712,585
----------- ----------- ----------- -----------
Total revenues 344,811 5,488,244 7,945,919 3,401,564
----------- ----------- ----------- -----------
COST OF REVENUES 178,439 390,537 1,156,204 941,857
----------- ----------- ----------- -----------
Gross profit 166,372 5,097,707 6,789,715 2,459,707
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Sales and marketing 234,338 246,200 617,435 598,946
General and administrative 571,420 719,446 2,364,998 1,328,715
Research and development 321,477 307,180 1,161,476 656,798
Depreciation and amortization 47,100 48,000 182,274 196,239
----------- ----------- ----------- -----------
Total operating expenses 1,174,335 1,320,826 4,326,183 2,780,698
----------- ----------- ----------- -----------
Gain (loss) from operations (1,007,963) 3,776,881 2,463,532 (320,991)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Gain on securities 273,641 -- 391,150 --
Interest expense and other (4,508) (8,051) (32,649) (57,010)
Interest income and other 10,099 961 145,052 11,990
----------- ----------- ----------- -----------
Total other income (expense) 279,232 (7,090) 503,553 (45,020)
----------- ----------- ----------- -----------
Income (loss) before income taxes (728,731) 3,769,791 2,967,085 (366,011)
Income tax provision -- -- (55,507) --
----------- ----------- ----------- -----------
Net income (loss) $ (728,731) $ 3,769,791 $ 2,911,578 $ (366,011)
=========== =========== =========== ===========
BASIC NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ (0.21) $ 1.19 $ 0.89 $ (0.12)
=========== =========== =========== ===========
DILUTED NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARES $ (0.21) $ 1.17 $ 0.83 $ (0.12)
=========== =========== =========== ===========
SHARES USED IN CALCULATION OF BASIC
EARNINGS PER SHARE 3,449,612 3,159,432 3,274,673 3,152,834
=========== =========== =========== ===========
SHARES USED IN CALCULATION OF DILUTED
EARNINGS PER SHARE 3,449,612 3,221,099 3,524,273 3,152,834
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
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35
TIMELINE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Additional Unearned Other
------------------------- Paid-in ESOP Comprehensive Accumulated
Shares Amount Capital Shares Income Deficit Total
----------- ----------- ----------- ----------- ------------- ----------- -----------
BALANCE, March 31, 1998 3,214,622 $ 32,147 $ 9,205,706 $ (270,833) $ -- $(7,997,002) $ 970,018
Net loss -- -- -- -- -- (366,011) (366,011)
Exercise of common stock
options 556 37 337 -- -- -- 374
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) $ -- $(8,363,013) $ 604,381
Net income -- -- -- -- -- 2,911,578 2,911,578
Exercise of common stock
options 339,995 3,369 306,431 -- -- -- 309,800
Retirement of ESOP shares (7,251) (73) (106,212) 135,417 -- -- 29,132
Stock based compensation -- -- 152,344 -- -- -- 152,344
Unrealized gain on
available for sale
securities -- -- -- -- 2,658,825 -- 2,658,825
Repurchase of common stock (75,000) (750) (299,250) -- -- -- (300,000)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, March 31, 2000 3,449,112 $ 34,492 $ 9,124,178 $ -- $ 2,658,825 $(5,451,435) $ 6,366,060
Net loss -- -- -- -- -- (728,731) (728,731)
Exercise of common stock
options 500 5 496 -- -- -- 501
Unrealized loss on
available for sale
securities -- -- -- -- (1,119,420) -- (1,119,420)
Common stock issued for
AFL acquisition 303,814 3,038 794,487 -- -- -- 797,525
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 2000
(unaudited) 3,753,426 $ 37,535 $ 9,919,161 $ -- $ 1,539,405 $(6,180,166) $ 5,315,935
=========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
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36
TIMELINE, INC.
STATEMENTS OF CASH FLOWS
3 Months 3 Months Fiscal Year Fiscal Year
Ended Ended Ended Ended
June 30, June 30, March 31, March 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income (728,731) 3,769,791 $ 2,911,578 $ (366,011)
Adjustments to reconcile net income (loss) to
net cash Used in operating activities:
Depreciation and amortization 91,250 203,085 576,328 464,359
Loss on disposal of property and equipment -- 2,500 8,846 711
Non-cash compensation expense -- -- 152,344 --
ESOP contribution compensation expense -- 29,132 29,132 --
Gain on sale of securities (372,353) -- -- --
Changes in operating assets and liabilities:
Accounts receivable 91,008 198,114 111,279 812,489
Prepaid expenses and other 2,921 (1,140) (12,968) 119,345
Accounts payable (122,648) (49,395) 161,398 (147,403)
Accrued expenses and other 101,090 316 (37,204) (90,305)
Deferred revenues (142,803) 37,950 (46,827) (41,364)
Other noncurrent assets -- -- -- 18,887
----------- ----------- ----------- -----------
Net cash (used in) provided by operating
activities (1,080,266) 4,114,452 3,853,906 770,708
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in Analyst Financials Ltd.
Acquisition 29,056 -- -- --
Purchase of property and equipment (18,954) (13,261) (79,172) (78,633)
Investment in capitalized software and
development costs (41,208) (30,857) (301,915) (424,132)
Purchase of short-term investments (586,150) (3,799,551) (2,875,697) --
Proceeds from sale of short-term investments 933,600 -- 788,265 --
Issuance of note receivable (930) (88,786)
Proceeds from note receivable -- -- 13,051 161,297
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities 315,414 (3,932,455) (2,455,468) (341,468)
----------- ----------- ----------- -----------
(continued on next page)
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37
TIMELINE, INC.
STATEMENTS OF CASH FLOWS
(continued)
3 Months 3 Months Fiscal Year Fiscal Year
Ended Ended Ended Ended
June 30, June 30, March 31, March 31,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (2,676) (2,676) (10,705) (10,706)
Borrowings under line of credit -- 287,012 287,012 134,155
Repayments under line of credit -- (278,915) (310,717) (257,322)
Payments on notes payable (1,861) (132,578) (132,578) (295,310)
Retirement of shares/treasury stock -- -- (130,000) --
Sales of common stock and exercise of stock
options 500 1,940 309,800 374
----------- ----------- ----------- -----------
Net cash (used in) provided by financing
activities (4,037) (125,217) 12,812 (428,809)
----------- ----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS
(768,889) 56,780 1,411,250 431
CASH AND CASH EQUIVALENTS, beginning of year 1,470,703 59,453 59,453 59,022
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 701,814 $ 116,233 $ 1,470,703 $ 59,453
=========== =========== =========== ===========
SUPPLEMENTAL CASH AND NONCASH DISCLOSURES:
Cash paid for interest $ 4,508 11,886 $ 28,708 $ 56,510
Non-cash transactions:
Equity consideration for Analyst Financials Ltd.
Acquisition 797,525 -- -- --
Unrealized gain on available for sale securities 1,119,420 -- 2,658,825 --
Offset of accounts receivable for capitalized
software -- -- 125,000 --
Retirement of unallocated ESOP shares -- -- 104,167 135,416
Repurchase of common stock for restricted
investment -- -- 170,000 --
Prepaid asset financed through accounts payable -- -- -- 81,852
The accompanying notes are an integral part of these financial statements.
- 34 -
38
NOTES TO FINANCIAL STATEMENTS
(Information as of and for the three month periods ended
June 30, 2000 and 1999 is unaudited)
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, 2000, the Company had an excess of current assets over
current liabilities of $5,442,603 and had an accumulated deficit of
$(5,451,435), with total stockholders' equity of $6,366,060. Management is in
the process of evaluating alternatives for raising additional funds and
improving results of 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.*
INTERIM CONSOLIDATED FINANCIAL INFORMATION
The accompanying consolidated financial statements of the Company as of and
for the three-month periods ended June 30, 2000 and 1999 are unaudited. In the
opinion of the Company's management, these unaudited consolidated 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 periods ended June 30, 2000
and 1999 are not necessarily indicative of future financial results.
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
12). AFL is a wholly-owned subsidiary of the Company. The accompanying unaudited
consolidated balance sheet as of June 30, 2000 includes the accounts of AFL. All
intercompany balances have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
These financial statements have been prepared in accordance with accounting
principles generally accepted in United States 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.
- 35 -
39
Marketable Securities
Marketable securities consist of both equities and debt instruments, the
majority of which are under the management of PaineWebber, Inc. and its
affiliate. The Company actively buys and sells individual securities in this
account and has classified these securities as Trading under the provisions of
Statement of Financial Accounting Standards 115. Consistent with the provisions
of that statement, the Company has recorded these investments at their fair
market value in the accompanying balance sheet. The Company realized gains of
$185,147 on sales of these securities during fiscal 2000. This amount is
included as a component of the gain on securities in the accompanying statement
of operations. In addition, the Company recognized unrealized gains of $56,828
in fiscal 2000 resulting from the appreciation of these securities fair market
values. This amount is included in the accompanying statement of operations.
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.
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 of a product line
has been established. Amortization is recognized using the straight-line method
over the products' estimated economic life of three years. Amortization starts
when the product is available for general release to customers. During fiscal
2000 and 1999, the Company capitalized $426,915 and $424,131, respectively, of
software development costs. The fiscal 2000 amount includes $125,000 of software
that was acquired in a non-cash exchange for the offset of accounts receivable
from a related party (see Note 11). Amortization expense for fiscal 2000 and
1999 was $400,225 and $268,120, respectively. The Company changed the estimated
useful life of certain software products in fiscal 2000, which contributed to
the large increase in amortization expense. This 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 does
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
- 36 -
40
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 for the years ended March 31:
Years Ended
March 31,
2000 1999
----------- -----------
Net income (loss) $ 2,911,578 $ (366,011)
----------- -----------
Weighted average common shares outstanding 3,274,673 3,152,834
Plus: dilutive options and warrants 577,926 --
Less: shares assumed repurchased with proceeds from exercise (328,326) --
----------- -----------
Weighted average common and common equivalent shares outstanding 3,524,273 3,152,834
----------- -----------
Diluted net income (loss) per common and common equivalent share $ .83 $ (.12)
=========== ===========
The calculation of diluted net income (loss) per common and common equivalent
share does not include 41,025 and 1,964,911 options and warrants in 2000 and
1999, respectively, as they are antidilutive.
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 (Unaudited):
Three Months Ended
June 30,
2000 1999
----------- -----------
Net income (loss) $ (728,731) $ 3,769,791
----------- -----------
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
=========== ===========
The calculation of diluted net income (loss) per common and common equivalent
share does not include 668,314 and 86,681 options and warrants in 2000 and 1999,
respectively, as they are antidilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period financial
statements to conform them to the current period's presentation.
- 37 -
41
3. RESTRICTED INVESTMENTS:
In September 1999, the Company settled a patent infringement lawsuit filed
against Broadbase Software, Inc. (Broadbase) in the U.S. Federal District Court
for Western Washington. Under the agreement reached between the parties,
Broadbase has licensed the Timeline technology covered under U.S. Patent Nos.
5,802,511, 6,023,694 and 6,026,392 for a license fee of $602,000, of which
$210,000 was cash and the remainder was restricted stock. An additional $40,000
in cash was received from Broadbase and was recorded as other income. The 80,000
shares of Broadbase restricted common stock was recorded at a value of $4.90 per
share as of the date of the licensing agreement. The Company is unable to
transfer ownership of this common stock for a period of one year from the date
of the licensing agreement. The Company has committed to transfer 4,250 shares
to certain shareholders in connection with the repurchase of the Company's
common stock (see Note 11). Additionally, the Company has classified the stock
to be transferred as securities held for others.
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 at March 31,
2000 and June 30, 2000 was $3,030,000 and $1,837,080, respectively. The
unrealized gain on this stock at March 31, 2000 and June 30, 2000 of $2,658,825
and $1,539,405, respectively, 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.
4. MAJOR CUSTOMERS:
During fiscal 2000, one customer comprised approximately 63% of the
Company's total revenue. During 1999, two customers comprised approximately 28%
and 14% of the Company's total revenue. At March 31, 2000, approximately 23% and
11%, of the accounts receivable balance was due from the Company's two largest
customers. At March 31, 1999, approximately 32%, 14% and 12% of the accounts
receivable balance was due from the Company's three largest customers.
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at March 31:
2000 1999
----------- -----------
Computer equipment $ 1,625,052 $ 1,553,018
Office equipment 435,332 443,429
----------- -----------
2,060,384 1,996,447
Less -- accumulated depreciation (1,794,311) (1,624,597)
----------- -----------
Total property and equipment $ 266,073 $ 371,850
=========== ===========
6. FINANCING ARRANGEMENTS:
Line of Credit
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, 2000 and 1999, $0 and $23,705 was outstanding under this agreement,
respectively.
- 38 -
42
Secured Promissory Note
During May 1997, the Company borrowed $150,000 under a secured promissory
note agreement. The note was secured by certain property and equipment and bore
interest at 22.5%. At March 31, 1999, $28,411 was outstanding under this
agreement. This amount was paid in full during fiscal 2000.
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 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 $0 and $104,167 at March 31, 2000 and
1999, respectively, on the ESOP note is included as a liability on the balance
sheet. The Company has recorded the cost of unallocated shares as unearned ESOP
shares. During 2000 and 1999, the Company applied $104,167 and $135,416,
respectively, of its prepayments to the ESOP to repurchase and retire 7,251 and
23,810 shares, respectively, of its common stock. In addition, during fiscal
2000, the Company contributed $100,000 in cash to the ESOP. No cash contribution
was made in fiscal 1999.
The ESOP note bore interest at the prime rate plus 2% (10.5% at March 31,
1999).
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:
2000 1999
----------- -----------
Net operating loss carryforward $ 1,042,000 $ 2,008,000
Research and experimentation credit 800,000 800,000
Deferred revenues 126,000 142,000
Capitalized software costs (223,000) (214,000)
Other 45,000 70,000
----------- -----------
1,790,000 2,806,000
Less -- valuation allowance (1,790,000) (2,806,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
The net operating loss carryforwards and research and experimentation credit
carryforwards expire through 2018.
The valuation allowance decreased by $1,016,000 during the year ended March
31, 2000 and decreased by $83,000 during 1999.
- 39 -
43
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
$1,753,000 and $221,000, respectively, which may be used in any given year to
approximately $300,000.
The provisions for income taxes attributable to continuing operations are as
follows:
2000 1999
-------- --------
Current $ 55,507 $ --
Deferred -- --
-------- --------
Total provision $ 55,507 $ --
======== ========
Reconciliation of the United States statutory rate to the effective tax
rates attributable to continuing operations follows:
2000 1999
-------- --------
Federal income tax expense (benefit) at U.S. statutory
rates 34.0% (34.0)%
Non-deductible expenses 0.2% 1.1%
Alternative Minimum Taxes 1.9% -%
(Decrease) Increase in deferred tax valuation allowance (34.2)% 32.9%
-------- --------
Provision for income taxes 1.9% -%
======== ========
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 six years. The Company made contributions of $17,424 and
$4,025 to the plan during the years ended March 31, 2000 and 1999, respectively.
9. COMMITMENTS AND CONTINGENCIES:
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 the Company believes infringe on its 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, 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 October 2000.
From time to time, the Company may pursue litigation against other third
parties to enforce or protect its rights under these patents or its intellectual
property rights generally.*
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, 2000:
- 40 -
44
Capital Operating
---------- -----------
2001 $ 5,141 $ 263,298
2002 -- 356,059
2003 -- 376,691
2004 -- 385,001
---------- ----------
Total minimum lease payments 5,141 $1,381,049
==========
Less - amount representing interest and tax costs (832)
----------
Present value of net minimum lease payments -
all current $ 4,309
==========
Rent expense amounted to $241,269 and $246,303 for the years ended March 31,
2000 and 1999, 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 475,000
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
151,125 are available for grant as of March 31, 2000. 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, 2000, the Company had granted
options to purchase 255,273 shares of common stock, including those described in
the following paragraphs, which are not part of these option plans. As of March
31, 2000, 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.
In November 1997, the Company granted a performance-based stock option to
the President and CEO to purchase 75,000 shares of common stock at an exercise
price of $1.00 per share. One half of the shares under this option vested when
the Company's common stock closed trading at a price of $2.00 per share for a
period of 10 consecutive days, and the remaining one-half of the shares under
this option vested when the Company's common stock closed trading at a price of
$3.00 per share for a period of 10 consecutive days. This option vested in full
during fiscal 2000, and the Company recognized a total of $152,344 in non-cash
compensation expense.
In February 1999, the Company granted a second performance-based stock
option to the President and CEO to purchase 50,000 shares of common stock at an
exercise price of $1.00 per share. This option will vest in full when the
Company's common stock closes trading at a price of $5.00 or more per share for
a period of 10 consecutive days. In any event, this option will vest, if not
otherwise vested, seven years from the date of grant provided that this
individual is then employed by the Company. This option had not vested as of
March 31, 2000.
In November 1999, the Company granted a third performance-based stock option
to the President and CEO to purchase 50,000 shares of common stock at an
exercise price of $1.875 per share. This option will vest in full when the
Company's common stock closes trading at a price of $5.00 or more per share for
a period of 10 consecutive days. In any event, this option will vest, if not
otherwise vested, seven years from the date of grant provided that this
individual is then employed by the Company. This option had not vested as of
March 31, 2000.
- 41 -
45
Options outstanding as of each period are as follows:
Weighted
Average
Number of Exercise
Options Price
--------- --------
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
Granted 108,500 1.41
Exercised (39,322) .23
Canceled (60,275) 2.72
-------- --------
Balance, March 31, 2000 616,814 $ 1.46
Granted 25,000 2.28
Exercised (3,000) 1.00
Canceled (6,750) 1.16
-------- --------
Balance, June 30, 2000 (Unaudited) 632,064 $ 1.50
======== ========
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 2000 and 1999,
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:
2000 1999
---------- ----------
Net income (loss) - as reported $2,911,578 $ (366,011)
Net income (loss) - pro forma 2,831,799 (466,352)
Basic net income (loss) per common share - as
reported .89 (.12)
Basic net income (loss) per common share - pro
forma .86 (.15)
Diluted net income (loss) per common share - as
reported .83 (.12)
Diluted net income (loss) per common share - pro
forma .80 (.15)
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 2000 and 1999: zero dividend yield; expected
volatility of 97% and 102%, 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 2000 and 1999, was $.99
and $.76, 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. These warrants expired on January 18, 2000.
In March 1998, the Company sold warrants to purchase 300,000 shares of
common stock at an exercise price of $1.00 per share. These warrants were sold
for $100,000 in connection with a software development agreement. In February
2000, these warrants were exercised in full.
- 42 -
46
In September 1998 and March 1999, the Company issued warrants to purchase
21,000 and 21,000 shares of common stock, respectively, with an exercise price
of $1.00 per share, to outside consultants in exchange for services rendered.
These warrants have a term of 5 years.
Information relating to stock options outstanding and stock options
exercisable at March 31, 1999 is as follows:
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Life in Exercise Number Exercise
Range of Exercise Prices of Shares Years Price of Shares Price
- ------------------------------- --------- --------- ---------- --------- ----------
$.06 .......................... 32,322 3.4 $ .06 32,322 $ .06
$1.00-$2.19 ................... 511,104 8.1 1.22 263,104 1.22
$3.57-$6.75 ................... 73,388 5.1 3.70 73,388 3.70
------- ------- ------- ------- -------
Totals ........................ 616,814 7.5 $ 1.46 368,814 $ 1.61
======= ======= ======= ======= =======
11. RELATED PARTY TRANSACTIONS:
The Company's transactions with related parties are as follows:
Analyst Financials
In July, 1997, the Company sold a majority interest in its then wholly-owned
subsidiary, Timeline Europe Ltd. (Analyst Financials). As a result, the
Company's ownership interest in Analyst Financials was reduced to 12.5% and the
Analyst Financials management team and certain outside investors obtained an
87.5% ownership interest in Analyst Financials.
In connection with the sale of the majority interest in Analyst Financials,
the Company and Analyst Financials executed a Distributorship Agreement and
Source Code License which allowed 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. The Company recorded revenues under this agreement of $226,207 and
$183,872 in fiscal 2000 and 1999, respectively.
In September, 1999, the Company purchased certain software source code from
Analyst Financials. Timeline paid Analyst Financials $85,000 in cash and offset
a receivable from Analyst Financials in the amount of $125,000. The offset of
this receivable has been included as a non-cash transaction in the accompanying
statement of cash flows.
Stock Exchange
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 Software, Inc. 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. As part of
this transaction, the Company recognized the unrealized gain on the 4,250 shares
of Broadbase common stock of $149,175. This amount is included as a component of
the gain on sale of securities in the accompanying statement of operations. The
Company has 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.
12. SUBSEQUENT EVENT:
- 43 -
47
On June 30, 2000, the Company acquired the assets and liabilities of
Analyst Financial Ltd. (Analyst Financials), a United Kingdom company. Analyst
Financials is a wholly-owned subsidiary responsible for the Company's operations
throughout Europe, the Middle East and Africa. 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.
- 44 -
48
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATES AS TO WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
----------------
TABLE OF CONTENTS
Page
----
Available Information ............................................... 2
Prospectus Summary .................................................. 3
Risk Factors ........................................................ 4
Use of Proceeds ..................................................... 10
Selling Shareholders ................................................ 10
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ........................................... 11
Business ............................................................ 17
Dividend Policy ..................................................... 20
Management .......................................................... 20
Certain Transactions ................................................ 23
Principal Shareholders .............................................. 24
Description of Securities ........................................... 25
Market for Common Equity and
Related Shareholder Matters ..................................... 26
Plan of Distribution ................................................ 27
Legal Matters ....................................................... 28
Experts ............................................................. 28
Financial Statements ................................................ 29
----------------
UNTIL SEPTEMBER ___, 2000, ALL DEALERS EFFECTING TRANSACTION IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF THE DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS
603,814 SHARES
TIMELINE, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
September ___,2000
- 45 -
49
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 23B.08.320 of the Washington Business Corporation Act (the
"WBCA") authorizes a corporation to limit a director's liability to the
corporation or its shareholders for monetary damages for acts or omissions as a
director, except in certain circumstances involving intentional misconduct, self
dealing or illegal corporate loans or distributions, or any transaction from
which the director personally receives a benefit in money, property or services
to which the director is not legally entitled. The Company's Articles of
Incorporation, as amended (the "Articles"), contains provisions implementing, to
the fullest extent permitted by Washington law, such limitations on a director's
liability to the Company and its shareholders. Any amendment or repeal of such
provisions may not adversely affect any right or protection of a director of the
Company for or with respect to any acts or omissions of such director occurring
prior to such amendment or repeal.
Sections 23B.08.500 through 23B.08.600 of the WBCA authorize a court to
award, or a corporation's Board of Directors to grant, indemnification to
directors and officers on terms sufficiently broad to permit indemnification
under certain circumstances for liabilities arising under the Securities Act of
1933, as amended. Under the WBCA, a corporation has the power to indemnify a
director or officer made a party to a proceeding, or advance or reimburse
expenses incurred in a proceeding, under any circumstances, except that no such
indemnification shall be allowed on account of: (i) acts or omissions of a
director or officer finally adjudged to be intentional misconduct or a knowing
violation of the law; (ii) conduct of a director or officer finally adjudged to
be an unlawful distribution; or (iii) any transaction with respect to which it
was finally adjudged that such director or officer personally received a benefit
in money, property or services to which the director or officer was not legally
entitled. Article 9 of the Company's Articles provides for indemnification of
the Company's directors and officers, including those who serve at the request
of the Company as trustees with respect to employee benefit plans, to the
maximum extent permitted by Washington law.
Directors and officers of the Company are covered by insurance (with
certain exceptions and limitations) which indemnifies them against losses and
liabilities arising from certain alleged "wrongful acts," including alleged
errors or misstatements or misleading statements, or certain other alleged
wrongful acts or omissions constituting neglect or breach of duty.
ITEM 25: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated cost and
expenses payable by the Company in connection with the sale of the common stock
offered hereby:
Securities and Exchange Commission filing fee......... $ 500
Printing and engraving expenses....................... 0
Accounting fees and expenses.......................... 5,000
Legal fees and expenses............................... 10,000
Miscellaneous expenses................................ 2,500
-------
Total............................................. $18,000
=======
ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES
Effective June 30, 2000, Timeline 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 Timeline's operations throughout Europe,
the Middle East and Africa. Timeline completed the transaction on a
stock-for-stock basis and issued 303,814 shares of its common stock to certain
shareholders of Analyst Financials.
- 46 -
50
ITEM 27: EXHIBITS
Exhibit
Number Description
- ---------------- ------------------------------------------------------------
3.1 (1) Articles of Incorporation, as amended and in effect
3.2 (1) Bylaws
4.1 (1) Specimen Common Stock Certificate
5.1 Opinion of Cairncross & Hempelmann, P.S.
10.1.A (1) Amended and Restated 1993 Stock Option Plan
10.1.B (1) Form of Employee Stock Option Agreement
10.2 (1) 1994 Stock Option Plan
10.3 (1) Directors' Nonqualified Stock Option Plan
10.4 (2) Employee Stock Ownership Plan
10.5 (1) Common Stock Purchase Warrants issued in consideration of
loans or loan guarantees:
10.5A (1) Warrant issued July 31, 1994 to Frederick W. Dean
10.5B (1) Warrant issued July 31, 1994 to Charles R. Osenbaugh
10.5C (1) Warrant issued July 31, 1994 to John W. Calahan
10.6 (1) Form of Indemnification Agreement with directors and
officers
10.7 (1) Form of Employee (Confidentiality) Agreement
10.8 (1) Form of License Agreement for Computer Application Software
(client/server)
10.9 (1) Form of License Agreement for Computer Application Software
(VAX-based)
10.10 (1) Form of Basic Service for Software Agreement
10.11 (1) Form of Value Added Reseller (Distribution) Agreement
10.12 (1) Solution Provider Agreement with Microsoft Corporation dated
September 23, 1994
10.13A (4) Lease Agreement dated September 8, 1995, as amended, with
G&W Investment Partners
10.13B (5) Amendment to Lease Agreement dated March 20, 1999, with G&W
Investment Partners
10.13C (6) Amendment to Lease Agreement dated March 10, 2000 with MONY
Life Insurance Company
10.14 (3) Form of Consulting Partners Agreement
10.15 (5) Patent License Agreement with Microsoft
10.16 (5) Amended and Restated Accounts Receivable Purchase Agreement
with Silicon Valley Bank
21.1 Subsidiaries of Timeline, Inc
23.1 Consent of Independent Public Accountants
23.2 Consent of Cairncross & Hempelmann, P.S. (included in
Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
99.1 (7) Share Purchase Agreement, dated as of June 29, 2000, by and
among Timeline, Inc. and each of the other shareholders of
Analyst Financials Limited.
99.2 (7) Company press release dated July 19, 2000: "Timeline
Completes Purchase of Analyst Financials, its European
Distributor"
(1) Incorporated herein by reference from Item 27 of Company's Form SB-2.
(2) Incorporated herein by reference from the Company's Registration
Statement on Form S-8 filed on March 11, 1996.
(3) Incorporated herein by reference from Item 13 of Company's Form 10-KSB
for the year ended March 31, 1995.
(4) Incorporated herein by reference from Item 13 of Company's Form 10-KSB
for the year ended March 31, 1997.
(5) Incorporated herein by reference from Item 13 of Company's Form 10-KSB
for the year ended March 31, 1999.
51
(6) Incorporated herein by reference from Item 13 of Company's Form 10-KSB
for the year ended March 31, 2000.
(7) Incorporated herein by reference from Item 7 of the Company's Form 8-K
filed on August 2, 2000.
ITEM 28: UNDERTAKINGS
The Company hereby undertakes to file with the Commission, during any
period in which it offers or sells securities in reliance upon Rule 415 of the
Securities Act, a post-effective amendment to this Registration Statement. Such
post-effective amendment shall: (1) include any prospectus required under
Section 10(a)(3) of the Securities Act; (2) reflect in such prospectus any facts
or events that exist which, individually or together, represent a fundamental
change in the information contained in the registration statement; provided,
however, that notwithstanding the foregoing, any increase or decrease in volume
of the securities offered (if the total dollar value of the securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
a prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and (3) include
any additional or changed material information on the plan of distribution. In
addition, the Company hereby undertakes to file a post-effective amendment to
remove from registration any of the securities that remain unsold at the end of
the offering.
For determining any liability under the Securities Act, the Company
hereby undertakes to treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
52
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Seattle, State of Washington, on September 11, 2000.
TIMELINE, INC.
/s/ Charles Osenbaugh
-------------------------------------------
Charles Osenbaugh, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Charles Osenbaugh as his attorney-in-fact, with full power of
substitution, for him in any and all capacities, to sign any amendments to this
Registration Statement, and to file the same, with exhibits thereto and other
documents in connection therewith, with the SEC, hereby ratifying and confirming
all that said attorneys-in-fact, or their substitute or substitutes, may do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on September 11, 2000.
/s/ Charles Osenbaugh
-------------------------------------------
Charles Osenbaugh
President, Chief Executive Officer,
Chief Financial Officer and Director
(principal executive officer,
principal financial and accounting
officer)
/s/ Frederick W. Dean
-------------------------------------------
Frederick W. Dean
Director, Executive Vice President of
Operations
/s/ Donald K. Babcock
-------------------------------------------
Donald K. Babcock
Director
/s/ Kent L. Johnson
-------------------------------------------
Kent L. Johnson
Director