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As filed with the Securities and Exchange Commission on June 15, 2001
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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
Address and Telephone Number of BELLEVUE, WASHINGTON 98004
Principal Executive Offices (425) 822-3140
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.
524 SECOND AVENUE, SUITE 500
SEATTLE, WASHINGTON 98104
(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:.................................... [X]
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
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Proposed Maximum Proposed Maximum
Title of Securities to Amount to be Offering Price Aggregate Amount of
be Registered Registered(1) Per unit(2) Offering Price(2) Registration Fee
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COMMON STOCK, $.01 PAR 225,000 SHARES $0.775 $174,375.00 $43.59
VALUE PER SHARE
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(1) This registration statement shall also cover any additional shares of common
stock which become issuable by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt
of consideration which results in an increase in the number of the
outstanding shares of common stock.
(2) Estimated solely for the purpose of calculating the registration fee, based
on the average of the bid and ask prices of the common stock on the OTC
Bulletin Board on June 11, 2001, pursuant to Rule 457(c).
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
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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 Shareholder
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; Business
17. Management's Discussion and Analysis of
Plan of Operation......................... Management's Discussion and Analysis
18. Description of Property................... Business
19. Certain Relationships and Related
Transactions.............................. Certain Relationships and Related Transactions
20. Market for Common Equity and Related
Stockholder Matters....................... Market for Common Equity and Related
Stockholder Matters
21. Executive Compensation.................... Executive Compensation
22. Financial Statements...................... Financial Statements
23. Changes In and Disagreements With
Accountants and Financial Disclosure...... Not Applicable
Information contained here is subject to completion or amendment.
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE ___, 2001
PRELIMINARY PROSPECTUS
225,000 SHARES
TIMELINE, INC.
COMMON STOCK
This prospectus relates to 225,000 shares of our common stock that are
being offered for sale by a shareholder of the Company. The share ownership of
the selling shareholder is described in greater detail below in the section
entitled "Selling Shareholder." The shares are being registered to permit the
selling shareholder to sell the shares from time to time in the public market.
We cannot assure you that the selling shareholder will sell all or any portion
of the common stock offered hereby.
The selling shareholder 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 through any other means described in the section
entitled "Plan of Distribution" beginning on page 30, 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. We cannot assure you that
the selling stockholder will sell all or any portion of the shares offered in
this prospectus.
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 shareholder will be borne by the selling shareholder.
The selling shareholder 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.
Our common stock is traded on the OTC Bulletin Board under the symbol
"TMLN." On May 15, 2001, the last sale price of the common stock as reported on
the OTC Bulletin Board was $0.80 per share.
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SEE "RISK FACTORS" ON PAGE 5 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS
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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.
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The date of this prospectus is _______________, 2001
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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.
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and so long as we remain
subject to the informational reporting requirements of the Exchange Act, the
Company will provide its shareholders with annual reports containing audited
financial statements.
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 "Business" 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, and event-based notification, application
integration, and process automation systems. Our software products enable
customers to automatically access, distribute and share business and accounting
information in a secure environment and with full accounting controls. Our
marketing and development strategy is focused on products that report
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financial data in meaningful and flexible formats, and on systems for
notification of critical information, integration of applications and
transaction automation. In conjunction with certain distributors of our
products, we are expanding the scope of data that may be reported upon to
include sales and customer data originating in the respective Sales and Customer
Resource Planning transaction systems.
We believe that our proprietary Timeline(R) Analyst and Timeline(R)
Server technology allows customers to avoid time-consuming, error-prone and
expensive data entry.* These 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 and other transaction
systems. Timeline Analyst and Timeline Server 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.
In addition, our WorkWise(R) Business Alerts(R) and Data Agent
Server(TM) technology provides process automation, application integration and
event-based notification systems that extend the value of our customers'
existing software by helping to ensure that critical information is shared with
the right people and the right applications. Further, these products eliminate
much of the manual hand-off between systems such as human resources, financial,
and sales force automation, while enabling automated information exchange.
Our Timeline Analyst and Timeline 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. These 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.
In addition, our WorkWise Data Agent Server and Business Alerts provide
a method of exchanging information across a patchwork of software applications,
legacy systems and custom-built programs that handle day-to-day business
transactions. These products enable customers to:
- monitor date and time-sensitive events;
- check status of data;
- notify appropriate personnel, customers or business partners of
significant events; and
- integrate software programs.
We have been granted four patents by the U.S. Patent and Trademark
Office on our technology and have a total of 81 issued claims. We believe
additional International patents will be granted during fiscal 2002 on the
subject matter contained in the granted U.S. patents.* Additionally, we have
pending patents in the U.S. on both the data mart and alerting technologies
embodied in its various products.
A shareholder of the Company is offering a total of 225,000 shares of
common stock in connection with this prospectus. These shares were issued to
Oralis.com, Inc. in December 2000, in connection with the acquisition of all of
the outstanding shares of stock in WorkWise Software, Inc. Upon completion of
the transaction, WorkWise became a wholly-owned subsidiary of Timeline.
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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 had
an accumulated deficit of $7,337,000 as of March 31, 2001 and a net loss of
$1,886,000 for the fiscal year then-ended. 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
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 profitability
or even if we do achieve profitability, that we will be able to sustain
profitability. We expect to incur losses in the near future. We have incurred
significant operating expenses in the past and expect to do so again in the
future and, as a result, will need to significantly increase revenues in order
to achieve profitability. We can give no assurances that sufficient license or
other revenues 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.
WE HAVE LIMITED WORKING CAPITAL AND MAY NEED TO RAISE ADDITIONAL CAPITAL
IN THE FUTURE.
At March 31, 2001, we had cash, cash equivalents, and marketable
securities totaling approximately $1,098,000, and our net working capital
(excluding deferred revenue) was approximately $1,102,000. Although we believe
that our current cash, cash equivalents, marketable securities, and any net cash
provided by operations will be sufficient to meet anticipated cash needs for
working capital and capital expenditures through fiscal 2002, because our
revenue is unpredictable, a revenue shortfall could deplete our limited
financial resources and require us to reduce operations substantially or to
raise additional funds through equity or debt financings. Included in our
current assets are certain marketable securities and 600,000 shares of Sagent
Technology, Inc. common stock, which were issued to us in December 2000 in
partial settlement of our lawsuit against Sagent. We will not be able to sell
those shares until the registration statement filed by Sagent with the
Securities and Exchange Commission is effective. As of May 15, 2001, the market
value of our marketable securities has decreased to approximately $804,000.
In the event that we are unable to sell any or all of our marketable
securities or the Sagent shares at the times or in the amounts we desire, or in
the event that the market prices for any of those securities decreases, this
will have a material adverse effect on our working capital and our capital
needs. In such event we would need to achieve substantially greater revenue from
operations or significantly reduce costs to meet our budget for fiscal 2002.
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;
- the liquidity and market prices for the marketable securities held by
us; 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 debt or equity 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 or, even if it is
available that it will be on terms acceptable to us. If we raise additional
funds by selling stock, the percentage ownership of our then current
shareholders will be reduced.* Our inability to obtain required financing
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could have a material adverse effect on our results of operations and could
cause us to significantly reduce or suspend our operations (which may include
reducing our operating expenses, downsizing our staff and closing offices), 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. Any or all of these actions could have
a material adverse effect on our business, financial condition and our ability
to reduce losses or generate profits.
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 EXTENSIVELY ON LICENSING AND DISTRIBUTION RELATIONSHIPS, AND
DIRECT SALES TO A LESSER DEGREE.
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
licensees' and distributors' 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 from these 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 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, our subsidiary 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.
Finally, during the last two fiscal years we have relied on substantial
fees generated by licensing of our various patents. These revenues tend to be
sporadic and do not provide for ongoing revenue subsequent to the initial
licensing fees. We can give no assurance that additional fees will be generated
in the future.
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 many factors, including the following:
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- varying size, timing and contractual terms of product licensing
agreements and customer orders for our products;
- customers' decisions to defer orders or implementations, particularly
large orders or implementations, from one quarter to the next;
- the success of our distribution and licensing partners to market and
sell our products;
- lengthy negotiation and integration cycles associated with
establishing new distributorships;
- the timing of the introduction and customer acceptance of new
products or product enhancements by us or our competitors;
- our ability to timely complete our service obligations related to
product sales;
- changes in pricing policies by us or our competitors;
- the size, timing and contractual terms of any patent licensing
agreements;
- changes in the mix of revenue attributable to higher-margin product
license revenue as opposed to substantially lower-margin service
revenue;
- changes in demand for our business and accounting software and
applications generally;
- software defects and other product quality problems;
- our ability to integrate acquisitions, including Analyst Financials
and WorkWise operations;
- our ability to hire, train and retain sufficient consulting, training
and sales staff; and
- changes in general economic conditions.
Over the past several years, we have made great efforts to reduce our
operating and other expenses. 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, maintenance and consulting revenue may cause
significant variation in operating results in any particular quarter.
WE MAY NOT BE SUCCESSFUL IN INTEGRATING OUR BUSINESS OPERATIONS WITH
ANALYST FINANCIALS AND WORKWISE, AND WE MAY FACE ADDITIONAL RISKS
FOLLOWING THOSE ACQUISITIONS.
Effective June 30, 2000, we acquired Analyst Financials Limited, the
European distributor for our products, and effective December 4, 2000, we
acquired WorkWise Software, Inc., a software manufacturing and services company
that provides a suite of software products that streamline key business
activities for greater work-place efficiency. Integrating our operations with
those of Analyst Financials and WorkWise may be difficult and time consuming.
Although we believe that we have been able to efficiently and smoothly integrate
operations to date, the continued integration of our combined operations may
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 the companies hope will result from the acquisition. A
failure to effectively integrate Analyst Financials or WorkWise could materially
and adversely affect our business.
The acquisition of each of Analyst Financials and WorkWise 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.
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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.
The acquisition of WorkWise is also subject to risks, including:
- the possibility that we will be unable to cross-sell Timeline and
WorkWise products as intended; and
- the difficulty of incorporating WorkWise technology into Timeline's
existing and future products.
Any of these factors could adversely affect the success of our
operations, our financial condition and results of operations.
A SLOWING ECONOMY AND REDUCTIONS IN INFORMATION TECHNOLOGY SPENDING MAY
NEGATIVELY AFFECT OUR REVENUES.
Our revenues may be negatively affected by the increasingly uncertain
economic conditions both in the market generally and in our industry. If the
economy continues to slow, some companies may reduce their budgets for spending
on information technology and business software. As a consequence, our sales
cycle may become longer with some customers, and other prospective customers may
postpone, reduce, or even forego the purchase of our products and services,
which could negatively affect our revenues.
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 July 1999, Microsoft Corporation filed a complaint against us in the
Superior Court of Washington for King County alleging that we violated our June
1999 patent license agreement. In December 2000, the Court issued a Memorandum
Decision, and a Final Judgment was issued in January 2001, holding the language
of the agreement would support Microsoft's right to sublicense to its customers
the right to use Microsoft's SQL Server by adding code or software products to
it so long as the added code or software does not itself independently infringe
our patents. We have appealed this Judgment to the Washington Court of Appeals.
No hearing date has been established and we believe that a decision will not be
rendered until late in fiscal 2002.*
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. On June 12, 2001, we settled this lawsuit. As part of this
settlement, we licensed certain patented technology to Oracle in exchange for
cash and certain other consideration.
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 four 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;
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- 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
lawsuit filed against us by Microsoft Corporation for 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.
Product-license revenues and related services from our Timeline Analyst
and Timeline Server products accounted for a significant portion of our total
revenues during fiscal 2001 (exclusive of one-time patent license revenues). We
expect revenues from our Timeline Analyst, Timeline Server, Business Alerts and
Data Agent Server, Budgeting and Consolidation products to account for
substantially all of our long-term future revenues.* As a result, factors
adversely affecting the demand for these 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, and our ability to
develop and sell enhanced versions, of our products.
WE RELY ON MICROSOFT PRODUCTS.
We have developed all of our products to function in the Microsoft
Windows and/or Windows NT environments. We anticipate that our future products
will also be designed for use in connection with Microsoft software products.*
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 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 ABILITY TO MANAGE GROWTH SUCCESSFULLY IS UNCERTAIN.
Our acquisitions of Analyst Financials and WorkWise placed and will
continue to place significant demands on our management and other resources. In
addition, during the latter half of fiscal 2001, we hired personnel in our
consulting services and sales and marketing groups. Consequently, we continue to
incur a relatively high level of short-term fixed expenses. If planned revenue
growth does not materialize, our business, financial condition and results of
operation will be materially harmed. 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.
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IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGE OUR PRODUCTS MAY BE
RENDERED OBSOLETE AND OUR BUSINESS MAY FAIL.
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 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 OUR SOFTWARE 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 existing and future 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 for our Timeline Analyst and Timeline
Server products is software vendors such as Hyperion Solutions, Inc., Comshare,
Inc., FRx Software Corporation, Cognos Corporation, and various budgeting
vendors such as Adaytum, Inc., Microsoft, and Pillar by Hyperion.* For our
WorkWise Business Alerts and Data Agent Server software, we compete with
companies such as Categoric Software Corporation, Intelliware Systems Ltd., and
Metagon Technologies. 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 acquisitions and integration of Analyst
Financials and WorkWise will be our ability to continue to retain and integrate
those
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companies' 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.
WE RELY ON A CONTINUOUS AND COST-EFFECTIVE POWER SUPPLY TO CONDUCT OUR
OPERATIONS, AND THE WEST COAST'S CURRENT ENERGY CRISIS COULD INCREASE
OUR EXPENSES AND DISRUPT OUR OPERATIONS.
The west coast of the United States is currently in the midst of an
energy crisis that could increase our expenses and potentially disrupt our
operations. Although the focus of the energy crisis has been on California,
there have been effects up and down the west coast. In particular, the power
shortages in California combined with lower than normal rainfall in Washington
have resulted in increased energy costs in Washington, which may further
increase during fiscal 2002. These increases in energy costs directly impact our
operating expenses, and further increases may harm our results of operations.
Finally, although Washington has not experienced power shortages and rolling
blackouts as in California, recent newspaper reports have expressed concern that
Washington may experience similar acute power shortages in the future. We
currently do not have backup generators or alternate sources of power in the
event of a blackout. Any such interruption in our ability to continue operations
could damage our business and could result in lost revenue, which could
substantially harm our business and results of operations.
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,
Michael G. Evans, our Vice President of World-Wide Sales, and Craig R. Perkins,
our Vice President of Product and Technology. None of these executive officers
is subject to an employment agreement and we have not obtained key person life
insurance or disability insurance policies on any of them. If any of these
officers 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,
however we do have noncompetition agreements with them. Any of these employees
could leave their employment with us at any time. Our business and financial
condition could be negatively impacted if any of these events occur.
WE MAY HAVE TO TAKE ACTIONS THAT ARE DISRUPTIVE TO OUR BUSINESS STRATEGY
TO AVOID REGISTRATION UNDER THE INVESTMENT COMPANY ACT OF 1940.
The Investment Company Act of 1940, as amended, requires the
registration of, and establishes regulatory requirements for, companies that are
either (a) engaged primarily in the business of investing, reinvesting, owning,
holding or trading in securities or (b) own "investment securities" with a value
exceeding 40% of the value of its total assets (excluding government securities
and cash items) on an unconsolidated basis, unless an exemption or safe harbor
applies. Securities issued by companies other than majority-owned or controlled
companies are generally counted as investment securities for purposes of the
Investment Company Act.
We believe that we currently do not fall within the scope of the
Investment Company Act. We are engaged primarily in the development and support
of financial reporting, budgeting and management software, event-based
notifications and process automation systems, and not engaged primarily in the
business of investing, reinvesting, owning, holding or trading in securities. In
addition, currently, the marketable securities we hold for investment do not
exceed 40% of the value of our total assets. However, because our total asset
base (excluding marketable securities) and net income from operations have
decreased over the past year and may continue to do so, there is no
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certainty that we will not in the future be determined to be engaged primarily
in the business of investment in securities pursuant to the Investment Company
Act. If we are deemed an investment company, we would become subject to the
requirements of the Investment Company Act and as a consequence, we would be
subject to significant restrictions on our business as well as civil and
criminal penalties for noncompliance, all of which could materially and
adversely affect our business and results of operations. We have acquired
marketable securities through licensing arrangements and in settlement of
litigation. If we continue to receive such securities through these and other
activities, there is risk that these marketable securities could comprise a
significant percentage of our asset base. In the event that we approach or
surpass the 40% threshold, we would attempt to dispose of our investment
securities and reduce the percentage of our total assets. If we sell investment
securities, we may sell them sooner than we otherwise would, possibly at
depressed prices, and we may never realize anticipated benefits from, or may
incur losses on, these investments.
THE MARKET AND LIQUIDITY 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,
we 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 common stock is 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
significantly limited. This lack of liquidity may also make it more difficult
for us to raise capital in the future.
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.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock offered by the selling shareholder. 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 SHAREHOLDER
The following table sets forth the aggregate number of shares of common
stock held by the selling shareholder as of May 15, 2001 and the number of
shares being offered for sale. We cannot estimate the number of shares that will
be held by the selling stockholder after the completion of this offering because
the selling shareholder may decide to sell all, some or none of its shares from
time to time.
No. of Shares No. of Shares
Beneficially Owned Offered for
Name Before Offering Sale(1)
- -----------------------------------------------------------------
Oralis.com, Inc. 225,000 225,000
- ----------------
(1) Effective December 4, 2000, Timeline acquired all of the outstanding equity
of WorkWise Software, Inc. from Oralis.com, Inc. Upon completion of the
transaction, WorkWise became a wholly-owned subsidiary of Timeline. We
completed the transaction on a stock-for-stock basis and issued 225,000
shares of our common stock to Oralis.com, the sole shareholder of WorkWise.
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED MARCH 31, 2001
REVENUES
Years Ended March 31,
2001 2000 Change
- -------------------------------------------------------------------------------
(Dollars in Thousands)
Software license 1,466 727 102%
Other license 2,025 5,602 (64)%
Maintenance 734 833 (12)%
Consulting and Other 680 735 (7)%
Software development 46 49 (6)%
------------------------------
Total Revenues 4,951 7,946 (38)%
- -------------------------------------------------------------------------------
Results of operations for the fiscal year ended March 31, 2001 include
nine months of operations of Analyst Financials Limited (Analyst Financials),
which we acquired as of June 30, 2000, as well as approximately four months of
operations for WorkWise Software, Inc. (WorkWise), acquired December 4, 2000.
Both acquisitions were accounted for under the purchase method of accounting.
Accordingly, results of operations for periods in fiscal 2000 (prior to the
acquisitions) and fiscal 2001 (after the acquisitions) are not directly
comparable. For the quarter and year ended March 31, 2000, Analyst Financials
paid royalties to Timeline on license and maintenance revenue under its then
distributor agreement (which amounted to $226,000 for the year ended March 31,
2000). There was no financial relationship between WorkWise and Timeline prior
to its acquisition.
For the fiscal year ended March 31, 2001, our total operating revenues
were $4,951,000 compared to $7,946,000 for fiscal 2000, representing a decrease
of 38%. However, the fiscal 2001 results are not directly comparable as they
include the results of operations of WorkWise and Analyst Financials while
fiscal 2000 include royalty payments from Analyst Financials under agreements in
place prior to its acquisition by the Company. The
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decrease in total revenues in fiscal 2001 from fiscal 2000 is primarily
attributable to a substantial decrease in patent license revenue more than
offsetting increased software license revenue. Notably, software licensing
revenues were substantially higher in fiscal 2001 over fiscal 2000 (representing
a 102% increase), while patent license revenue substantially decreased to
$2,025,000 in fiscal 2001 from $5,602,000 in fiscal 2000 (a 64% decrease). The
patent license revenue in fiscal 2000 consisted of a one-time $5,000,000 license
fee from Microsoft Corporation, and a one-time license fee from Broadbase
Software for $602,000, whereas patent license revenue in fiscal 2001 consisted
of a one-time $2,025,000 license fee from Sagent Technology, Inc. None of these
patent license fees provide for recurring license revenue. Without consideration
of the patent license revenues, total operating revenues for the fiscal year
ended March 31, 2001 exceeded those for the like period ended in 2000 by 25%. We
will continue to pursue additional patent licenses when appropriate, and we
believe that the settlements made to date regarding our patents will have a
positive impact on our ability to enter into additional patent licenses.*
However, 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.*
Software license revenue for the fiscal year ended March 31, 2001
increased to $1,466,000 from $727,000 for fiscal 2000. The increase in revenue
from software licenses in fiscal 2001 over fiscal 2000 is primarily attributable
to improved results from our third-party distribution partners and additions of
new partners. However, despite this overall increase in license revenue, during
fiscal 2001 we have witnessed significant diminution of license revenue by
several key distribution partners, presumably based upon the general decline in
economic conditions. Our sales tend to reflect the strength and weakness of our
distribution partners' new license activity as we are generally licensed as part
of their package of software. Currently, we have relationships and strategic
alliances with more than 20 national and international distribution partners.
Secondary factors for the increase in software license revenue are contributions
of license revenue from WorkWise and its OEM partners of $54,000, and the
consolidation of Analyst Financials' results (which more than offset the lower
royalty payment generated under our distributor agreement with Analyst
Financials during fiscal 2001). We believe there is continued weakness in the
enterprise resource planning (ERP) and accounting software markets, which
directly affects the sale and distribution of our products as an additional
module on their products or as an "after-market" add-on. However, we have
continued to release new products in conjunction with national and international
distribution partners and anticipate that such channels will contribute to
increases to software licenses during fiscal 2002 over fiscal 2001.*
Maintenance revenue decreased by 12% for the comparable fiscal years, a
result of our outsourcing maintenance of our older VAX-based products as of May
1, 2000, which offset increased maintenance fees from new customers who have
installed and are using our software. Maintenance revenue from our
Microsoft-based product lines continues to increase as more sites are installed
and maintenance agreements commence.
Consulting revenue decreased 7% for the fiscal year ended March 31, 2001
from fiscal 2000, despite an increase in consulting fees in the fourth quarter
of fiscal 2001. The decrease for the fiscal year was primarily due to reduced
staffing in the first three months of the fiscal year prior to the acquisition
of Analyst Financials, the outsourcing of maintenance and consulting on
VAX-based products starting May 1, 2000 and the general slow-down in licensing
due to uncertainties surrounding Year 2000 compliance. However, in the latter
half of fiscal 2001, we saw steady improvements in consulting revenue reflecting
an increase in the number of consulting staff generating revenue due primarily
to the acquisition of Analyst Financials in June 2000. We expect that, as a
result of the Analyst Financials acquisition, this increase in the number of
consultants on staff will continue to show increased consulting revenue for
future periods when compared to results in periods prior to the acquisition.*
The level of consulting revenue varies according to the mix of systems directly
licensed by Timeline compared to software provided through OEMs, who market the
products at lower levels of functionality and use and provide direct
installation services to end-users, thereby requiring less consulting. Because
our U.K. office (Analyst Financials) employs a direct sales force and licenses
software directly to large organizations, this has resulted in an increased
demand for consulting. However, we believe that any fluctuations in consulting
revenue levels will become less material in the future as a larger percentage of
new product licensing is transacted through OEM channels.*
Software development fee revenue was $46,000 and $49,000 for the fiscal
year ended March 31, 2001 and 2000, respectively. Development revenues are not
material to overall revenue and we do not anticipate that development revenue
will contribute significantly to revenue in fiscal 2002 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.
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GROSS PROFIT
Years Ended March 31,
2001 2000 Change
- -----------------------------------------------------------------------------
(Dollars in Thousands)
Gross profit 3,866 6,790 (43)%
Percentage of operating revenues 78% 85%
Our gross profit for fiscal 2001 was $3,866,000, representing a 43%
decrease from fiscal 2000. Gross profit for the two fiscal years is not directly
comparable due to the inclusion of WorkWise and Analyst Financials revenues in
fiscal 2001, and because of the relative mix of high-margin patent license
revenue in each period ($2,025,000 in fiscal 2001 compared to $5,602,000 in
fiscal 2000). We expect to see continued variations in gross profit dependant on
the mix of high-margin software and patent licenses and lower margin consulting
and maintenance revenue which is labor intensive.* Additionally, because patent
licenses to date have tended to be driven by legal actions and/or negotiated
settlements of threatened legal actions, the costs of securing patent licenses
vary greatly from license to license. As patent licensing is expected to
continue to be both relevant and widely different between reporting periods,
substantial fluctuations in comparative margins may continue to occur.*
SALES AND MARKETING EXPENSE
Years Ended March 31,
2001 2000 Change
- -----------------------------------------------------------------------------
(Dollars in Thousands)
Sales and marketing 1,336 617 117%
Percentage of operating revenues 27% 8%
Sales and marketing expenses in actual dollar amounts increased by 117%
and also increased as a percentage of operating revenue between the fiscal years
ended March 31, 2001 and 2000. The increase in actual dollar amounts in fiscal
2001 was primarily due to an increase in the number of sales and marketing
personnel as a result of the Analyst Financials and WorkWise acquisitions. The
amounts for fiscal 2000 included certain commissions and bonuses paid in the
first quarter of that year. The increase in sales and marketing expense as a
percentage of operating revenue reflects not only the increased costs from
additional personnel, but also changes in the amounts and sources of revenue
between the comparable periods relating to large patent license fees in both
fiscal 2001 and 2000. Patent license-related expenses are typically included in
general and administrative expenses due to the nature of the licensing process.
RESEARCH AND DEVELOPMENT EXPENSE
Years Ended March 31,
2001 2000 Change
- -----------------------------------------------------------------------------
(Dollars in Thousands)
Research and development 1,605 1,161 38%
Percentage of operating revenues 32% 15%
Research and development expenses increased to $1,605,000 from
$1,161,000 (a 38% increase) for the fiscal years ended March 31, 2001 and 2000.
This increase in research and development expenses was primarily attributable to
software enhancements undertaken to meet the particular needs of our
distribution partners, to integrate our products with the accounting, ERP and
sales package(s) of our various vendors, and to allow better operations on new
products released by Microsoft Corporation. These increases in fiscal 2001 also
included normal salary increases and marginal costs along with an increase in
the number of personnel employed in these activities, and in particular the
addition of three employees in Development as a result of the WorkWise
acquisition in December 2000. Research and development expenses as a percentage
of revenue for the fiscal years ended March 31, 2001 and 2000 are also affected
by changes in the volume of revenue due to significant patent license fees in
the third quarter of fiscal 2001 and the first quarter of fiscal 2000. Finally,
the portion of our staff's efforts capitalized
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for future amortization during fiscal 2001 was significantly less than that
capitalized in fiscal 2000 due to the fact that the majority of the work was
directed at integration with distribution partners' products as opposed to new
releases of the core product offering. We believe the actual dollar amount of
research and development expenses in fiscal 2002 will remain relatively stable
with the fiscal 2001 expenses.*
GENERAL AND ADMINISTRATIVE EXPENSE
Years Ended March 31,
2001 2000 Change
- -----------------------------------------------------------------------------
(Dollars in Thousands)
General and administrative 2,624 2,365 11%
Percentage of operating revenues 53% 30%
General and administrative expenses in actual dollar amounts increased
11% to $2,624,000 from $2,365,000 for the comparable fiscal years ended March
31, 2001 and 2000. General and administrative expenses typically fluctuate
significantly from fiscal quarter to quarter largely due to variations in
expenses associated with our patent litigation. During fiscal 2001, general and
administrative costs consisted primarily of attorneys fees associated with our
patent litigation and our contract litigation with Microsoft, an increase of
three general and administrative personnel through the Analyst Financials
acquisition and employee bonuses relating to the settlement of the patent
litigation with Sagent Technology, Inc. We believe that general and
administrative costs should remain fairly stable from quarter to quarter in
fiscal 2002. Due to continued monitoring of a number of other software products
which we believe may, subject to further due diligence, present embodiments of
the Timeline patents, there is a significant possibility that we may decide to
pursue additional litigation to defend our property rights.* We cannot express
an opinion on the cost, timing or arrangement with counsel that may result from
these additional actions, if any.*
Fluctuations of general and administrative expenses as a percentage of
revenues for comparative periods are also due to the significant changes in
revenue for each period, especially the amount of revenue generated through
patent licensing.
OTHER INCOME
Other income for fiscal 2001 was $318,000, down from $504,000 in fiscal
2000. The decrease is primarily the result of a significant decrease in interest
income from $145,000 in fiscal 2000 (attributable to interest earned on the
$5,000,000 one-time license fee) to $9,000 in fiscal 2001 (reflecting our
funding of operations and litigation costs through utilization of cash and
liquid investments). Other items, including net changes in realized and
unrealized gains and losses on securities held for investment and interest
expense, were relatively consistent between the fiscal years.
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 for fiscal 2001.
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 2002.*
LIQUIDITY AND CAPITAL RESOURCES
Balances of our cash and cash equivalents and marketable securities
classified as trading at March 31, 2001 stood at approximately $29,000 compared
to approximately $3,017,000 at March 31, 2000. Additionally, available for sale
securities at March 31, 2001 stood at approximately $1,069,000 compared to
approximately $3,030,000 at March 31, 2000. At March 31, 2001, we also
maintained a balance of $26,000 of securities we have committed to transfer
under securities sales agreements (see Footnote 2 to our Consolidated Financial
Statements) in addition to our cash and marketable securities balances.
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The substantial decrease in the total amount of our cash and cash
equivalent and marketable securities balances, are attributable to the operating
losses during fiscal 2001 and costs associated with the acquisitions of Analyst
Financials and WorkWise. Of more significance was the dramatic decrease in the
market value of available-for-sale securities. At March 31, 2001, we held 9,350
shares of Broadbase Software, Inc. common stock, which were classified as
marketable securities available for sale (valued at approximately $18,981). At
March 31, 2000, we held 80,000 shares of Broadbase received in settlement of
patent litigation (which were valued then at approximately $3,030,000). The
value of each share of Broadbase decreased substantially between the value
reflected at March 31, 2000 and the settlement date of actual sales and the
value of any remaining shares held at March 31, 2001. All of these shares were
restricted until September 2000 (see Footnote 2 to our Consolidated Financial
Statements). Additionally, available for sale securities at March 31, 2001
includes 600,000 shares of Sagent Technology, Inc. common stock which are not
reflected on the March 31, 2000 balance sheet as they were received in the
quarter ended December 31, 2000 in settlement of patent litigation. The shares
of Sagent common stock held by us are considered restricted securities under
securities laws, although Sagent has filed a registration statement with the
Securities and Exchange Commission to register the shares for resale. We will
have no restrictions on the sale of this common stock once this registration
statement is declared effective. The market value of the Sagent shares has also
decreased since they were issued in December 2000, due to general decline in the
U.S. stock markets. At May 15, 2001, the market value of the Sagent shares had
decreased to $1.34 per share (from $1.75 per share at March 31, 2001). We cannot
predict the timing on our ability to sell these shares or the then-market value
of such shares. In the event that we are unable to sell any or all of our
marketable securities or the Sagent shares at the times or in the amounts we
desire, or in the event that the market prices for any of those securities
decreases, this will have a material adverse effect on our working capital and
our capital needs. In such event we would need to achieve substantially greater
revenue from operations to meet our budget for fiscal 2002.
Total obligations, excluding deferred income items, were approximately
$962,000 at March 31, 2001 compared to approximately $796,000 at March 31, 2000.
This increase is primarily due to expenses accrued as a result of the
acquisitions of Analyst Financials and WorkWise, as well as deferred employee
bonuses relating to the settlement of the patent litigation with Sagent
Technology, Inc.
In May 2001, three of our directors loaned us a total of $172,580. These
loans are due in full either 60 or 90 days from the execution of the loan,
depending on the loan agreement. We used the proceeds of these loans to fund
payroll and other operating expenses.
Net cash used in operating activities was approximately $3,593,000 in
the year ended March 31, 2001. This was primarily due to our generating net
losses for three quarters of fiscal 2001, partially offset by a gain in the
third quarter of fiscal 2001. We generated approximately $2,124,000 from
investing activities and used approximately $7,000 for financing activities.
We licensed certain patented technology to Oracle in June 2001 as part
of a settlement of our patent infringement litigation. We will receive cash and
other consideration under the terms of this patent technology license. Based on
current cash and cash equivalent balances, along with our current ability to
sell marketable securities, any net cash provided by operations, and the cash
provided by our settlement with Oracle, we believe we have adequate resources to
fund operations, as well as continued costs and expenses of litigation, through
fiscal 2002. Had we not received the license payment from Oracle, there would
have been substantial doubt about our ability to continue as a going concern.
However, we are at risk as to the market value of our shares in Sagent currently
held and we must achieve substantially greater revenue from operations than we
did in the last several quarters of fiscal 2001. We have witnessed significant
diminution of license revenue by several key distribution partners, presumably
based upon the general decline in economic conditions. Our sales tend to reflect
the strength and weakness of our distribution partners' new license activity as
we are generally licensed as part of their package of software.
During fiscal 2002, we expect to generate cash from increased software
license revenues as well as potential additional licenses of our patented
technology. We expect that our primary uses of cash will be salaries and other
controllable expenses associated with Research and Development, Sales and
Marketing, and General and Administrative activities. We intend to continue to
monitor new license activity closely and may have to reduce staff, and/or seek
outside financing or a sale or merger of the Company if patent and software
licenses do not substantially increase quarter-to-quarter during fiscal 2002.**
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BUSINESS
OUR BUSINESS
We develop, market and support company-wide financial reporting,
budgeting and management software, and event-based notification, application
integration, and process automation software applications that streamline key
business activities for workplace efficiency. Our software products enable
customers to automatically access and distribute business and accounting
information in a secure environment and with full accounting controls, integrate
software programs developed at different times, and automate notification
messages pertaining to specific events and business processes. Our marketing and
development strategy is focused on products that report financial data in
meaningful and flexible formats, and on systems for notification of critical
information, integration of applications and transaction automation. Our
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.
In addition, our WorkWise products allow customers to automatically monitor
databases, consolidate data entry, automate tasks and communicate with the
appropriate people.
Many financial and management reporting products are focused on the
presentation, either electronically or on paper, of processed data in formatted
reports. While our reporting 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.
We believe that our proprietary technology allows customers to avoid
time-consuming, error-prone and expensive data entry, and improve business
communications and processes. 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 Analyst and Timeline 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 WorkWise
Business Alerts product automates and synchronizes notification messages
pertaining to specific events and business processes. Our WorkWise Data Agent
Server integrates software programs developed at different times by different
people using different database structures. 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;
- perform budgeting functions;
- coordinate the update of business records in multiple modules through
a single transaction entry; and
- automate the notification of responsible parties of events monitored
by the WorkWise engine.
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The flexibility of our Timeline and WorkWise products make it possible
for our customers to deliver data for reporting, analysis and record update or
monitoring 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 transaction processing
systems, particularly accounting and reporting software of other software
vendors.* Our products are designed to enhance existing 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
transaction-based 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 systems. We believe that a
majority of our license fee revenue in fiscal year 2002 will be generated by
licensing and distribution agreements with these third-party vendors.*
At March 31, 2001, we employed 40 full-time employees and one part-time
employee in the U.S. Our London subsidiary, Analyst Financials, employed 15
full-time employees at March 31. 2001.
OUR TECHNOLOGY
Our Timeline Analyst and Timeline Server 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 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.
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Our WorkWise Business Alerts and Data Agent Server products are deployed
as a set of user-defined "business rule(s)" contained in a software package that
also allows particular fields of other data base systems to be monitored for
change. When a monitored field is updated with a transaction or series of
transactions, an associated business rule may trigger an event. The event so
triggered can cause any number of previously established activities to
automatically occur. Examples are the sending of an informational e-mail or the
running of another software program (or "agent"). Our distribution partners
usually market the WorkWise products prepackaged with a number of agents
specific to the needs of the users of the monitored systems licensed by the
distributor.
We have been granted four patents by the U.S. Patent and Trademark
Office on our technology and have a total of 81 issued claims. We believe
additional international patents will be granted during fiscal 2002.*
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 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.
Timeline 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.
WorkWise Data Agent Server is a set of programs that allow the
monitoring of other databases for change, the definition of business rules to
apply to any changes in the monitored database, and the triggering of an event
in response to the detected change. A number of previously defined events are
available as part of the products optional configuration. Additionally, new
events can be easily added to the product without writing additional lower level
software code through a user interface designed for such purpose.
WorkWise Business Alerts is the most popular event triggered by the Data
Agent Server and is packaged and sold as a stand-alone product. It monitors data
fields for specified activity and then automatically communicates that activity
to the appropriate customer or employee via email.
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-
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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.
Effective December 4, 2000, we acquired all of the outstanding equity of
WorkWise Software, Inc. in exchange for 225,000 shares of Timeline common stock.
In addition, we agreed to issue up to 25,000 shares of Timeline common stock to
certain WorkWise employees who joined our staff as a result of this acquisition.
Upon completion of the transaction, WorkWise became a wholly-owned subsidiary of
Timeline.
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. In
addition, we lease 1,900 square feet of office space in London for our Analyst
Financials office under a lease that expires September 30, 2001. We do not own
any real estate.
LEGAL PROCEEDINGS
In July 2000, we filed a lawsuit against Oracle Corporation seeking
monetary damages and injunctive relief. Our claims were based on Oracle's
alleged development of products that use technology similar to our patented
database technology. On June 12, 2001, we settled this lawsuit. As part of this
settlement, we licensed certain patented technology to Oracle in exchange for
cash and certain other consideration.
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. In
December 2000, the Court issued a Memorandum Decision and Final Judgment in
January 2001 in the lawsuit holding the language of the agreement would support
Microsoft's right to sublicense to its customers the right to use Microsoft's
SQL Server by adding code or software products to it so long as the added code
or software does not itself independently infringe our patents. We have filed an
appeal of the lower court's Final Judgment in the Washington State Court of
Appeals. No hearing date has been established and we believe a decision will not
be rendered until late in fiscal 2002.
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
five 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 terms
of office for Frederick W. Dean and Terry Harvey expire 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 52 Chief Executive Officer, Chief Financial Officer,
President, Treasurer, and Director
Frederick W. Dean 49 Executive Vice President and Director
Craig R. Perkins 45 Vice President of Products and Technology
Michael G. Evans 47 Vice President of World-Wide Sales
Donald K. Babcock 64 Senior Technologist and Director
Kent L. Johnson 57 Director
Terry Harvey 50 Director
Set forth below is biographical information for the directors and
executive officers:
CHARLES R. OSENBAUGH, age 52, 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, Washington 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.
FREDERICK W. DEAN, age 49, 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 45, 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.
MICHAEL G. EVANS, age 47, has been associated with the Company since
1995. He managed international operations from 1995 until the management buy-out
of the London-based operations (Analyst Financials) took place in 1997. From
1997 until March 2000, Mr. Evans acted as Managing Director of Analyst
Financials, in which the Company held a 12.5% interest. Mr. Evans rejoined
Timeline in March 2000, and was appointed Vice President of World-Wide Sales in
the fall of 2000. Prior to joining Timeline in 1995, Mr. Evans was a director of
Comshare, Inc. for a period of 10 years, responsible for the Financial
Applications Division. Between 1979 and 1985, he was employed by Esso and The
Wellcome Foundation, occupying positions in accounting, finance and corporate
planning. Mr. Evans qualified as a chartered accountant with Ernst & Whinney in
1979 and holds an ACA certificate. He earned a Bachelors degree in political
science at the University of Kent at Canterbury.
DONALD K. BABCOCK, age 64, 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.
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KENT L. JOHNSON, age 57, has been a Director of the Company since its
inception. He is Chairman and Managing Director of Alexander Hutton Venture
Partners, LP, a Seattle, Washington-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 &
Co. 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.
TERRY HARVEY, age 50, has served as a Director of the Company since
October 2000. Mr. Harvey is currently Managing Director of Terry Harvey
Associates Ltd., an information technology consulting firm specializing in the
banking sector and based in the United Kingdom, which he co-founded in October
2000. From 1989 through 1999, Mr. Harvey was Founder and Managing Director of
Harvey Consultants Ltd. which was sold to the Olsten Corporation in 1996. Mr.
Harvey holds several other non-executive roles in information technology
companies where he has invested. Mr. Harvey has fulfilled an operational role in
informational technology from 1970 to 1992. He holds an ONC in sciences.
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the three fiscal years ended March 31,
2001, 2000, and 1999, 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 $100,000 in salary and bonus
for the 2001 fiscal year:
SUMMARY COMPENSATION TABLE
Long Term
Compensation
------------
Annual Compensation Securities
Name and Principal Fiscal ------------------------- Underlying All Other
Position Year Salary($) Bonus($) Option(1) Compensation($)
------ --------- -------- ---------- ---------------
Charles R. Osenbaugh, 2001 $140,250 $ 76,000(2) 25,000(3) $ --
President, Chief 2000 150,500 250,000 50,000(4) --
Executive Officer, 1999 153,611 -- 125,000(5) --
Chief Financial
Officer
Frederick W. Dean, 2001 119,167 12,578 -- --
Executive Vice 2000 100,000 80,506 -- --
President 1999 99,167 26,656 25,000 --
Craig R. Perkins, Vice 2001 109,080 24,462 -- --
President of 2000 100,000 25,000 -- --
Products and 1999 102,293 5,869 38,000 --
Technology
Michael G. Evans, Vice 2001 122,322 14,766 1,000 6,433(6)
President of
World-Wide Sales
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- ---------------
(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.
(2) Accrued bonus of $76,000 due Mr. Osenbaugh at March 31, 2001.
(3) Mr. Osenbaugh received a grant of a performance-based option to purchase
25,000 shares of common stock on January 1, 2001. This option will vest
when our stock closes trading at $7.50 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.
(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) Car allowance paid to Mr. Evans.
STOCK OPTION GRANTS
The following table shows certain information regarding options granted
to the Named Executive Officers during the 2001 fiscal year:
No. of Percentage
Shares of Total
Underlying Options Exercise
Options Granted to Price Per Expiration
Name Granted Employees Share Date
- ---- ---------- ---------- --------- ----------
Charles R. Osenbaugh 25,000(1) 30.3% $1.156 12/31/2010
Frederick W. Dean -- -- -- --
Craig R. Perkins -- -- -- --
Michael G. Evans 500(2) 0.6% $2.875 9/30/2010
500(2) 0.6% $1.156 12/31/2010
- ---------------
(1) Mr. Osenbaugh received a grant of a performance-based option to purchase
25,000 shares of common stock on January 1, 2001. This option will vest
when our stock closes trading at $7.50 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.
(2) Mr. Evans received options granted under the 1994 Employee Stock Option
Plan, which vest ratably over a four year period beginning with the date of
grant.
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AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END 2001 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 2001 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 111,601 125,500 $2,668 $1,716
Frederick W. Dean 40,900 13,000 967 406
Craig R. Perkins 55,100 500 328 16
Michael G. Evans -- 1,000 -- --
COMPENSATION OF DIRECTORS
During the first three quarters of fiscal year ended March 31, 2001, we
did not compensate our directors for their service as directors. However, in
November 2000, the Board of Directors unanimously approved a quarterly fee for
outside directors of $1,000 or the equivalent in Timeline common stock. In
addition, the Board of Directors unanimously approved increasing from 3,000 to
10,000 the number of shares each of our non-employee directors receives under an
automatic one-time grant of options pursuant to the terms of the Directors'
Nonqualified Stock Option Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
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.
In May 2001, Charles R. Osenbaugh loaned the Company $65,000 to help
fund operations. This loan bears interest at 12% per annum. Principal and
interest under this loan is due in full 90 days from the execution of the loan.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
ownership of our common stock as of May 15, 2001 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) 563,603 13.2%
Frederick W. Dean(3) 157,249 3.9%
Craig R. Perkins(4) 59,411 1.5%
Michael G. Evans 13,462 0.3%
Donald K. Babcock(5) 140,461 3.5%
Kent L. Johnson(6) 66,649 1.6%
Terry Harvey 214,741 5.3%
Infinium Software, Inc. 300,000 7.4%
25 Communications Way
Hyannis, MA 02601
Oralis.com, Inc. 225,000 5.6%
146 North Canal Street, Ste. 200
Seattle, WA 98103
All directors and executive officers as a group (seven persons)(7) 1,215,576 27.7%
- -----------------
(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) 94,276 shares issuable under stock options held by Mr.
Osenbaugh which are exercisable within 60 days of May 15, 2001, (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) 25,000 shares issuable
under a performance-based stock option held by Mr. Osenbaugh which vests
and becomes exercisable when the common stock closes trading at $7.50 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;
(iv) 17,325 shares issuable upon exercise of warrants granted to Mr.
Osenbaugh in connection with certain Company loan guarantees, and (v) 8,566
shares held in the Timeline, Inc. Employee Stock Ownership Plan for Mr.
Osenbaugh's account. Does not include 135,473 shares held in the Timeline,
Inc. Employee Stock Ownership Plan for which Mr. Osenbaugh serves as a
trustee and shares investment power, all of which shares Mr. Osenbaugh
disclaims beneficial interest except to the extent of his pecuniary
interest. Does not include 15,015 shares held in an individual retirement
account belonging to Mr. Osenbaugh's spouse, 5,000
-27-
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shares held in trust for Mr. Osenbaugh's niece, and 1,000 shares held in
each of Mr. Osenbaugh's two daughters' accounts, for all of which shares
Mr. Osenbaugh disclaims beneficial interest.
(3) Includes (i) 34,300 shares issuable under stock options held by Mr. Dean
which are exercisable within 60 days of May 15, 2001, (ii) 6,600 shares
issuable upon exercise of warrants granted to Mr. Dean in connection with
certain Company loan guarantees, and (iii) 2,949 shares held in the
Timeline, Inc. Employee Stock Ownership Plan for Mr. Dean's account.
(4) Includes (i) 55,100 shares issuable under stock options held by Mr. Perkins
which are exercisable within 60 days of May 15, 2001, and (ii) 2,991 shares
held in the Timeline, Inc. Employee Stock Ownership Plan for Mr. Perkin's
account.
(5) Includes (i) 1,500 shares issuable under stock options held by Mr. Babcock
that are exercisable within 60 days of May 15, 2001, and (ii) 1,785 shares
held in the Timeline, Inc. Employee Stock Ownership Plan for Mr. Babcock's
account.
(6) Includes 11,776 shares issuable under stock options held by Mr. Johnson
that are exercisable within 60 days of May 15, 2001.
(7) Consists of Messrs. Osenbaugh, Dean, Perkins, Evans, Babcock, Johnson, and
Harvey. Includes an aggregate of 345,877 shares issuable under stock
options and warrants held by such persons which are exercisable within 60
days of May 15, 2001, and an aggregate of 16,291 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 May 15, 2001, there were 4,040,998 shares of common stock
outstanding, held by approximately 87 holders of record and 815 beneficial
holders. 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 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.
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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 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 STOCKHOLDER MATTERS
Timeline's common stock is traded on the OTC Bulletin Board ("OTCBB")
and the Boston Stock Exchange ("BSE") under the symbols "TMLN" and "TML",
respectively. 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 2000 and 2001, and the first quarter of fiscal
2002. The quotations from the OTCBB reflect inter-dealer prices without retail
mark-up, mark-down, or commissions and may not represent actual transactions.
Fiscal 2000 Fiscal 2001
-------------------------------- ----------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Common Stock
High 2.000 2.688 2.750 6.250 4.000 3.625 3.000 1.719
Low 0.375 1.313 1.438 1.438 2.063 2.438 1.063 0.938
-29-
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Fiscal 2002
-----------------------------------------
1st Quarter
(thru June 11, 2nd 3rd 4th
2001) Quarter Quarter Quarter
-------------- ------- ------- -------
Common Stock
High $0.906 N/A N/A N/A
Low $0.650 N/A N/A N/A
As of May 15, 2001, there were 4,040,998 shares of common stock
outstanding held by approximately 87 holders of record and 815 beneficial
holders.
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.
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from time
to time by the selling shareholder. The selling shareholder will act
independently of us in making decisions with respect to the timing, manner and
size of each sale. The selling shareholder 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 shareholder, but we will be responsible for expenses incurred in
connection with the registration of the shares. The selling shareholder 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 shareholder 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 shareholder. The
selling shareholder may also sell our common stock short and redeliver the
shares to close out such short positions. The selling shareholder 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 shareholder
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
shareholder may arrange for other brokers or dealers to participate. Brokers,
dealers or agents may receive commissions, discounts or concessions from the
selling shareholder 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
-30-
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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 shareholder 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 shareholder and its
affiliates. In addition, we will make copies of this prospectus available to the
selling shareholder and have informed it 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 shareholder 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.
In connection with the 225,000 shares of common stock being offered for
the account of Oralis.com, Inc., we have agreed to indemnify Oralis, and any
person controlling it against certain liabilities, including liabilities under
the Securities Act of 1933. Oralis has agreed to indemnify us and certain
related persons against certain liabilities, including liabilities under the
Securities Act of 1933. We have agreed with Oralis to keep the registration
statement of which this prospectus constitutes a part effective until the
earlier of the sale of all the shares or two years from the date of original
issuance of the shares to Oralis.
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 shareholder in connection with such registration.
EXPERTS
The financial statements of the Company at March 31, 2001 and 2000 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 thereon appearing elsewhere herein, and are included in reliance upon the
authority of such firm as experts in accounting and auditing in giving said
reports.
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FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Timeline, Inc.:
We have audited the accompanying consolidated balance sheets of Timeline, Inc.
(a Washington corporation) and subsidiaries as of March 31, 2001 and 2000, and
the related consolidated 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. and subsidiaries
as of March 31, 2001 and 2000, and the results of their operations and their
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
June 12, 2001
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TIMELINE, INC.
CONSOLIDATED BALANCE SHEETS - MARCH 31, 2001 AND 2000
ASSETS
2001 2000
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 1,470,703
Marketable securities - trading 28,802 1,546,256
Marketable securities - available for sale 1,068,981 3,030,000
Securities held for others 26,000 170,000
Accounts receivable (including $0 and $8,345 from affiliates),
net of allowance of $4,902 and $38,500 773,287 323,387
Prepaid expenses and other 166,687 70,372
------------ -----------
Total current assets 2,063,757 6,610,718
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $871,576 and $1,794,311 167,841 266,073
CAPITALIZED SOFTWARE, net of accumulated
amortization of $256,789 and $163,622 429,761 555,617
CAPITALIZED PATENTS, net of accumulated
amortization of $15,069 and $7,429 157,015 99,582
INTANGIBLE ASSETS, net of accumulated
amortization of $380,983 and $0 1,393,638 --
OTHER ASSETS 328 2,185
------------ -----------
Total assets $ 4,212,340 $ 7,534,175
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 441,377 $ 303,885
Accrued expenses 520,248 487,921
Deferred revenues 533,145 372,000
Current portion of obligations under capital leases -- 4,309
------------ -----------
Total current liabilities 1,494,770 1,168,115
Total liabilities 1,494,770 1,168,115
------------ -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 20,000,000 shares authorized,
4,043,498 and 3,449,112 issued and outstanding 40,385 34,492
Additional paid-in capital 10,424,703 9,124,178
Other comprehensive (expense) income (410,451) 2,658,825
Accumulated deficit (7,337,067) (5,451,435)
------------ -----------
Total stockholders' equity 2,717,570 6,366,060
------------ -----------
Total liabilities and stockholders' equity $ 4,212,340 $ 7,534,175
============ ===========
The accompanying notes are an integral part of these balance sheets.
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TIMELINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2001 AND 2000
2001 2000
----------- -----------
REVENUE
Software license $ 1,466,148 $ 727,477
Other license 2,025,000 5,602,000
Software development 45,432 49,340
Maintenance 733,983 833,361
Consulting and other 680,178 733,741
----------- -----------
Total revenues 4,950,741 7,945,919
----------- -----------
COST OF REVENUES 1,084,730 1,156,204
----------- -----------
Gross profit 3,866,011 6,789,715
----------- -----------
OPERATING EXPENSES:
Sales and marketing 1,336,373 617,435
General and administrative 2,624,279 2,364,998
Research and development 1,605,398 1,161,476
Depreciation 161,251 182,274
Amortization: intangibles/goodwill 342,765 --
----------- -----------
Total operating expenses 6,070,066 4,326,183
(Loss) income from operations (2,204,055) 2,463,532
----------- -----------
OTHER INCOME (EXPENSE):
Gain on securities 355,498 334,322
Unrealized gain on trading securities -- 56,828
Interest expense and other (46,310) (32,649)
Interest income and other 9,235 145,052
----------- -----------
Total other income 318,423 503,553
----------- -----------
(Loss) income before income taxes (1,885,632) 2,967,085
Income tax provision -- (55,507)
----------- -----------
Net (loss) income $(1,885,632) $ 2,911,578
=========== ===========
Basic net (loss) income per common
and common equivalent share $ (0.48) $ 0.89
=========== ===========
Diluted net (loss) income per common
and common equivalent shares $ (0.48) $ 0.83
=========== ===========
Shares used in calculation of basic
earnings per share 3,900,400 3,274,673
=========== ===========
Shares used in calculation of
diluted earnings per share 3,900,400 3,524,273
=========== ===========
The accompanying notes are an integral part of these financial statements.
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TIMELINE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2001 AND 2000
Common Stock Other
---------------------- Paid-in ESOP Comprehensive Accumulated
Shares Amount Capital Shares Income Deficit Total
---------- -------- ------------ --------- ----------- ----------- -----------
BALANCE, March 31, 1999 3,191,368 $ 31,946 $ 9,070,865 $(135,417) $ -- $(8,363,013) $ 604,381
Net income (loss) -- -- -- -- -- 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 income (loss) -- -- -- -- -- (1,885,632) (1,885,632)
Unrealized loss on available
for sale securities -- -- -- -- (3,060,660) -- (3,060,660)
Equity consideration issued
for acquisitions 548,814 5,488 1,289,681 -- -- -- 1,295,169
Exercise of common stock
options 40,572 405 10,844 -- -- -- 11,249
Foreign currency translation
adjustment -- -- -- -- (8,616) -- (8,616)
---------- -------- ------------ --------- ----------- ----------- -----------
BALANCE, March 31, 2001 4,038,498 $ 40,385 $ 10,424,703 $ -- $ (410,451) $(7,337,067) $ 2,717,570
========== ======== ============ ========= =========== =========== ===========
The accompanying notes are an integral part of these financial statements
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TIMELINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2001 AND 2000
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(1,885,632) $ 2,911,578
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization 701,392 576,328
Loss on disposal of property and equipment (18,905) 8,846
Loss on sale of securities (355,498) --
Non-cash compensation expense -- 152,344
Marketable equity securities received as consideration (1,425,000) (392,000)
ESOP contribution compensation expense -- 29,132
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable 56,453 111,279
Prepaid expenses and other (95,363) (12,968)
Accounts payable (669,062) 161,398
Accrued expenses and other (82,225) (37,204)
Deferred revenues 155,645 (46,827)
Other noncurrent assets 25,561 --
----------- -----------
Net cash (used in) provided by operating activities (3,592,634) 3,461,906
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in acquisitions 29,056 --
Purchase of property and equipment (28,640) (79,172)
Proceeds from sale of property and equipment 22,075 --
Investment in capitalized software and development costs (240,246) (301,915)
Purchase of short-term investments (1,017,325) (2,483,697)
Proceeds from sale of short-term investments 3,359,637 788,265
Proceeds from (issuance of) note receivable (952) 13,051
----------- -----------
Net cash provided by (used in) investing activities 2,123,605 (2,063,468)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (4,309) (10,705)
Borrowings under line of credit -- 287,012
Repayments under line of credit -- (310,717)
Payments on notes payable -- (132,578)
Retirement of shares/treasury stock -- (130,000)
Sales of common stock and exercise of stock options 11,251 309,800
----------- -----------
Net cash (used in) provided by financing activities 6,942 12,812
----------- -----------
EFFECT OF FOREIGN EXCHANGE RATE FLUCTUATIONS (8,616) --
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,470,703) 1,411,250
CASH AND CASH EQUIVALENTS, beginning of period 1,470,703 59,453
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ -- $ 1,470,703
=========== ===========
SUPPLEMENTAL CASH AND NONCASH DISCLOSURES:
Cash paid for interest $ 16,340 $ 28,708
Non-cash transactions:
Equity consideration issued for acquisitions 1,295,169 --
Unrealized (loss) gain on available for sale securities (3,060,660) 2,658,825
Offset of accounts receivable for capitalized software -- 125,000
Retirement of unallocated ESOP shares -- 104,167
Repurchase of common stock for restricted investment -- 170,000
The accompanying notes are an integral part of these financial statements.
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NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
1. THE COMPANY:
Organization
The accompanying consolidated financial statements are for Timeline, Inc. and
subsidiaries (the Company). The Company, which is headquartered in Seattle,
Washington and has operations in the United Kingdom, develops, markets and
supports enterprise-wide financial management, budgeting and reporting software
and event-based notification, application integration and process automation
systems. Timeline's software products automatically access and distribute
business information with full accounting control.
Operations
The Company has historically suffered recurring operating losses and negative
cash flows from operations. As of March 31, 2001, the Company had an excess of
current assets over current liabilities of $568,987 and had an accumulated
deficit of $7,337,067, with total stockholders' equity of $2,717,570. These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States and assuming that the Company will
continue as a going concern. Management believes that current cash and cash
equivalent balances, along with the ability to sell marketable securities, and
any net cash provided by operations, will provide adequate resources to fund
operations at least until March 31, 2002. Management has contingency plans which
will enable the Company to continue to operate as a going concern if actual
results differ materially from the Company's financial projections.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
All subsidiaries of the Company are wholly-owned. The accompanying consolidated
financial statements include the accounts and operations of these subsidiaries.
All intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
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.
Marketable Securities - Trading
Marketable securities consist of both equities and debt instruments, which are
under the management of investment brokers. 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.
Realized and unrealized gains and losses on these securities are included in the
accompanying statements of operations.
-37-
38
Marketable Securities - Available for Sale
In September 1999, the Company settled a patent infringement lawsuit filed
against Broadbase Software, Inc. (Broadbase). As part of the settlement, the
Company licensed certain patented technology to Broadbase in exchange for cash
of $210,000 and 80,000 shares of Broadbase common stock with a fair market value
of $392,000 at the date of the settlement. The Company was subject to
restrictions on the sale of these securities for a period of one year from the
date that they were received. These restrictions lapsed in September 2000.
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 were entitled to receive 4,250 shares of Broadbase common stock
after the transfer restrictions lapsed in September 2000. The shareholders also
received a cash payment of $130,000 at the date of this agreement. In connection
with this transaction, the Company recognized the unrealized gain of $149,175 on
these shares at March 31, 2000. That amount was included as a gain on securities
in the March 31, 2000 annual statement of operations. The Company also recorded
a liability equal to the fair value of the shares to be transferred at the date
of that agreement. As of March 31, 2001, the Company had transferred ownership
of 3,600 shares under this agreement. The remaining shares are recorded in the
accompanying balance sheet at their fair market value on the date of this
agreement of $26,000, with an offsetting liability for the same amount that is a
component of accrued expenses. Broadbase completed a two-for-one stock split on
April 10, 2000. All per share amounts have been adjusted to reflect this stock
split.
In December 2000, the Company settled a patent infringement lawsuit filed
against Sagent Technology, Inc. (Sagent). As part of the settlement, the Company
licensed certain patented technology to Sagent in exchange for $600,000 and
600,000 shares of Sagent common stock with a fair market value of $1,425,000 at
the date of the settlement. There are no restrictions on the sale of these
securities beyond the effectiveness of a registration statement to be filed by
Sagent.
The total value of noncommitted Broadbase and Sagent common stock was $1,068,981
at March 31, 2001. The Company has accounted for these shares as available for
sale securities as required under SFAS 115. Accordingly, these securities are
stated at fair market value and the unrealized gain on these securities of
$401,835 at March 31, 2001, is recorded as a component of other comprehensive
income in the accompanying balance sheet.
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 2001 and
2000, the Company capitalized $136,595 and $426,915, 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 12). Amortization expense for fiscal 2001 and 2000 was
$205,026 and $400,225, respectively. This amortization is included in cost of
revenues in the accompanying statements of operations.
All research and development costs are expensed as incurred.
Intangible Assets
Intangible assets consist primarily of acquired technology, customer lists,
skilled workforce and goodwill related to acquisitions accounted for under the
purchase method of accounting. Amortization of these purchased intangibles is
provided on the straight-line basis over the respective useful lives of the
assets, primarily three years. The Company identifies and records impairment
losses on intangible and other assets when events and circumstances indicate
that
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such assets might be impaired. The Company considers factors such as significant
changes in the regulatory or business climate and projected future cash flows
from the respective asset. Impairment losses are measured as the amount by which
the carrying amount of the asset exceeds the fair value of the asset.
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 periodically enters into licenses for its patented technology. These
patent licenses typically result from the settlement of patent infringement
lawsuits that are brought by the Company. Revenues received from these patent
licenses are classified as Other License revenue in the accompanying
consolidated statements of operations.
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 (Loss) Income per Common Share
The Company adopted Statement of Financial Accounting Standard No. 128,
"Earnings per Share," effective December 15, 1998. Basic net (loss) income per
share is the net (loss) income divided by the average number of shares
outstanding during the year. Diluted net (loss) income per share is calculated
as the net (loss) income divided by the sum of the average number of shares
outstanding during the year plus the net additional shares that would have been
issued had all dilutive options been exercised, less shares that would be
repurchased with the proceeds from such exercise. During fiscal year 2001, the
effect of including outstanding options is antidilutive, therefore, options have
been excluded from the calculation of diluted net loss per share.
The computation of diluted net (loss) income per common and common equivalent
share is as follows at March 31:
2001 2000
----------- -----------
Net (loss) income $(1,885,632) $ 2,911,578
Weighted average common shares outstanding 3,900,400 3,274,668
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 3,900,400 3,524,268
----------- -----------
Diluted net (loss) income per common and common equivalent share $ (0.48) $ .83
=========== ===========
The calculation of diluted net (loss) income per common and common equivalent
share does not include 701,842 and 41,025 options and warrants in 2001 and 2000,
respectively, as they are antidilutive.
Reclassifications
Certain reclassifications have been made to the 2000 financial statements to
conform them to the current year's presentation.
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3. MAJOR CUSTOMERS:
During fiscal 2001, one customer comprised approximately 41% of the Company's
total revenue. During 2000, a different customer comprised approximately 63% of
the Company's total revenue. At March 31, 2001, approximately 25% of the
accounts receivable balance was due from the Company's two largest customers. At
March 31, 2000, approximately 34% of the accounts receivable balance was due
from the Company's two largest customers, which were different than the two
customers in 2001.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at March 31:
2001 2000
----------- -----------
Computer equipment $ 832,440 $ 1,625,052
Office equipment 206,977 435,332
----------- -----------
1,039,417 2,060,384
Less-- accumulated depreciation (871,576) (1,794,311)
----------- -----------
Total property and equipment, net of accumulated depreciation $ 167,841 $ 266,073
=========== ===========
5. Accrued Expenses:
Accrued expenses consists of the following:
2001 2000
----------- -----------
Compensation and benefits $ 366,321 $ 211,851
Securities held for others 26,000 170,000
Other 127,927 106,070
----------- -----------
Total accrued expenses $ 520,248 $ 487,921
=========== ===========
6. ACQUISITIONS:
Effective June 30, 2000, the Company acquired Analyst Financials Limited
(Analyst Financials). The total purchase consideration for this acquisition was
$1,862,419 and consisted of 303,814 shares of Timeline common stock with a total
fair market value of $797,525, cash of $20,000 and the assumption of certain
liabilities.
In connection with the Analyst Financials Acquisition, assets acquired and
liabilities assumed were allocated based on estimated fair values of assets and
settlement amounts of liabilities as follows:
Cash $ 29,056
Accounts receivable 496,603
Property and equipment 23,570
Intangible assets 1,032,993
Accounts payable (700,708)
Accrued expenses (63,989)
-----------
Net assets acquired $ 817,525
===========
On December 4, 2000, the Company acquired WorkWise Software Inc. (WorkWise). The
total purchase consideration for this acquisition was $587,144 and consisted of
245,000 shares of Timeline common stock (225,000 shares issued to Oralis.com and
20,000 shares issued to certain WorkWise employees who joined the Company) with
a total fair market value of $497,644, cash paid for transaction costs of
approximately $80,000 and the assumption of certain liabilities.
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In connection with the WorkWise Acquisition, assets acquired and liabilities
assumed were allocated based on estimated fair values of assets and settlement
amounts of liabilities as follows:
Accounts receivable $ 9,750
Property and equipment 7,000
Intangible assets 570,394
Accounts payable (4,000)
Accrued expenses (5,500)
---------
Net assets acquired $ 577,644
=========
Intangible assets acquired in these acquisitions consisted primarily of software
source code, customer contracts, skilled workforce and goodwill. These
intangible assets are being amortized on a straight-line basis over their
estimated useful lives of up to three years.
The following table summarizes the pro forma results of the Company's operations
for the years ended March 31, 2001 and 2000 assuming that the acquisitions
discussed above had occurred as of the beginning of each year. The pro forma
results are presented for the purposes of additional analysis only and do not
purport to present the results of operations that would have occurred for the
periods presented or that may occur in the future.
(Unaudited)
Years Ended March 31,
-----------------------------
2001 2000
----------- -----------
Revenue $ 5,838,580 $11,881,381
Net (loss) income (2,826,148) 1,445,484
Diluted net (loss) income per share (0.68) 0.35
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:
2001 2000
----------- -----------
Net operating loss carryforward $ 2,357,000 $ 1,042,000
Research and experimentation credit 800,000 800,000
Deferred revenues 79,000 126,000
Capitalized software costs (233,000) (223,000)
Other 44,000 45,000
----------- -----------
3,047,000 1,790,000
Less - valuation allowance (3,047,000) (1,790,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
The net operating loss carryforwards of approximately $6,932,000 and research
and experimentation credit carryforwards expire through 2019.
The valuation allowance increased by $1,257,000 during the year ended March 31,
2001 and decreased by $1,016,000 during 2000.
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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 are as follows:
2001 2000
------- -------
Current $ -- $55,507
Deferred -- --
------- -------
Total provision $ -- $55,507
======= =======
Reconciliation of the United States statutory rate to the effective tax rates
follows:
2001 2000
------ -----
Federal income tax (benefit) expense at U.S.
statutory rates (34.0)% 34.0 %
Non-deductible expenses 0.7 % 0.2 %
Alternative Minimum Taxes -- % 1.9 %
(Decrease) Increase in deferred tax valuation allowance 33.3 % (34.2)%
----- -----
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 $19,272 and
$17,424 to the plan during the years ended March 31, 2001 and 2000,
respectively.
9. 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. This loan was repaid in full during fiscal 2000.
During fiscal 2000, the Company applied $104,167 to the ESOP in payment of the
loan. As a result, 19,657 shares of its common stock were issued to the Trust
and allocated to employees, and 7,251 shares of its common stock were retired.
In addition, the Company made matching and discretionary contributions totaling
$105,600 and $100,000 to the ESOP during fiscal 2001 and 2000, respectively.
10. COMMITMENTS AND CONTINGENCIES:
Litigation
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. In
December 2000, the Court issued a Memorandum Decision and Final Judgment in
January 2001 in the lawsuit holding the language of the agreement would support
Microsoft's right to sublicense its customers to use Microsoft's SQL Server by
adding code or software products to it so long as the added code or software
does not itself independently infringe Timeline's patent. The Company has filed
an appeal in the Washington State Court of Appeals. No hearing date has been
set.
In July 2000, the Company filed a lawsuit against Oracle Corporation seeking
monetary damages and injunctive relief. The Company's claims were based on
Oracle's alleged introduction of elements in its product family that
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utilize technology similar to the Company's patented technology licensed to
Microsoft. On June 12, 2001, the Company settled this lawsuit. As part of the
settlement, the Company licensed certain patented technology to Oracle in
exchange for cash and certain other consideration.
From time to time, the Company may pursue litigation against other third parties
to enforce or protect its rights under this patent or its intellectual property
rights generally.
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 these leases as of March 31, 2001:
Fiscal Year ending March 31,
2002 $ 459,651
2003 397,195
2004 385,001
2005 31,178
---------
Total minimum lease payments $1,273,025
==========
Rent expense amounted to $261,969 and $241,269 for the years ended March 31,
2001 and 2000, respectively.
11. STOCKHOLDERS' EQUITY:
Stock Options and Warrants
The Company has two plans: The 1994 Stock Option Plan (the "1994 Plan") and the
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 66,875 shares are available for grant as of March 31,
2001. The exercise price of any options to be granted is typically 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, 2001, the Company had granted options to purchase 240,629 shares of
common stock, including those described in the following paragraphs, which are
not part of these option plans. As of March 31, 2001, 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/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. These options vested in full
during fiscal 2000, and the Company recognized a total of $152,344 in non-cash
compensation expense, which is included as a component of general and
administrative expenses in the accompanying statement of operations.
In February 1999, the Company granted a second performance-based stock option to
the President/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, 2001.
In November 1999, the Company granted a third performance-based stock option to
the President/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, 2001.
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In January 2001, the Company granted a fourth performance-based stock option
under the 1994 Stock Option Plan to the President/CEO to purchase 25,000 shares
of common stock at an exercise price of $1.156 per share. This option will vest
in full when the Company's common stock closes trading at a price of $7.50 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, 2001.
Options outstanding as of each period are as follows:
Weighted
Number of Average
Options Exercise Price
--------- --------------
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 102,500 1.94
Exercised (40,572) .28
Canceled (18,900) 1.98
------- -----
Balance, March 31, 2001 659,842 $1.53
======= =====
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 2001 and 2000, consistent with the
provisions of SFAS No. 123, the Company's net income (loss) and net income
(loss) per common share would have been equal to the pro forma amounts indicated
below:
2001 2000
------------- -------------
Net (loss) income - as reported $ (1,885,632) $ 2,911,578
Net (loss) income - pro forma (1,973,435) 2,831,799
Basic net (loss) income per
common share - as reported (.48) .89
Basic net (loss) income per
common share - pro forma (.51) .86
Diluted net (loss) income per
common share - as reported (.48) .83
Diluted net (loss) income per
common share - pro forma (.51) .80
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 2001 and 2000: zero dividend yield; expected
volatility of 98% and 97%, respectively; risk-free interest rates varying by
grant date between 6.00% and 6.38%; and expected lives of five years. The
weighted-average grant date fair value of options granted during fiscal 2001 and
2000, was $1.49 and $.99, 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.
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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, 2001 is as follows:
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Exercise Number Exercise
Range of Exercise Prices of Shares Life in Years Price of Shares Price
- -------------------------------- --------- ------------- -------- --------- --------
$1.00-$2.88..................... 588,104 8.3 $1.33 313,854 $1.21
$3.57-$6.75..................... 71,738 4.1 3.70 71,738 3.70
------- --- ----- ------- -----
Totals 659,842 7.9 $1.53 385,592 $1.67
------- --- ----- ------- -----
12. 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. This entity was subsequently re-named Analyst
Financials Limited (Analyst Financials). In connection with this sale, 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 Company recorded revenues under
this agreement of $226,207 in fiscal 2000.
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. On June 30, 2000 the Company acquired the remaining
equity of Analyst Financials (see Note 6).
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 received 4,250 shares of Broadbase Software, Inc. common stock
after the transfer restrictions for that stock lapsed in September 2000. The
shareholders also received a cash payment of $130,000 at the date of this
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 for fiscal 2000.
Infinium
In March 1998, in connection with a software development agreement, Infinium
Software, Inc. (Infinium) purchased, non-tradable warrants to acquire up to
300,000 shares of the Company's common stock. In February 2000, Infinium
exercised this warrant in full. Infinium also distributes the Company's software
under a standard distribution agreement. The Company earned revenues of
approximately $232,000 and $239,000 under this agreement in 2001 and 2000,
respectively.
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13. SUBSEQUENT EVENT:
In May 2001, three of the Company's directors loaned the Company a total of
$172,580 to fund operations. These loans bear interest at 12% per annum.
Principal and interest under these loans are due in full either 60 or 90 days
from the execution of the loan, depending on the loan agreement.
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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.................
Prospectus Summary....................
Risk Factors..........................
Use of Proceeds.......................
Selling Shareholder...................
Dividend Policy.......................
Management's Discussion and Analysis..
Business..............................
Management............................
Certain Relationships and Related
Transactions......................
Principal Shareholders................
Description of Securities.............
Market for Common Equity and
Related Shareholder Matters.......
Plan of Distribution..................
Legal Matters.........................
Experts...............................
Index to Financial Statements.........
----------------
UNTIL ________, 2001, ALL DEALERS EFFECTING TRANSACTIONS 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.
225,000 SHARES
TIMELINE, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
June __,2001
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48
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"), contain 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 .. $ 43.59
Accounting fees and expenses ................... $ 8,000.00
Legal fees and expenses ........................ $20,000.00
Miscellaneous expenses ......................... $ 2,500.00
----------
Total ...................................... $30,543.59
==========
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 its products, and
effective December 4, 2000, Timeline acquired all of the outstanding equity of
WorkWise Software, Inc. Upon completion of these transactions, Analyst
Financials and WorkWise became wholly-owned subsidiaries of Timeline. Timeline
completed both transactions on a stock-for-stock basis and issued 303,814 shares
of its common stock to certain shareholders of Analyst Financials, and 225,000
shares of its common stock the sole shareholder of WorkWise. In connection with
the WorkWise acquisition, Timeline agreed to issue up to an aggregate of 25,000
shares of Timeline stock to certain employees of WorkWise who continued as
employees with Timeline.
49
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 Form of Distributorship 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 Patent License Agreement with Oracle Corporation
10.17(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.
10.18(8) Stock Purchase Agreement, dated as of December 4, 2000, by and among Timeline, Inc.
and Oralis.com, Inc.
10.19 Form of WorkWise Reseller Marketing Agreement
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)
- ----------------
(1) Incorporated herein by reference from Item 27 of Company's Registration
Statement on Form SB-2 filed on October 18, 1994.
(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.
(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.
(8) Incorporated herein by reference from Item 7 of the Company's Form 8-K
filed on December 4, 2000, as amended by Form 8-K/A filed on February 20,
2001.
50
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.
51
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 Bellevue, State of Washington, on June 13, 2001.
TIMELINE, INC.
/s/ Charles R. Osenbaugh
---------------------------------------------
Charles R. Osenbaugh, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Charles R. 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 June 13, 2001.
/s/ Charles R. Osenbaugh
------------------------------------
Charles R. 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
/s/ Donald K. Babcock
------------------------------------
Donald K. Babcock
Director
/s/ Kent L. Johnson
------------------------------------
Kent L. Johnson
Director
/s/ Terry Harvey
------------------------------------
Terry Harvey
Director