U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-K

[x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
     ACT OF 1934 For the Fiscal Year Ended December 31, 1999.

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 or 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934 For the transition period from _______ to ______.

                        Commission File Number 0-16376

                        TIMBERLINE SOFTWARE CORPORATION
            (Exact name of registrant as specified in its charter)

                     Oregon                           93-0748489
         -------------------------------           -------------------
         (State or other jurisdiction of           (I.R.S. Employer
         incorporation or organization)            Identification No.)

          15195 N.W. Greenbrier Parkway, Beaverton, Oregon 97006-5701
          -----------------------------------------------------------
              (Address of principal executive offices) (Zip code)

                                (503) 690-6775
              --------------------------------------------------
              Registrant's telephone number, including area code

     Securities registered pursuant to Section 12(b) of the Act: None

     Securities registered pursuant to Section 12(g) of the Act:

                        Common Stock, without par value
                        -------------------------------
                               (Title of class)

Indicate  by check  mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the Securities  Exchange Act of
1934  during the  preceding  12 months (or for such  shorter  period  that the
registrant  was  required to file such  reports),  and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein,  and will not be contained,  to the
best of registrant's  knowledge, in definitive proxy or information statements
incorporated  by reference in Part III of this Form 10-K,  or any amendment to
this Form 10-K. [x]

At March 15, 2000,  12,833,969  shares of common stock of the registrant  were
outstanding. On such date, the aggregate market value of the voting stock held
by non-affiliates of the registrant was $142,352,257.

                      DOCUMENTS INCORPORATED BY REFERENCE

Parts of the  Registrant's  Proxy Statement dated March 22, 2000,  prepared in
connection  with the Annual  Meeting of  Shareholders  to be held on April 25,
2000 are incorporated by reference into Part III of this Report.

<PAGE>

PART I

Item 1.  Business

General

Timberline(R)   Software  Corporation  (the  "Company"  or  "Timberline")  was
incorporated  in  Oregon  in  1979.  Originally  incorporated  under  the name
Timberline Systems,  Inc., the Company changed its name in 1986. The Company's
corporate  headquarters  are located in  Beaverton,  Oregon and it maintains a
home page on the World Wide Web at http://www.timberline.com.

Timberline  develops,  markets,  and supports  accounting and cost  estimating
computer  software  primarily  for the  construction  and property  management
industries.  The  software is  designed to work on stand alone  microcomputers
(commonly  referred  to as  personal  computers  or "PC's") or in a network of
microcomputers. Timberline also provides a range of support services for users
of its software, including annual maintenance and support contracts, classroom
training  at its  corporate  headquarters  and at other  sites  in the  United
States, and on-site training and consulting.

The Company operates predominantly within the United States, but also licenses
its products in other foreign countries, including Australia and Canada. As of
December  31,  1999,  the  Company  believes  that over  23,000  entities  are
currently using the Company's software products, of which more than 12,000 are
currently  subscribing to one of the Company's maintenance and support service
plans.

The Company's  operations  are divided into two operating  segments:  software
products  and  software  services.  For  additional  information  about  these
operating segments,  see Note 8 to the Company's Financial  Statements for the
year ended December 31, 1999.

Software Products

Software license revenue are the main source of the Company's net revenue.  In
1999, 1998 and 1997,  software  license revenue  accounted for 53 percent,  56
percent and 54 percent of net revenue for those years, respectively.

The Company's current software products operate in Microsoft(R) Windows 95(R),
Windows 98(R), and NT(R) operating  environments.  Timberline's  Windows-based
software  products are also compatible  with other Open Database  Connectivity
(ODBC)-compliant applications.  ODBC, a data exchange methodology developed by
Microsoft  that has been  accepted as an industry  standard,  allows  users to
directly  access  information  stored in  Timberline  data  format  with other
databases,  word processing and spreadsheet programs for greater productivity.
The Company believes that the current versions of its  Windows-based  products
are year 2000 compliant.

In 2000, the Company will embed an SQL database engine into its  Windows-based
software  applications.  This will replace the  proprietary  database  that is
currently being used in the software.  With this change, we expect some users,
especially  those  with  many  concurrent  users  on  the  software,  to see a
significant increase in the performance of the software.  All users should see
a much improved integrity of the database.

The Company also currently maintains certain software products that operate in
the MS-DOS(R)  operating  environment.  As a result of the introduction of its
Windows-based  software  products,  the Company  generally  does not offer its


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<PAGE>

MS-DOS-based  software products for sale to new users, but primarily maintains
these products for existing users of the software.  The Company  believes that
the current  versions of its  DOS-based  products  that are  maintained by the
Company are also year 2000 compliant.

The Company has two main  software  product  groups:  Accounting  (composed of
construction  and  property  management  software)  and  Estimating.  Prior to
October  1996,  the  Company  also sold  software  specifically  designed  for
architectural and engineering firms.

In  July  1999,  the  Company  announced  plans  to  offer  software  for  the
construction  project  management  market.  Because the project  manager's job
encompasses both accounting and estimating functions as well as strict project
management  functions,  Timberline  will be able to  offer a fully  integrated
solution  that takes into  account all of these  functions to  streamline  the
project  management  process.  The Company is in the process of developing the
project management software and integrating it with its current accounting and
estimating  software  applications.  The Company believes that it will release
this software by 2001.

Accounting  Product Group Software

The Company's  Accounting Group software is accounting  software  designed for
use in the  construction  and  property  management  industries.  This group's
software  license  revenue  accounted  for over 70  percent  of the  Company's
software license revenue in 1999, 1998 and 1997.

Timberline's  construction  accounting software products are composed of three
different  levels of  software.  The  Medallion(R)  line of software was first
released in 1984 and operates only in the MS-DOS  operating  environment.  The
Medallion line was designed  specifically for the home  builder/remodeler  and
small to medium-sized general and specialty contractors.

Due  to  the  popularity  of  the  Windows   environment   and  the  Company's
introduction of Gold  Collection(TM) - Standard Edition software in June 1996,
as  discussed  below,   Medallion   software  license  revenue  has  decreased
significantly since that date and is no longer a significant source of revenue
to the  Company.  The Company  generally  does not offer this line of software
products  for sale to new users.  However,  the Company  continues to maintain
this  software and generates  maintenance  and support fees from users of this
line of software.

Gold  Collection - Extended  Edition was released in October 1992 and operates
in the  Windows  operating  environment.  This line of software  was  designed
specifically  to handle the accounting and  management  information  needs for
medium to  large-sized  construction  companies  and for other users with more
advanced  accounting  and  management  information  requirements.  The Company
believes that it was the first major software  company to develop software for
construction  companies  utilizing  the advanced  capabilities  of the Windows
operating environment.

In June 1996,  the Company  released Gold Standard,  an integrated  accounting
management  system  for  the  small  to  medium-sized  construction  companies
developed to work with  Microsoft  Windows 95. The  software was  developed to
give the Company's  Medallion  users an upgrade path to take  advantage of the
technology that is now available and to address a segment of the  construction
market which needed an accounting and management  information system that used
state-of-the-art   technology,   without  the  additional   advanced  features
available in and added expense of the Gold Extended software products.



                                      3
<PAGE>

All  three   levels  of   software   are   designed   around  a  core  set  of
accounting-oriented  applications (such as General Ledger, Job Cost,  Accounts
Payable,  Accounts Receivable and Payroll).  Additional features were added to
the software to meet the  industry-specific  needs of construction  companies.
The various applications are fully integrated,  allowing for data entered into
one  application  to be  accessed  and  entered  electronically  into  another
application.  Gold  Standard and Gold Extended  have  additional  features and
capabilities for users with more complex needs,  including  executive  inquiry
and customized summary reporting capabilities.

An Equipment Cost software  application  for Gold Extended was released at the
end of 1995 and is also  available  for Gold  Standard.  This  application  is
critical to equipment-intensive  construction  companies.  With the release of
this  application,  Timberline  believes it is able to meet the accounting and
management  information needs of the heavy/highway segment of the construction
industry.

The Company released its Accounts Receivable and Contracts software product in
December  1997  and its  Billing  software  product  in May  1998 for its Gold
Extended and Standard product lines. These are applications that the Company's
current  users and  prospective  users have been  requesting  that the Company
develop  since Gold  Extended  was  initially  released  in 1992.  The Company
believes that these  applications will attract new users to Timberline because
the Company is now able to provide a more complete  accounting  and management
information solution.

Commencing in 2000, the Company released a Purchase  Order/Inventory  software
application  and plans to offer a  Service  Billing  application  later in the
year. These  additional  applications,  bundled with its current  construction
accounting  applications,  will  allow  the  Company  to meet the needs of the
specialty contractors,  such as the plumbing, painting,  electrical,  roofing,
siding, heating and air conditioning companies.  The specialty contractor area
is a significant segment of the construction industry for which Timberline has
not been able to provide a complete accounting  solution,  but will be able to
do so when the Service Billing application becomes available.

The Company's  property  management  software is an accounting  and management
information system used by managers of residential and commercial  properties.
It provides  information to property managers  regarding revenues and expenses
of various properties and generates  financial reports about the properties to
the  various  owners,  as well as reports  containing  other  tenant and lease
information about the properties. In March 1997, the Company released its Gold
Collection for Property Management,  lease-based  accounting software designed
to  work  on  Microsoft  Windows  95,  Windows  98  and NT  platforms.  Unlike
traditional,   tenant-based  or  unit-based  software  programs,  Timberline's
software is designed to focus on the lease document  itself,  which allows the
software to adapt to many various  types of lease  arrangements.  Prior to the
release of this suite of software applications, the Company's software for the
property  management industry was Property Management Gold, which was designed
to work on IBM(R) OS/2(R) and Microsoft  Windows NT platforms.  The Company no
longer offers this line of software to new users since the release of the Gold
Collection for Property Management.

In July 1998, the Company  announced  that it had formed a marketing  alliance
with invata  international,  inc.  (invata),  a company  that  specializes  in
computerized  maintenance  management  software.  Under this alliance,  invata
would develop  software that will  interface  directly with the Company's Gold


                                      4
<PAGE>

Collection  for Property  Management to help property  managers  control their
maintenance  operations.  This software was released for  distribution  in the
first quarter of 1999. In October 1999,  the Company  purchased  this software
product from invata.

Estimating Product Group Software

Estimating  software  allows an  estimator  to  compile a bid on  construction
projects  based  on  certain  parameters  such  as the  architectural  design,
building materials required and material and labor costs. In 1987,  Timberline
introduced  the Precision  Collection(R),  a family of  integrated  estimating
software  applications.  The Precision Collection is currently designed around
two core  estimating  products - Precision  Estimating - Standard  Edition and
Precision  Estimating  -  Extended  Edition.  Precision  Estimating  Standard,
released  in June 1996,  replaced  the  Company's  older  entry and  mid-level
DOS-based estimating products.  Designed specifically for Microsoft Windows 95
and Microsoft  Windows NT platforms,  this estimating  software is designed to
allow an  estimator  to make fast,  accurate  estimates  on software  that the
Company believes is fairly easy to learn and to use, while taking advantage of
Windows-based   technology.   Precision  Estimating  Extended  offers  a  more
comprehensive and sophisticated  approach to the estimating process,  from the
first conceptual  estimate to the final bill of materials.  In September 1997,
the  Company  released  a  completely  re-designed,  Windows-based  version of
Precision Estimating Extended to replace the older DOS version. This new group
of  software  products  is fully  interoperable  with the  Precision  Standard
products.

To complement  its  estimating  software  products,  the Company also licenses
databases and other  software it has developed and those  developed by others,
which allow estimators to be more productive and to develop more comprehensive
estimates.  The core estimating product also interfaces with the Company's Job
Cost accounting application.  Through interfaces developed by Timberline,  the
core estimating  product can be linked to Autodesk's  AutoCAD(R)  applications
and to scheduling software developed by Microsoft and Primavera Systems, Inc.

In the  first  part of 2000,  the  Company  plans to  release  Precision  Palm
Estimating,  its first application for hand-held  personal digital  assistants
(PDA's).  This will  enable  estimators  to use a PDA to take off key  project
information at the job site and then synchronize the device with the Company's
desktop estimating software to quickly generate a detailed estimate.

Support Services

The Company  generates a  significant  portion of its net revenue from service
fees.  Services  fees  consists  primarily of  maintenance  and support  fees,
classroom  training fees, sales of training  materials and on-site  consulting
fees.

Users of the Company's software may purchase  maintenance and support services
from the Company.  These annual service plans allow the user to obtain program
changes and  enhancements as they are released and to obtain  telephone access
to the Company's customer support department for answering application-related
questions.  Commencing in 1998, users on maintenance and support service plans
also have  internet  access to  online  support  help  available  through  the
Company's home page on the World Wide Web. Through this service,  users have a
24-hour-a-day  communication and information tool for self-help services, such
as downloading latest versions of software,  updates and software patches, and
access  to a  knowledge  base to  obtain  answers  to most  commonly  answered
questions.



                                      5
<PAGE>

The Company also  generates  fees from training  classes to teach users how to
efficiently  setup and use the Company's  software  products.  The classes are
generally held throughout the year at the Company's corporate  headquarters or
near  its  offices  in the  New  York  and  Los  Angeles  metropolitan  areas.
Commencing  in the latter part of 1998,  the Company  curtailed  the number of
training  classes it offered as the  Company's  independent  reseller  channel
assumed a more active role in providing training classes to users in their own
geographic areas. To maintain a high, consistent standard of training to users
of  Timberline  software and to assist the  resellers in  conducting  training
classes,  the Company developed a curriculum of training  materials to be used
at all Timberline  software  classes.  The Company  generates revenue from the
sale of these training materials to its reseller channel.

The Company also offers consulting  services to users who need or request more
specialized  assistance in the set-up and use of Timberline software. In these
situations,  the Company's  consulting  services  group provides such services
on-site  at the  user's  offices.  Requests  for such  services  are  received
directly  from  the user or from  referrals  from  the  Company's  independent
reseller channel. In certain circumstances, the Company may sub-contract these
consulting services to a group of Timberline-certified consultants. This group
is composed of  independent  third party  providers  who have met or surpassed
standards  imposed by the Company of their  knowledge in  Timberline  software
products,   industry   knowledge,   accounting   and   estimating   expertise,
communication skills and other relevant factors.

Service fees are a significant  percentage of the Company's total net revenue.
In 1999, 1998, and 1997, service fees comprised 44 percent,  41 percent and 44
percent,  respectively,  of total net  revenue.  Maintenance  and support fees
accounted  for over 75 percent of the  Company's  service fee revenue in those
years. The Company is committed to maintaining a high level of quality related
to its  support  services.  At the end of 1999,  39 percent  of the  Company's
employees were directly associated with providing client services.

Sales/Distribution

The Company licenses its software products and sells its services primarily in
the United  States.  The Company  also  licenses its  software  products  into
Canada, Australia, and other foreign countries. Revenue from foreign countries
has not been  significant,  comprising  less than six percent of the Company's
total net revenue in 1999, 1998 and 1997.

Product  distribution  is  primarily  handled  by value  added  resellers  and
distributors.  The Company also  maintains a direct sales force to  complement
its reseller channel and to handle sales to national  accounts and other large
companies.

Timberline maintains a telemarketing staff for selling maintenance and support
service contracts and classroom  training to its user base. On-site consulting
fees are generated  from requests for services from the users and resellers to
the Company's sales and client services staff.

Unfilled  orders for software  products at December 31, 1999 and 1998 were not
significant.  The Company  typically ships software products within three days
of receipt of the order.

Production

The principal materials and components used in the Company's software products
are computer media and user manuals.  For each product,  the Company  prepares


                                      6
<PAGE>

masters of the software on CD-ROM's.  Substantially all copies of the software
are made by outside  vendors.  The Company  also relies on outside  vendors to
provide other software-related materials and shipping services.

Competition

The software market is highly competitive and subject to change because of the
rapid technological  changes in the computer industry.  The number of software
vendors  with which the Company  competes  varies from  product to product and
from region to region within the United States.  The Company  believes that it
is the major supplier of  construction  accounting and estimating  software in
the  construction  industry  and  is  also  one of the  leading  suppliers  of
accounting  and  management  information  software in the property  management
industry.  The  Company  believes  that there are  barriers  to entry into its
segment of the software market. First, the sophisticated  programs it develops
require a wide range of programming specialization. In addition, the nature of
the  software  requires  a company  of a  certain  size  able to  support  the
software,  including  distribution  and training  capabilities  in a number of
geographical  regions as well as continuing support,  maintenance and upgrades
of  the  software.   However,  should  a  decision  be  made  by  the  larger,
better-known  software  developers  to enter this segment of the market,  such
competitors  are  considerably  larger,  more  diversified,  and have  greater
financial and other  resources and enjoy greater brand  recognition  for their
products than the Company.

The Company  believes  that its  emphasis on producing  high quality  software
products  that are flexible and  user-friendly  enables the Company to compete
effectively.  In addition,  the Company  believes it provides very  responsive
customer support service to its end users, which enhances the marketability of
its products.

Product Protection

The Company  regards its software as proprietary and attempts to protect it by
relying upon copyrights,  trade secret laws, internal nondisclosure agreements
and  transferability  restrictions  incorporated  into  its  software  license
agreements.  The Company  provides  its  software  products  under a perpetual
paid-up license  agreement.  Title does not transfer to the customer.  Program
source listings are not released,  which the Company believes further protects
unauthorized  transfers of the Company's proprietary  information,  as well as
the  confidentiality  of the Company's trade secrets.  The Company also uses a
combination of software  programming  and hardware  devices to protect some of
its products from unauthorized use or duplication. Despite these restrictions,
it may be possible for  competitors  or users to copy aspects of the Company's
products or to obtain  information  which the Company  regards as proprietary.
The  Company has no  software  patents.  Although  the  Company's  competitive
position  may be adversely  affected by  unauthorized  use of its  proprietary
information,  the Company believes that the rapid pace of technological change
in the  computer  industry  makes  intellectual  property  protection  of less
significance  than such factors as the knowledge and  experience of management
personnel and the Company's  ability to develop,  enhance,  support and market
its products.

Third parties may assert infringement or other claims against the Company with
respect  to any  existing  or  future  products.  Litigation  to  protect  the
Company's  proprietary  information  or  to  determine  the  validity  of  any
third-party  claims  could  result in  significant  expense to the Company and
divert the  efforts  of the  Company's  technical  and  management  personnel,
whether or not such litigation is determined in favor of the Company.



                                      7
<PAGE>

Research and Development

Timberline  is  continually  in the process of  developing  new  software  and
enhancing its existing  software  products in order to meet the changing needs
of its current  users and the  marketplace.  At the end of 1999, 36 percent of
the Company's  employees were directly  associated  with product  development.
Product development expenses were $10,624,000,  $8,863,000,  and $7,264,000 in
1999, 1998 and 1997, respectively. Of that total, $9,325,000,  $7,822,000, and
$6,222,000 were incurred in 1999, 1998 and 1997, respectively, on research and
development on new software products. An additional $1,465,000,  $173,000, and
$927,000,  respectively,  of  product  development  expenses  on new  software
products were capitalized in those same years.

Employees

At  December  31,  1999,  the  Company  had 408  employees,  of which 380 were
full-time.  None of the employees  are  represented  by unions,  or subject to
collective bargaining. Timberline's business is heavily dependent on retaining
and attracting highly skilled employees.  As such, the Company has an employee
benefits program that includes group health,  dental,  vision,  disability and
life insurance  plans,  paid  vacations and holidays,  leave  privileges,  and
educational  reimbursement.  The  Company  also has a pension  plan  under the
provisions of section 401(k) of the Internal Revenue Code in which the Company
is currently matching a certain  percentage of the employee's  contribution to
the plan, and a profit sharing plan covering all employees.  Additionally, the
Company  has stock  option and stock  incentive  plans from which it may grant
stock options and  incentives to its employees.  In 1999, the Company  granted
stock  options to  substantially  all  employees  and plans to  continue  this
practice  in the  future.  The  Company  believes  its  relationship  with its
employees is good.

Item 2.  Properties

In October 1998, the Company moved into its new corporate headquarters located
in Beaverton, Oregon. Nearly all of the Company's employees and operations are
located in this 89,000 square foot office and production  facility,  which was
constructed  by the  Company  on land  it  purchased  in  1997.  Prior  to the
construction  of its new corporate  headquarters,  the Company's  main offices
were in a leased 51,000  square foot office and  production  facility  located
close to its present  location.  The lease on that facility expired in October
1998. The Company also leases an additional 12,000 square feet of office space
near its  former  location,  which was  initially  used to locate  part of the
Company's operations as it outgrew its former main office facility.  The lease
on this office space  expires in April 2003 and is currently  being  subleased
for the balance of the lease term.

The  Company  also  leases  small  regional  offices  under  short-term  lease
arrangements for some of its sales,  consulting and training  functions in the
following  metropolitan  areas:  Los Angeles,  CA; New York, NY; Concord,  NC;
Nashville, TN; and Jacksonville, FL.

In March 2000,  the Company  opened up it first  regional  office  outside the
United States in Sydney, Australia.

The Company  believes  that its corporate  headquarters  and all of its leased
facilities  are modern  facilities in good  condition and are adequate for its
immediate  needs.  Should  additional  office space be  required,  the Company
believes  it has the  ability  to  construct  additional  office  space on its
corporate properties where it currently maintains its corporate headquarters.




                                      8
<PAGE>

Item 3. Legal Proceedings

From time to time,  the Company is involved in  litigation  relating to claims
arising out of its operations in the normal course of business. As of the date
of this  Report,  the  Company  is not a party to any  legal  proceedings  the
adverse  outcome of which  would,  in  management's  opinion,  have a material
adverse effect on the Company.

Item 4. Submission of Matters to a Vote of Security Holders

None.



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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The  Company's  common stock is traded on the Nasdaq  National  Market  System
under the symbol TMBS.  The high and low closing prices are as reported by the
Nasdaq National Market System. The prices have been retroactively  adjusted to
reflect the four-for-three stock splits in November 1999 and 1998.

                               1999                              1998
                     -----------------------            ----------------------
                       High             Low               High           Low

First Quarter        $ 12.84         $  8.53            $ 10.27         $ 6.86
Second Quarter         14.44            8.81              13.78           8.44
Third Quarter          14.77           11.67              15.26           7.88
Fourth Quarter         15.38           11.48              11.25           8.65

As of March 15, 2000,  there were 348  shareholders of record.  Based upon the
number of  requests  for the  Company's  proxy  material  for its 2000  annual
meeting of shareholders,  the Company believes there were approximately  8,300
beneficial  shareholders as of that date. Cash dividends paid in 1999 and 1998
amounted (in thousands) to $1,675 and $1,236, respectively.

Item 6.  Selected Financial Data

(Amounts in thousands, except per share amounts and percentages)

                                     Year ended December 31,
                           -------------------------------------------
                              1999    1998     1997    1996     1995
----------------------------------------------------------------------
Net revenue:
  Software license fees      $29,291  $24,786  $18,928 $14,983  $13,435
  Service fees                24,176   18,197   15,354  12,956   10,927
  Other                        1,647    1,310      958     720      457
-----------------------------------------------------------------------
  Net revenue                 55,114   44,293   35,240  28,659   24,819
Cost and expenses             39,762   33,518   28,740  26,004   22,731
-----------------------------------------------------------------------
Operating income              15,352   10,775    6,500   2,655    2,088
Other income - net               749      531      470     399      359
-----------------------------------------------------------------------
Income before income taxes    16,101   11,306    6,970   3,054    2,447
Provision for income taxes     5,907    4,112    2,435     870      714
-----------------------------------------------------------------------
Net income                   $10,194  $ 7,194  $ 4,535 $ 2,184  $ 1,733
=======================================================================
Basic earnings per share     $  0.80  $  0.58  $  0.37 $  0.18  $  0.15
Diluted earnings per share   $  0.78  $  0.56  $  0.36 $  0.17  $  0.14
=======================================================================
Cash dividends declared      $ 1,675  $ 1,236  $   833 $   625  $   377
Dividends per share             0.13     0.10     0.07    0.05     0.03
Total assets                  50,347   41,549   25,754  18,042   14,385
Long-term debt                     -    5,417        -       -        -
Shareholders' equity          30,167   20,036   13,266   8,915    6,361
Working capital                8,702    5,500    4,339   1,325    3,894
Current ratio                   1.47     1.37     1.38    1.16     1.51
=======================================================================


                                      10
<PAGE>

Item 7.  Management's  Discussion  and  Analysis of  Financial  Condition  and
         Results of Operations

Forward-Looking Statements

This  report  includes  forward-looking   statements.  The  words  or  phrases
"anticipates," "believes," "expects," "intends," "will continue," "estimates,"
"plans,"   "projects,"  or  similar   expressions  are  intended  to  identify
"forward-looking  statements"  within the  meaning of the  Private  Securities
Litigation Reform Act of 1995.

     The Company's  forward-looking  statements  are subject to certain risks,
trends, and uncertainties including, without limitation, delays in new product
releases,  delays in acceptance of the Company's  products in the marketplace,
failures by the Company's  outside vendors to perform as promised,  changes in
the software  operating systems for which the Company's  products are written,
increased competition and changes in general market conditions.  These factors
are discussed in further detail below under "Risks and Uncertainties."  Should
any one or more of these  risks or  uncertainties  materialize,  or should any
underlying  assumptions  prove  incorrect,  actual results may vary materially
from those  discussed  herein as expected,  believed,  estimated,  intended or
anticipated.  The  Company  undertakes  no  obligation  to revise or  publicly
release the results of any revision to these forward-looking statements.

The Company

Timberline Software Corporation develops, manufactures and licenses accounting
and cost  estimating  computer  software  primarily for the  construction  and
property management industries.  The Company also provides related services to
its users,  including annual  maintenance and technical support service plans,
on-site  consulting  services,   and  training.   Over  twenty-three  thousand
companies use one or more of the Company's software products.

Results of Operations

The  Company's  results of operations  for the years ended  December 31, 1999,
1998 and 1997 and the  changes  on a year over year  comparison  are set forth
below:

<TABLE>
<CAPTION>
                                                                Increase          % Increase
                                                            -----------------   --------------
                                 Year ended December 31,      1999      1998      1999    1998
                               -------------------------       vs.       vs.       vs.     vs.
                                 1999     1998      1997      1998      1997      1998    1997
-----------------------------------------------------------------------------------------------
<S>                            <C>       <C>       <C>       <C>       <C>        <C>     <C>
Net revenue:
  Software license fees        $29,291   $24,786   $18,928   $ 4,505  $ 5,858     18.2%   30.9%
  Service fees                  24,176    18,197    15,354     5,979    2,843     32.9%   18.5%
  Other                          1,647     1,310       958       337      352     25.7%   36.7%
-----------------------------------------------------------------------------------------------
  Net revenue                   55,114    44,293    35,240    10,821    9,053     24.4%   25.7%
-----------------------------------------------------------------------------------------------
Cost and expenses:
  Cost of revenue                4,793     3,909     3,605       884      304     22.6%    8.4%
  Client services               10,353     8,496     6,744     1,857    1,752     21.9%   26.0%
  Product development           10,624     8,863     7,264     1,761    1,599     19.9%   22.0%
  Sales and marketing            8,451     6,916     6,351     1,535      565     22.2%    8.9%
  General and administrative     5,541     5,334     4,776       207      558      3.9%   11.7%
-----------------------------------------------------------------------------------------------
  Total cost and expenses       39,762    33,518    28,740     6,244    4,778     18.6%   16.6%
-----------------------------------------------------------------------------------------------
Operating income                15,352    10,775     6,500     4,577    4,275     42.5%   65.8%
Other income                       749       531       470       218       61     41.1%   13.0%
-----------------------------------------------------------------------------------------------
Income before income taxes      16,101    11,306     6,970     4,795    4,336     42.4%   62.2%
Provision for income taxes       5,907     4,112     2,435     1,795    1,677     43.7%   68.9%
-----------------------------------------------------------------------------------------------
Net income                     $10,194   $ 7,194   $ 4,535   $ 3,000  $ 2,659     41.7%   58.6%
===============================================================================================

</TABLE>



                                      11
<PAGE>

The following table presents the Company's  operating statement data expressed
as a percentage of net revenue for the years indicated:

                                                     Year ended December 31,
                                               --------------------------------
                                                  1999        1998        1997
-------------------------------------------------------------------------------
Net revenue:
  Software license fees                           53.1%       56.0%       53.7%
  Service fees                                    43.9%       41.1%       43.6%
  Other                                            3.0%        2.9%        2.7%
-------------------------------------------------------------------------------
  Net revenue                                    100.0%      100.0%      100.0%
-------------------------------------------------------------------------------
Cost and expenses:
  Cost of revenue                                  8.7%        8.8%       10.3%
  Client services                                 18.8%       19.2%       19.1%
  Product development                             19.3%       20.0%       20.6%
  Sales and marketing                             15.3%       15.6%       18.0%
  General and administrative                      10.0%       12.1%       13.6%
-------------------------------------------------------------------------------
  Total cost and expenses                         72.1%       75.7%       81.6%
-------------------------------------------------------------------------------
Operating income                                  27.9%       24.3%       18.4%
Other income                                       1.3%        1.2%        1.4%
-------------------------------------------------------------------------------
Income before income taxes                        29.2%       25.5%       19.8%
Provision for income taxes                        10.7%        9.3%        6.9%
-------------------------------------------------------------------------------
Net income                                        18.5%       16.2%       12.9%
===============================================================================


NET REVENUE.  Both major components of net revenue,  computer software license
and service fees, increased in 1999 and 1998 over the previous years. Computer
software  license fees increased in all the Company's  product lines. In 1999,
Accounting software license fees, which account for 72% of the Company's total
software license fees, increased 14% over 1998 and Estimating software license
fees, which account for 28% of total software license fees, increased 30%. The
increase in Accounting  software license fees was primarily due to an increase
in fees  generated  from the Company's  Gold  Collection(R)  for  Construction
Accounting.  The Company  believes  this  increase was  primarily due to three
factors: the continued strength in the construction  industry,  the increasing
dominance  of our  products  in our  targeted  markets,  and the  need by many
companies to upgrade or replace  their  existing  software  which was not year
2000  compliant.  However,  the latter  factor  also had a negative  impact on
license  fees during the latter part of 1999,  as the  Company  believes  some
companies  deferred their decisions to acquire new software until 2000.  There
were also no significant new software products released in 1999 that increased
license fees as there were in 1998. Estimating software license fees increased
in 1999 primarily due to one software  licensing  arrangement during the first
quarter  of  1999,  which  was the  single  largest  software  license  in the
Company's history.

     In 1998, Accounting software license fees, which accounted for 75% of the
Company's total software license fees,  increased 37% over 1997, primarily due
to the  increase  in  license  fees from the  Company's  Gold  Collection  for
Construction Accounting.  The increase was primarily due to the factors stated
above for 1999. In addition,  the increase in Accounting software license fees
was due to the release of new software  products which were not available,  or
available  for only part of the year,  in 1997.  These  products  include  the
Accounts  Receivable  product,  released in December  1997, the Billing module
released  in  May  1998,  and  the  Company's  Gold  Collection  for  Property
Management, which was released in March 1997. Estimating software license fees
accounted  for 25% of the  Company's  total license fees in 1998 and increased
17% over the previous  year.  The Company  believes this increase was also due
primarily  to  the  continued  strength  in  the  construction   industry  and
additional license revenue from the Company's Precision Collection(R) Extended
Edition, which was released in September 1997.


                                      12
<PAGE>

In terms of revenue mix,  software license fees accounted for 53%, 56% and 54%
of net revenue in 1999, 1998 and 1997,  respectively.  A large majority of the
Company's  software  license revenue is from the United States.  International
(non-U.S.)  software  license fees, as a percentage of total software  license
fees, remained constant at 6% for 1999, 1998 and 1997.

     Service fees are comprised  primarily of fees from annual maintenance and
technical support service plans and fees for consulting and training.  Service
fees in 1999 increased significantly over 1998 primarily due to an increase in
fees from annual  maintenance and technical  support service plans.  Fees from
these service plans, which account for over 78% of the Company's total service
fees in 1999,  increased  35%,  primarily due to the increase in the Company's
user base through new product sales, the revision in the pricing structure for
these  plans which was  instituted  during the first  quarter of 1998,  and an
increase in the percentage of users  renewing their annual service plans.  The
Company also believes the increase is due to a higher quality of service being
provided  to  its  users  as a  result  of a  significant  re-engineering  and
restructuring  of the  way it  provides  telephone  support.  Consulting  fees
increased 55% over the prior year.  Although  consulting  fees are not a large
portion of our business  yet,  the Company has targeted  this area as a source
for future growth.  Training fees remained  essentially  flat because,  in the
latter part of 1998, the Company  transferred  the primary  responsibility  of
holding training classes for users to its independent resellers. The reduction
in training revenue was offset by increased sales of training materials.

     For 1998,  the increase in service fees over 1997 was also  primarily due
to the increase in fees from annual  maintenance  and support  services plans.
Fees from these service plans,  which  accounted for 77% of total service fees
in 1998,  increased  14% due to an increase in new users and a price  increase
for these plans.  Consulting fees increased 22% over the prior year.  Training
fees  increased 52% in 1998 over 1997 primarily due to an increase in training
material  sales  to its  resellers,  who  are  taking  a more  active  role in
conducting training classes in their geographical area.

COST OF REVENUE. Cost of revenue consists primarily of software documentation,
assembly  and  shipping   costs,   royalties   paid  to  outside   developers,
amortization of capitalized software development costs, and cost of facilities
and outside  services for training and consulting.  Cost of revenue  increased
significantly  in 1999 over 1998, but as a percentage of net revenue  remained
constant  at 9%. The  increase  in the dollar  amount for cost of revenue  was
primarily due to higher costs related to software license and consulting fees.
These  fees  increased  significantly  in 1999  over  1998.  In 1998,  cost of
revenue,  as a percentage of net revenue,  declined  slightly  from 1997.  The
decrease in this  percentage was primarily due to lower costs  associated with
software  license fees and lower costs  associated  with  software  release to
users on annual  software  maintenance  plans.  This was  partially  offset by
increased costs for amortization of capitalized  software  development  costs,
royalties and training costs.

OPERATING  EXPENSES.  Operating  expenses  amounted to $34,969,  $29,609,  and
$25,135 in 1999, 1998 and 1997, respectively.  These expenses increased 18% in
both 1999 and 1998 over the previous  year.  However,  as a percentage  of net
revenue, they declined to 63% in 1999 from 67% in 1998 and 71% in 1997.

     Expenses  for  client  services   (previously  titled  customer  support)
increased in 1999 over 1998 primarily due to two factors. About a third of the
increase was due to an increase in personnel  costs for performing  consulting
services,  for which the Company's revenue from this service grew 55% in 1999.
The remainder of the increase is primarily  related to higher  personnel costs
required to retain and hire highly-qualified  technical support specialists to
handle the telephone  support  volume and outside costs incurred to assist the
Company in re-engineering  and restructuring the support  organization to make
it more  efficient.  Call volume in 1999 increased about 33% over the previous
year,  while  support  staff  dedicated to this  function has remained  fairly
constant.  As a percentage of service fees, client services expenses decreased
to 43% in 1999 from 47% in 1998.

      In 1998, client services expenses  increased over 1997 due to additional
personnel  hired to handle the  increased  demand for  support,  training  and
consulting  services  as a result  of the  continued  increase  in  Accounting
software  license  fees.  As a percentage  of service  fees,  client  services
expenses increased to 47% in 1998 from 44% in 1997.

     Product   development   expenses  represent  expenses  for  research  and
development  on new  software  products  as well as  enhancements  and ongoing
updates  to  the  Company's  existing  software  products.  In  1999,  product


                                      13
<PAGE>

development expenses increased over 1998 primarily due to additional personnel
hired to  develop  and  design  new  enhancements  on  ongoing  updates to the
Company's  existing  software  products as well as research on future software
products.  The  increase  in  expenses  was  also  due to the  use of  outside
developers  to assist the Company in its  development  efforts.  In 1998,  the
increase  in  product  development  expenses  over 1997 was  primarily  due to
additional personnel hired not only for designing and developing  enhancements
to the Company's software products and research on new products,  but also for
the  testing  of  such  enhancements.   Additionally,   capitalized   software
development  costs,  which reduce the amount of product  development  expenses
recognized,  amounted  to $173 in 1998  compared  to $927 in 1997.  This would
account for nearly 47% of the increase in 1998 over 1997.

     The  Company  is  working  on a number of  enhancements  to its  existing
product  line, as well as new products.  In July 1999,  the Company  announced
that  it will  enter  the  project  management  market.  The  Company  is also
developing  new products and  enhancements  to its current  products which are
web-enabled and will facilitate e-commerce. Consequently, the Company believes
that it will continue to commit a significant  amount of its resources  toward
product development in 2000.

     Sales and marketing  expenses in 1999 increased  significantly over 1998,
but as a percentage  of net revenue,  declined  slightly  from a year ago. The
increase was primarily due to an increase in personnel and trade show costs in
the  marketing  area,  increased  sales  commissions  related to the Company's
direct sales, and an increase in international  marketing  expenses.  In 1998,
sales and marketing  expenses  increased  modestly over 1997's level, but as a
percentage of net revenue,  declined from the previous  year.  The increase in
these expenses was primarily due to increased advertising and trade show costs
and to a lesser extent,  international  marketing activities.  The increase in
marketing  expenses  was  partially  offset  by a  slight  reduction  in sales
expenses.

     General and  administrative  expenses in 1999 increased slightly from the
previous  year,  but declined as a percentage of net revenue.  The increase in
expense is primarily due to higher amortization expense,  primarily related to
the Company's new  information  system which became  operational  in September
1999, and an increase in outside service costs,  including insurance and legal
costs. The increase in these costs was partially offset by the absence in 1999
of moving  costs the Company  incurred in 1998  related to the move to its new
corporate offices.  General and administrative expenses in 1998 increased over
1997 primarily  because of these moving expenses and higher  insurance,  legal
and other professional service costs. However, as a percentage of net revenue,
general and administrative expenses declined from its 1997 level.

OTHER  INCOME  (EXPENSE).  Other income  (expense)  is  primarily  composed of
interest income on cash and cash equivalents and temporary investments.  Other
income  increased  significantly  in 1999  over  1998  due to the  significant
increase in investable funds.  Interest income increased slightly in 1998 over
1997.  During  1998,  the  Company  used a portion of its  investable  cash to
finance the construction of its new corporate offices.

PROVISION FOR INCOME TAXES. The Company's  effective tax rate was 37%, 36% and
35% in 1999,  1998 and 1997,  respectively.  The slight  increase in this rate
year over year is  primarily  due to the  increase  in the  Company's  pre-tax
earnings  and a slight  reduction  in the effect of the research tax credit on
its effective tax rate.

Liquidity and Capital Resources

The Company  generally  meets its liquidity  needs through cash generated from
operations.  Net cash provided by  operations  was $16,763 in 1999 compared to
$12,297  and  $8,686  in 1998 and 1997,  respectively.  The  increase  in cash
provided by  operations  in 1999 and 1998 was  primarily  due to the increased
profitability in the Company's operations. Working capital increased to $8,702
at December  31, 1999 from $5,500 at December  31, 1998  primarily  due to the
increase in cash and cash  equivalents  and  temporary  investments.  This was
partially offset by an increase in deferred revenues, as discussed below.

     The Company's financial position continues to be very strong. The Company
has no long-term  debt. Cash and cash  equivalents  and temporary  investments
amounted to $20,380 at December 31, 1999 and  represent  40% of the  Company's
total assets.  These cash  resources  have  increased  $6,420 since the end of
1998, primarily due to the increase in cash provided by operations and despite
the  repayment of $5,500 in the first quarter of 1999 on a  construction  loan


                                      14
<PAGE>

related to its new corporate  offices.  Accounts  receivable - net at December
31, 1999  decreased  slightly  since the end of 1998 and the DSO's (Days Sales
Outstanding)  in  accounts  receivable  declined  to 30  days  from 34 days at
December 31, 1998.

     While net property and  equipment  remained  about the same at the end of
1999 compared to 1998, purchased software increased $1,353 in 1999 due to cost
incurred for the Company's new information  system and the purchase in October
1999 of a software product for the Company's Property Management product line.
Capitalized  software  costs  increased  $884 during  1999,  primarily  due to
development  costs incurred and other  capitalized  costs incurred to embed an
SQL database engine into the Company's software products.

     Deferred revenues increased $3,373 during 1999 to $13,725 at December 31,
1999.  It  is  composed   primarily  of  billings  related  to  the  Company's
maintenance and technical  support service plans.  Because  billings for these
plans generally cover a twelve-month  period,  practically all of the deferred
revenue will be recognized as revenue in 2000.

     The  Company  believes  that its  current  cash  balances  and  temporary
investments,  along  with  future  cash  generated  from  operations,  will be
sufficient  to meet its operating  needs for at least the next 12 months.  The
Company  plans to  continue to invest  significant  resources  toward  product
development,  which may include internal software  development,  acquiring new
technology or new products which will  complement our existing  product lines,
and other strategic opportunities that arise. Other future cash needs will, or
may,  include  additional  investments  for equipment  for Company  personnel,
additional  expenditures for expansion of the Company's  corporate offices and
properties,  a stock repurchase program and the payment of cash dividends. The
Company  currently pays regular quarterly cash dividends and plans to continue
to pay such  dividends,  consistent  with its capital needs and income levels.
Total  cash  dividends  paid in 1999  amounted  to $1,675  or $.13 per  share,
compared  to  $1,236  or $.10 per  share in 1998 and $833 or $.07 per share in
1997.

     Although the Company  believes that it has sufficient  cash and temporary
investments  on hand to meet its operating  needs and other cash  requirements
for at least the next 12 months, events may occur that require funds in excess
of what the Company has available.  If such events were to occur,  the Company
may  borrow  money  against  its real  property  or seek  other debt or equity
financing.

Risks and Uncertainties

From time to time,  the Company may make  forward-looking  statements  as such
term is  defined in the  Federal  securities  laws.  The  following  risks and
uncertainties,  among others, should be considered in evaluating the Company's
forward-looking  statements.  Factors that may cause actual  results to differ
materially  from those  contained in such  forward-looking  statements  are as
follows:

YEAR 2000 COMPLIANCE. Many companies that use and/or develop computer software
have been  addressing,  or are  continuing  to  address,  the problem of their
software not being year 2000  compliant.  The problem that may exist with some
computer software is that it will not process transactions  properly for dates
commencing  in the year  2000.  This is due to the  fact  that  many  computer
software  programs were designed to make date  calculations  based on the last
two digits of the year. As a result,  dates in the year 2000 may be identified
as dates in the year 1900, which may cause incorrect  calculations,  cause the
transaction  to not be processed or, in some cases,  cause an entire  computer
system to malfunction.

     The  Company  has been  aware of this  problem  for  many  years  and has
addressed  it, both for its software  that it has  developed for sale to users
and for applications  affecting  internal  operations that potentially are not
year 2000  compliant.  On software  developed  for sale to users,  the Company
believes  that the  complete  suite of its  current  version of  Windows-based
products and its older DOS-based products which are currently being maintained
by the Company are year 2000 compliant.  To date, the Company has not received
any  significant  notices  from its  user  base who are  using  the  Company's
currently  maintained  software products of any problems  encountered with the
software  as it relates  to the year 2000.  The  Company  had also  previously
notified known users of its  discontinued  software  products that it will not
continue support of those products.  To date, the Company has not received any
significant inquiries regarding this.


                                      15
<PAGE>

During 1999, the Company  completed its assessment of its internal  operations
in terms of technical applications,  non-technical applications and the effect
of  significant  third parties upon whom it relies for various  aspects of its
business, to identify year 2000 compliance issues.  Because of this assessment
and the  Company's  efforts to  continuously  upgrade and expand its  internal
information  and  telecommunication  system,  the  Company,  to date,  has not
experienced any material  operational  problems in the year 2000. Although the
Company  did not  budget  specifically  for year  2000  compliance  costs,  it
believes that these costs were not significant.

     Based on its experience to date on the year 2000  compliance  issue,  the
Company does not believe there will be any  significant  adverse effect on the
Company's financial condition, results of operations, or cash flows related to
this issue. However, this belief may change as a result of factors outside the
control of the Company or unforeseen events that may occur related to the year
2000 compliance issue.

     Various of the Company's  disclosures  and  announcements  concerning its
products  and year  2000  programs  are  intended  to  constitute  "Year  2000
Readiness  Disclosures" as defined in the Year 2000  Information and Readiness
Disclosures Act. This Act provides added protection from liability for certain
public and private  statements  concerning an entity's year 2000 readiness and
the year 2000  readiness  of its products and  services.  It also  potentially
provides  added  protection  from  liability  for  certain  types of year 2000
disclosures made after January 1, 1996 and before the date of enactment of the
Act.

COMPETITION. The computer software market is highly competitive and subject to
change because of the rapid  technological  changes in the computer  industry.
The number of software  vendors  with which the Company  competes  varies from
product  to  product  and from  region to region  within  the  United  States.
Although the Company believes it is a major supplier of project accounting and
cost  estimating   software  for  the  construction  and  property  management
industries,  and that  there are  economical  and  technological  barriers  to
discourage  new specialty  software  vendors from entering into its segment of
the  software  market,  there can be no assurance  that  larger,  better-known
software  developers  will  not  target  this  segment  of  the  market.  Such
competitors  are  considerably  larger  and  more  diversified,  have  greater
financial and other resources,  and enjoy greater brand  recognition for their
products than the Company.

     The Company must also compete with other  larger,  better-known  software
developers  for  the  hiring  and  retention  of  highly  qualified  technical
personnel.  As a result,  the Company may have to expend additional  financial
resources to hire and retain qualified technical personnel.  If the Company is
not able to secure  the  services  of  employees  with the level of  technical
expertise it requires, the development of new products would likely be delayed
and would  result in a decrease in the quality of new  software  products  and
enhancements to its existing software products. A delay in the development, or
failure to maintain the quality of new software products by the Company, would
likely have a material  adverse effect on the financial  position,  results of
operations and cash flows of the Company.

DEPENDENCE ON MICROSOFT(R)  OPERATING  SYSTEM;  OBSOLESCENCE AND TECHNOLOGICAL
CHANGES.   The  Company  is  a  specialty  software  developer,   an  industry
characterized by rapid technological  change. Its software is designed to work
with  specific  operating  systems  developed  by  Microsoft  Corporation.  If
substantial  changes are made to those  operating  systems or if new operating
systems are introduced and receive market acceptance,  the Company may need to
invest  additional  resources  to adapt its  software to those  changes or new
operating  systems.  Also, other operating  systems may be introduced on which
the  Company's  software  may not  function,  which may also cause  additional
resources to be expended  which would  otherwise  be devoted to improving  the
Company's software or developing new software.

     To remain  competitive,  the Company  must  continue to make  substantial
expenditures for product  development.  Although the Company plans to continue
to enhance its existing  products and to develop new  products,  the Company's
competitors  may develop  products  with superior  capabilities  and/or market
their products more effectively at lower prices,  by "bundling" their software
with other  software  or through  other  methods.  The  Company  believes  its
existing  software  products  are  widely  accepted  in  its  segment  of  the
marketplace.  However, a delay in the release of new products or modifications
to existing  products,  or a delay in the acceptance by the marketplace of any
new products or modifications to existing products,  could similarly delay the
recognition of revenue, or have an adverse effect on the Company's revenue and
earnings.


                                      16
<PAGE>

SUBSTANTIAL  DEPENDENCE ON SINGLE INDUSTRY.  Because the Company sells a large
majority of its software  products and services to the construction  industry,
adverse  economic  conditions in that industry  could have a material  adverse
effect on the Company's  revenue and earnings.  The  construction  industry is
particularly  sensitive to a significant  increase in interest rates, which in
the past has resulted in substantial  financial  distress across the industry.
In addition,  a downturn in general  economic  conditions in the United States
could adversely affect the construction industry.

PRODUCT  PROTECTION.  The Company  regards its  software  as  proprietary  and
attempts to protect it by relying upon  copyrights,  trade  secrets,  internal
nondisclosure  agreements and transferability  restrictions  incorporated into
its software license agreements. The Company believes the risk of unauthorized
transfers of the Company's proprietary  information is reduced because program
source listings are not released to third parties. Despite these restrictions,
it may be possible for  competitors  or users to copy aspects of the Company's
products or to obtain  information  which the Company  regards as proprietary.
The Company's competitive position could be adversely affected by unauthorized
use of its proprietary information. Third parties may also assert infringement
or other  claims  against the Company  with  respect to any existing or future
products.  Litigation to protect the Company's  proprietary  information or to
determine the validity of any  third-party  claims could result in significant
expense to the Company and,  whether or not such  litigation  is determined in
favor of the  Company,  divert the  efforts  of the  Company's  technical  and
management  personnel  from further  development  and support of the Company's
software products.


                                      17

<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Company  has  assessed  its  exposure  to market  risks for its  financial
instruments  and has  determined  that  its  exposures  to such  risks  is not
material.

Item 8. Financial Statements and Supplementary Data

The financial  statements  required pursuant to this item are included in Item
14 of this Annual Report on Form 10-K.

Item 9. Changes in and  Disagreements  with  Accountants  on  Accounting  and
        Financial Disclosure

None.





                                      18
<PAGE>

PART III

Item 10. Directors and Executive Officers of the Registrant

The information  called for by this item is included under the caption "Agenda
Item 1, Election of Directors" contained in Timberline Software  Corporation's
definitive  proxy  statement for the annual meeting of shareholders to be held
on April 25, 2000, and is hereby incorporated by reference.

Item 11. Executive Compensation

The  information  called  for by  this  item is  included  under  the  caption
"Executive  Compensation"  within  "Agenda  Item  1,  Election  of  Directors"
contained in Timberline Software Corporation's  definitive proxy statement for
the annual meeting of shareholders to be held on April 25, 2000, and is hereby
incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The  information  called for by this item is included under the caption "Stock
Ownership of Certain Beneficial Owners and Management" contained in Timberline
Software  Corporation's  definitive  proxy statement for the annual meeting of
shareholders  to be held on April  25,  2000,  and is hereby  incorporated  by
reference.

Item 13. Certain Relationships and Related Transactions

None.


                                      19
<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

a.1. Financial Statements

The following  financial  statements of Timberline  Software  Corporation  are
filed as part of this report:

                                                                         PAGE

Statements of Operations for the years ended December 31, 1999,
  1998 and 1997                                                           F-1

Balance Sheets at December 31, 1999 and 1998                              F-2

Statements of Cash Flows for the years ended December 31, 1999,
  1998 and 1997                                                           F-3

Statements of Shareholders' Equity for the years ended
  December 31, 1999, 1998 and 1997                                        F-4

Notes to Financial Statements                                             F-5

Independent Auditors' Report                                              F-14


  2.   Financial Statement Schedules

Financial  statement  schedules  have been  omitted  since they are either not
required or the amounts to be included in such schedules are not material.


  3.   Exhibits

     Articles of Incorporation and Bylaws

        3(i)    Amended and Restated  Articles of Incorporation  (Incorporated
                by reference  to Exhibit 3.1 of Quarterly  Report on Form 10-Q
                for the three months ended September 30, 1998)

        3(ii)   Amended and  Restated  Bylaws  (Incorporated  by  reference to
                Exhibit 3(ii) of Quarterly Report on Form 10-QSB for the three
                months ended March 31, 1997)

      Material Contracts

       *10.1    1987   Non-Qualified   Stock  Option  Plan   (Incorporated  by
                reference  to Exhibit  10.1 of Annual  Report on Form 10-K for
                the year ended December 31, 1990)

       *10.1(a) Amendment  No.  1 to  1987  Non-Qualified  Stock  Option  Plan
                (Incorporated  by reference to exhibit  10.1(a) of Form 10-KSB
                for the year ended December 31, 1995)

       *10.2    1989   Non-Qualified   Stock  Option  Plan   (Incorporated  by
                reference  to Exhibit  10.2 of Annual  Report on Form 10-K for
                the year ended December 31, 1990)



                                      20
<PAGE>

       *10.2(a) Amendment  No.  1 to  1989  Non-Qualified  Stock  Option  Plan
                (Incorporated  by reference to Exhibit  10.2(a) of Form 10-KSB
                for the year ended December 31, 1995)

        10.3    Form of Indemnification  Agreement and signature pages for all
                indemnitees  (Incorporated  by  reference  to Exhibit  10.3 of
                Annual  Report on Form 10-K for the year  ended  December  31,
                1990)

       *10.4    1993  Stock  Incentive  Plan  (Incorporated  by  reference  to
                Exhibit  10 of  Quarterly  Report  on Form  10-Q for the three
                months ended June 30, 1993)

       *10.5    1998 Stock  Incentive  Plan, as amended,  effective  April 28,
                1998  (Incorporated by reference to Exhibit 10.11 of Form 10-K
                for the year ended December 31, 1998)


      Consents

        23      Independent Auditors' Consent

      Miscellaneous

        27      Financial Data Schedule for the year ended December 31, 1999


       * Management contract or compensatory plan or arrangement

b.   Reports on Form 8-K

     No Form 8-K was filed during the three months ended December 31, 1999.



                                      21
<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934,  the  registrant  has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

TIMBERLINE SOFTWARE CORPORATION

by    /s/ Carl C. Asai                                3/28/00
      ------------------------------            -----------------
     Carl C. Asai                                Date
     Senior Vice President - Finance

Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  this
report  has been  signed  below by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

/s/ Curtis L. Peltz                                   3/28/00
------------------------------------            -----------------
Curtis L. Peltz                                  Date
President, Chief Executive Officer
and Director

/s/ Carl C. Asai                                      3/28/00
------------------------------------            -----------------
Carl C. Asai                                     Date
Senior Vice President - Finance and
Chief Financial Officer

/s/ James A. Meyer                                    3/28/00
------------------------------------            -----------------
James A. Meyer                                   Date
Chairman of the Board of Directors

/s/ Thomas P. Cox                                     3/28/00
------------------------------------            -----------------
Thomas P. Cox                                    Date
Director

/s/ Donald L. Tisdel                                  3/28/00
------------------------------------            -----------------
Donald L. Tisdel                                 Date
Director

                                      22
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                           STATEMENTS OF OPERATIONS

       (Amounts in thousands, except per share amounts and percentages)


                                       Year ended December 31,
                                ----------------------------------
                                     1999       1998       1997
------------------------------------------------------------------
Net revenue:
  Software license fees           $ 29,291   $ 24,786    $ 18,928
  Service fees                      24,176     18,197      15,354
  Other                              1,647      1,310         958
------------------------------------------------------------------
  Net revenue                       55,114     44,293      35,240
------------------------------------------------------------------
Cost and expenses:
  Cost of revenue                    4,793      3,909       3,605
  Client services                   10,353      8,496       6,744
  Product development               10,624      8,863       7,264
  Sales and marketing                8,451      6,916       6,351
  General and administrative         5,541      5,334       4,776
------------------------------------------------------------------
  Total cost and expenses           39,762     33,518      28,740
------------------------------------------------------------------
Operating income                    15,352     10,775       6,500
Other income (expense):
  Interest income and other - net      784        548         487
  Interest expense                     (35)       (17)        (17)
------------------------------------------------------------------
Income before income taxes          16,101     11,306       6,970
Provision for income taxes           5,907      4,112       2,435
------------------------------------------------------------------
Net income                        $ 10,194   $  7,194    $  4,535
==================================================================
Basic earnings per share          $   0.80   $   0.58    $   0.37
==================================================================
Diluted earnings per share        $   0.78   $   0.56    $   0.36
==================================================================
Dividends per share               $   0.13   $   0.10    $   0.07
==================================================================

See notes to financial statements.




                                     F-1
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                                BALANCE SHEETS

       (Amounts in thousands, except per share amounts and percentages)


                                                        December 31,
                                                  ----------------------
                                                      1999       1998
------------------------------------------------------------------------
Assets
Current assets:
  Cash and cash equivalents                         $  7,642   $ 10,193
  Temporary investments                               12,738      3,767
  Accounts receivable, less allowance for doubtful
    accounts (1999, $143; 1998, $182)                  5,025      5,086
  Other receivables                                      373        221
  Inventories                                            221        272
  Other current assets                                 1,128        981
------------------------------------------------------------------------
  Total current assets                                27,127     20,520
------------------------------------------------------------------------
Property and equipment - net                          18,345     18,381
Capitalized software costs, less accumulated
  amortization (1999, $1,502; 1998, $923)              2,188      1,304
Purchased software, less accumulated amortization
  (1999, $988; 1998, $685)                             2,602      1,249
Other assets                                              85         95
------------------------------------------------------------------------
  Total assets                                      $ 50,347   $ 41,549
========================================================================

Liabilities and Shareholders' Equity
Current liabilities:
  Accounts payable                                  $    864   $    812
  Deferred revenues                                   13,725     10,352
  Accrued employee expenses                            2,184      2,312
  Accrued commissions/royalties                          774        599
  Income taxes payable                                   467        373
  Other current liabilities                              411        489
  Current portion of long-term debt                        -         83
------------------------------------------------------------------------
  Total current liabilities                           18,425     15,020
------------------------------------------------------------------------
Long-term debt                                             -      5,417
Accrued rent expense                                      30         29
Deferred income taxes                                  1,725      1,047
Commitments
Shareholders' equity:
  Common stock, no par value
    Authorized - 20,000 shares
    Issued - 1999, 12,822 shares; 1998,
      12,558 shares                                      385        377
  Additional paid in capital                           5,405      3,721
  Accumulated other comprehensive income (loss)          (70)        10
  Retained earnings                                   24,447     15,928
------------------------------------------------------------------------
  Total shareholders' equity                          30,167     20,036
------------------------------------------------------------------------
  Total liabilities and shareholders' equity        $ 50,347   $ 41,549
========================================================================

See notes to financial statements.



                                     F-2
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                           STATEMENTS OF CASH FLOWS

       (Amounts in thousands, except per share amounts and percentages)

<TABLE>
<CAPTION>
                                                              Year ended December 31,
                                                        ---------------------------------
                                                           1999        1988        1997
-----------------------------------------------------------------------------------------
<S>                                                      <C>         <C>         <C>
Cash flows from operating activities:
Net income                                               $ 10,194    $  7,194    $  4,535
Adjustments to reconcile net income to net cash
  provided by operating activities:
    Depreciation and amortization                           2,545       1,993       1,906
    Deferred income taxes                                     712         138         155
    Net change in:
        Accounts receivable                                    61        (783)       (609)
        Other receivables                                    (152)         12         (76)
        Inventories                                            51         (31)         67
        Accounts payable                                       52        (628)        676
        Deferred revenues                                   3,373       2,849       1,541
        Accrued employee expenses                            (128)        451         719
        Accrued commissions/royalties                         175         419         (14)
        Income taxes payable                                   94         207         166
        Accrued rent expense                                    1         (17)        (20)
        Other                                                (215)        493        (360)
-----------------------------------------------------------------------------------------
    Net cash provided by operating activities              16,763      12,297       8,686
-----------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for property and equipment and
  purchased software                                       (3,271)    (13,489)     (5,246)
Capitalized software costs                                 (1,465)       (173)       (927)
Proceeds from investments                                   3,550       6,490       4,115
Purchase of investments                                   (12,652)     (5,072)     (4,517)
Other - net                                                     7           7          11
-----------------------------------------------------------------------------------------
    Net cash used in investing activities                 (13,831)    (12,237)     (6,564)
-----------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid                                             (1,675)     (1,236)       (833)
Common stock issued                                         1,692         819         632
Proceeds from (payments on) long-term debt                 (5,500)      5,500        --
-----------------------------------------------------------------------------------------
   Net cash provided by (used in) financing activities     (5,483)      5,083        (201)
-----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents .     (2,551)      5,143       1,921
Cash and cash equivalents, beginning of the year           10,193       5,050       3,129
-----------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year               $  7,642    $ 10,193    $  5,050
=========================================================================================
Supplemental information:
Cash paid during the year for income taxes               $  4,036    $  3,250    $  1,674
=========================================================================================
</TABLE>

See notes to financial statements.



                                     F-3
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                      STATEMENTS OF SHAREHOLDERS' EQUITY

       (Amounts in thousands, except per share amounts and percentages)

<TABLE>
<CAPTION>
                                                                                Accumulated
                                                Common Stock        Additional     Other
                                           ----------------------     Paid in   Comprehensive  Retained
                                           Shares Issued   Amount     Capital   Income (Loss)  Earnings     Total
---------------------------------------------------------------------------------------------------------------------
<S>                                            <C>        <C>         <C>         <C>          <C>         <C>
Balances, January 1, 1997                      12,143     $   364     $ 2,283     $     -      $ 6,268     $ 8,915
    Common stock issued                           260           8         365                                  373
    Income tax benefit on
       stock options exercised                                            259                                  259
    Unrealized gain on investments,
       net of income taxes                                                             17                       17
    Dividends declared ($.07 per share)                                                           (833)       (833)
    Net income for the year                                                                      4,535       4,535
---------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997                    12,403         372       2,907          17        9,970      13,266
    Common stock issued                           155           5         298                                  303
    Income tax benefit on stock
       options exercised                                                  516                                  516
    Unrealized loss on investments,
       net of income taxes                                                             (7)                      (7)
    Dividends declared ($.10 per share)                                                         (1,236)     (1,236)
    Net income for the year                                                                      7,194       7,194
---------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998                    12,558         377       3,721          10       15,928      20,036
    Common stock issued                           264           8         618                                  626
    Income tax benefit on stock
       options exercised                                                1,066                                1,066
    Unrealized loss on investments,
       net of income taxes                                                            (80)                     (80)
    Dividends declared ($.13 per share)                                                         (1,675)     (1,675)
    Net income for the year                                                                     10,194      10,194
---------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1999                    12,822     $   385     $ 5,405     $   (70)     $24,447     $30,167
=====================================================================================================================

</TABLE>

See notes to financial statements.



                                     F-4
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                         NOTES TO FINANCIAL STATEMENTS

        (Amounts in thousands, except per share amounts and percentages)


Note 1 Summary of significant accounting policies and line of business:

LINE OF BUSINESS AND CREDIT RISKS:  The Company  develops and markets computer
software  programs  primarily  for the  construction  and property  management
industries. The Company sells its products and services primarily to customers
and to authorized  resellers  (Timberline  Solution Providers)  throughout the
United States.  Credit is granted to certain customers and Solution  Providers
generally without  collateral.  An allowance for doubtful accounts is provided
based on historical experience and anticipated losses.

USE OF ESTIMATES:  The preparation of financial  statements in conformity with
generally accepted accounting principles requires management to make estimates
and  assumptions  that affect  reported  amounts of assets and liabilities and
contingent assets and liabilities at the date of the financial  statements and
the reported  amounts of revenues and expenses  during the  reporting  period.
Actual results could differ from those estimates.

FINANCIAL  INSTRUMENTS:  The carrying amount reported in the balance sheet for
cash  and  cash  equivalents,   temporary  investments,  accounts  receivable,
accounts  payable and other current assets and liabilities  approximates  fair
value  because of the  immediate  or  short-term  maturity of these  financial
instruments.

REVENUE  RECOGNITION:  Revenue  from the  "license to use"  computer  software
programs  is  generally  recognized  at the point of  shipment.  Revenue  from
service fees is generated from the sale of computer  software  maintenance and
technical support  contracts,  training  classes,  consulting and other client
services.   Revenue  from  maintenance  and  technical  support  contracts  is
recognized ratably over the period the service is provided. Revenue from other
service fees is recognized at the time the service is provided.

SOFTWARE   DEVELOPMENT  COSTS:  Costs  of  developing  computer  software  are
capitalized  when  technological  feasibility  has  been  established  for the
computer software product.  These costs are amortized over a two- to four-year
period. Costs capitalized for the development of computer software were $1,465
in 1999, $173 in 1998 and $927 in 1997.  Amortization of capitalized  computer
software  development  costs was $581 in 1999,  $503 in 1998 and $403 in 1997.
Expenses  incurred on research and development of computer  software  products
were $9,325 in 1999, $7,822 in 1998 and $6,222 in 1997.

CASH AND CASH  EQUIVALENTS:  Cash and cash  equivalents  include cash on hand,
cash deposited with banks and financial  institutions,  money market funds and
highly liquid debt  instruments  purchased with maturity dates of three months
or less at the date of acquisition.

TEMPORARY  INVESTMENTS:  Temporary investments represent debt securities which
have maturity  dates over three months from the purchase date. The Company has
classified  these  investments as "available for sale" because the Company may
decide not to hold these investments to maturity. Accordingly, the investments
have  been  recorded  at fair  value.  The  unrealized  gain or loss on  these
investments,   net  of  income  taxes,   is  reported  as  accumulated   other
comprehensive  income (loss) within the  shareholders'  equity  section of the
balance sheet.

INVENTORIES:  Inventories  consist of  marketing  literature  and of  software
components. Inventories are stated at the lower of average cost or market.

PROPERTY AND  EQUIPMENT  AND  PURCHASED  SOFTWARE:  Property and equipment and
purchased software are recorded at cost.  Depreciation on purchased  software,
furniture and equipment is provided  using the  straight-line  method over the
estimated  useful lives of the related  assets  ranging from two to ten years.
The building is being depreciated on a straight-line basis over forty years.



                                     F-5
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                        NOTES TO FINANCIAL STATEMENTS

       (Amounts in thousands, except per share amounts and percentages)

ACCRUED RENT EXPENSE:  Rent expense on operating  leases with  scheduled  rent
increases is recognized on a straight-line  basis over the lease term. Accrued
rent expense  represents the excess of rent charged to expense over the amount
of scheduled rent paid.

INCOME TAXES: Deferred tax assets and liabilities are established based on the
temporary  differences  between the carrying  amount of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
These assets and liabilities are recorded at the enacted tax rates expected to
be in effect when they are realized or settled.

STOCK OPTIONS: The Company applies the intrinsic  value-based method described
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," in accounting for its stock options.

EARNINGS  PER SHARE  (EPS):  The Company  computes  basic EPS by dividing  net
income by the weighted-average number of common shares outstanding and diluted
EPS by dividing net income by the sum of the weighted-average number of common
shares outstanding and the dilutive effect of stock options  outstanding as if
such options were exercised or converted into common shares.

     A  reconciliation  of the  common  shares  used  in the  denominator  for
computing  basic and diluted EPS for the years ended  December 31, 1999,  1998
and 1997 is as follows:

<TABLE>
<CAPTION>
                                                            1999     1998     1997
------------------------------------------------------------------------------------
<S>                                                        <C>      <C>      <C>
Weighted-average shares outstanding,
   used in computing basic EPS                             12,694   12,500   12,296
Effect of dilutive stock options                              417      434      348
====================================================================================
Weighted-average shares outstanding, and the effect
   of dilutive securities, used in computing diluted EPS   13,111   12,934   12,644
====================================================================================
</TABLE>


Note 2 Comprehensive income:

In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial  Accounting  Standards (SFAS) No. 130,  "Reporting  Comprehensive
Income," which established  standards for reporting  comprehensive  income and
its components. The Company adopted this standard on January 1, 1998. However,
statements  of  comprehensive  income are not  presented  for the years  ended
December 31, 1999, 1998 and 1997, because the difference between the Company's
comprehensive  income and net income is not  material.  The only  component of
comprehensive  income that is not included in the  Company's net income is the
unrealized  gain or loss on temporary  investments.  For 1999,  the unrealized
loss on temporary  investments was $80, net of income taxes, which reduced net
income to arrive at comprehensive  income of $10,114. For 1998, the unrealized
loss on temporary  investments was $7, net of income taxes,  which reduced net
income to arrive at comprehensive  income of $7,187.  For 1997, the unrealized
gain on temporary  investments  was $17, net of income taxes,  which increased
net income to arrive at comprehensive income of $4,552.




                                     F-6
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                        NOTES TO FINANCIAL STATEMENTS

       (Amounts in thousands, except per share amounts and percentages)


Note 3 Investments:

Investments at December 31, 1999 and 1998 are composed of the following:

                                                        Amortized      Fair
                                                           Cost        Value
------------------------------------------------------------------------------
1999:
Debt securities issued by the U.S. Treasury
  and other U.S. government agencies                     $  3,607     $  3,583
Debt securities issued by states of the United
  States and political subdivisions of the states           9,245        9,155
------------------------------------------------------------------------------
Total investments                                        $ 12,852     $ 12,738
==============================================================================
1999 net unrealized (loss) on investments                             $   (114)
==============================================================================

1998:
Debt securities issued by the U.S. Treasury
  and other U.S. government agencies                     $  2,800     $  2,812
Debt securities issued by states of the United
  States and political subdivisions of the states             950          955
------------------------------------------------------------------------------
Total investments                                        $  3,750     $  3,767
==============================================================================
1998 net unrealized gain on investments                               $     17
==============================================================================


Note 4 Property and equipment:

Property  and  equipment  at  December  31,  1999 and 1998 is  composed of the
following:

                                                             1999        1998
------------------------------------------------------------------------------
Land                                                      $  2,433    $  2,433
Building                                                    13,220      12,975
Tenant improvements                                             63          63
Furniture and fixtures                                       1,744       1,612
Machinery and equipment                                      7,249       6,369
------------------------------------------------------------------------------
Total                                                       24,709      23,452
Less accumulated depreciation and amortization               6,364       5,071
------------------------------------------------------------------------------
Property and equipment - net                              $ 18,345    $ 18,381
==============================================================================



                                     F-7
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                        NOTES TO FINANCIAL STATEMENTS

       (Amounts in thousands, except per share amounts and percentages)

Note 5 Long-term debt:

At the end of 1998,  the Company had  construction  loan  borrowings of $5,500
under its  construction  loan  agreement  with a bank in  connection  with the
construction of its new corporate offices, which were substantially  completed
in October 1998. Because the Company had the intent and the ability to finance
construction  costs on a long-term  basis,  borrowings  under the construction
loan agreement were recorded as long-term debt at December 31, 1998.

     During the first quarter of 1999, the Company repaid these borrowings. At
that time, the Company  reconsidered the need for long-term mortgage financing
based on its current  cash  balances,  cash  projections  for 1999 and current
mortgage interest rates.  After further discussion with its Board of Directors
in May  1999,  management  of the  Company  decided  that  long-term  mortgage
financing was not required at that time.

Note 6 Common stock:

In  October  1999  and  1998,  the  Company's  Board  of  Directors   approved
four-for-three   stock   splits,   effective   in  November   1999  and  1998,
respectively.  In October 1997,  the Company's  Board of Directors  approved a
five-for-four stock split,  effective in November 1997. All prior common stock
and per share data amounts have been  retroactively  adjusted to reflect these
changes.

     As of December 31, 1999,  the Company has four  stock-based  compensation
plans. Two nearly identical plans, adopted in 1987 and 1989, are non-qualified
stock option plans for its officers and key employees.  Under these plans, the
Company may grant  options  for up to 1,125  shares of common  stock.  Options
could not be  granted  under the 1987  plan and the 1989 plan  after  1997 and
1999,  respectively.  As of December 31, 1999,  174 shares are reserved  under
these plans, of which there are 174 options outstanding.

     In 1993 and 1998, the Company's  shareholders  approved  incentive  stock
plans for the main purpose of retaining and attracting the services of Company
directors, officers, employees and non-employees. Although these plans provide
for the granting of various stock options, stock appreciation rights and stock
bonuses,  the  Company  currently  plans to  grant  only  non-qualified  stock
options.  Stock options under the 1993 and 1998 plans may not be granted after
the year 2003 and 2008,  respectively.  As of December 31, 1999,  1,484 shares
are reserved under these plans, of which there are 1,054 options outstanding.

     All of the above plans are  administered  by a committee of the Company's
Board of Directors,  which  determines the terms and conditions of the various
grants awarded under these plans.  Under these plans, the non-qualified  stock
options  have an  exercise  price equal to the market  price of the  Company's
common  stock on the date of grant.  The options  vest  ratably over a four or
five-year period and expire 10 years after the date of grant.

     If  compensation  cost on stock  options  granted  after 1994 under these
plans had been determined based on the fair value of the options granted as of
the grant  date in a method  consistent  with that  described  in SFAS No. 123
"Accounting  for  Stock-Based  Compensation,"  the  Company's  net  income and
diluted  earnings per share would have been  reduced to the pro forma  amounts
indicated below for the years ended December 31, 1999, 1998 and 1997:

                                                1999        1998        1997
------------------------------------------------------------------------------
Net income, as reported                     $   10,194   $   7,194   $   4,535
Net income, pro forma                            9,202       6,743       4,214

Diluted earnings per share, as reported           0.78        0.56        0.36
Diluted earnings per share, pro forma             0.70        0.52        0.33




                                     F-8
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                        NOTES TO FINANCIAL STATEMENTS

       (Amounts in thousands, except per share amounts and percentages)

The pro forma  amounts do not consider the effect of options  granted prior to
1995 that vest in  subsequent  years.  The pro forma  amounts  may also not be
indicative of the effects on reported net income for future years,  due to the
effect of options  vesting  over a period of years and the  awarding  of stock
compensation awards in future years.

     The fair value of each option  grant was  estimated  on the date of grant
using   the   Black-Scholes    option-pricing   model   with   the   following
weighted-average assumptions used for grants in 1999, 1998 and 1997:

                                                   1999       1998       1997
------------------------------------------------------------------------------
Annual dividend yield                               1.0%       1.0%       1.1%
Risk-free interest rate per annum                   5.2%       5.6%       6.2%
Expected annual volatility                         79.2%      85.0%      87.4%
Expected lives of options (years)                   7.0        7.0        7.0


A summary of the status of the Company's stock option plans as of December 31,
1999,  1998 and 1997,  and changes  during the years  ending on those dates is
presented below:

<TABLE>
<CAPTION>
                                      1999                1998                  1997
                               ------------------   ------------------   ------------------
                                        Weighted-            Weighted-            Weighted-
                                         Average             Average               Average
                                        Exercise             Exercise             Exercise
                               Shares     Price     Shares     Price     Shares     Price
-------------------------------------------------------------------------------------------
<S>                             <C>      <C>         <C>      <C>         <C>      <C>
Outstanding at
  beginning of year .......     1,006    $ 3.504     1,115    $ 2.935     1,081    $ 1.923
Granted ...................       513      9.435        86      9.404       327      5.123
Exercised .................      (264)     2.371      (155)     1.955      (260)     1.431
Forfeited .................       (27)     7.730       (40)     6.411       (33)     3.297
-------------------------------------------------------------------------------------------
Outstanding at end of year      1,228    $ 6.131     1,006    $ 3.504     1,115    $ 2.935
===========================================================================================
Options exercisable
  at year-end .............       586                  685                  680
Weighted-average fair value
 of options granted
 during the year ..........              $ 6.594              $ 6.834              $ 3.766

</TABLE>

The following table summarizes information about stock options outstanding and
exercisable at December 31, 1999:


                           Outstanding                         Exercisable
                 --------------------------------------  -----------------------
                            Weighted-
                             Average
                  Number    Remaining       Weighted-    Number      Weighted-
    Range of        of     Contractual       Average       of         Average
 Exercise Prices  Options  Life (years)  Exercise Price  Options  Exercise Price
--------------------------------------------------------------------------------
 $ 1.05 -  4.69     530        5.2          $ 2.460        477       $ 2.324
   6.75 -  9.98     615        8.9            8.471        101         7.330
  10.05 - 15.38      83        9.3           12.225          8        11.502
--------------------------------------------------------------------------------
 $ 1.05 - 15.38   1,228        7.3          $ 6.131        586       $ 3.320
================================================================================



                                     F-9
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                        NOTES TO FINANCIAL STATEMENTS

       (Amounts in thousands, except per share amounts and percentages)

Note 7 Income taxes:

The tax effects of significant items comprising the Company's net deferred tax
liability as of December 31, 1999 and 1998 are as follows:

                                                              1999       1998
------------------------------------------------------------------------------
Deferred tax liabilities:
    Property and equipment                                   $  928     $  543
    Capitalized software costs                                  853        509
    Maintenance costs                                            80        120
    Other                                                        14         20
------------------------------------------------------------------------------
    Deferred tax liabilities                                  1,875      1,192
------------------------------------------------------------------------------
Deferred tax assets:
    Allowance for doubtful accounts                              56         71
    Employee expenses not currently deductible                   51         58
    Accrued rent expense                                         12         12
    Other                                                        65         21
------------------------------------------------------------------------------
    Deferred tax assets                                         184        162
------------------------------------------------------------------------------
Net deferred tax liability                                   $1,691     $1,030
==============================================================================


The net deferred tax liability is classified in the balance sheet as follows:

                                                              1999       1998
------------------------------------------------------------------------------
Deferred income taxes                                        $1,725     $1,047
Deferred tax assets included in other
  current assets                                                (34)       (17)
------------------------------------------------------------------------------
Net deferred tax liability                                   $1,691     $1,030
==============================================================================


The provision for income taxes is composed of the following:

                                                    1999      1998       1997
------------------------------------------------------------------------------
Current:
  Federal                                         $4,302     $3,300     $1,949
  State                                              893        674        331
Deferred:
  Federal                                            575        111        125
  State                                              137         27         30
------------------------------------------------------------------------------
Total                                             $5,907     $4,112     $2,435
==============================================================================



                                     F-10
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                        NOTES TO FINANCIAL STATEMENTS

       (Amounts in thousands, except per share amounts and percentages)

A reconciliation of the difference  between the provision for income taxes and
the income taxes computed at the federal statutory rate is summarized below:

                                                  1999       1998       1997
------------------------------------------------------------------------------
Income taxes based on federal statutory rate    $ 5,568    $ 3,857    $ 2,370
State tax, net of federal tax benefit               691        469        230
Research and development credits                   (324)      (283)      (251)
Other                                               (28)        69         86
------------------------------------------------------------------------------
Provision for income taxes                      $ 5,907    $ 4,112    $ 2,435
==============================================================================


Note 8 Business segment information:

The Company's  operations  are divided into two operating  segments:  software
products and software  services.  Software products encompass software product
revenue across all of the Company's product lines. Software services encompass
fees for all services after the software is sold,  such as annual  maintenance
and technical support service contracts, consulting and training services. The
Company  accounts  for  revenue  and cost of  revenue  on these two  operating
segments,  and  tracks  specifically  identifiable  expenses  related  to  the
generation of revenue for each of those  segments.  There are no  intersegment
transactions.  These  segments  are managed  separately  because of  different
revenue and marketing strategies and different strategic planning processes.

     The accounting  policies of the segments are the same as those  described
in the  summary  of  significant  accounting  policies  in Note 1 of  Notes to
Financial  Statements.  The Company  evaluates its performance in each segment
based on its operating contribution, which includes revenue, cost and expenses
that can be specifically identified with each segment. Product development and
general and  administrative  expenses  are not  allocated  to the segments for
determining  its operating  contribution  because such an allocation  would be
based on  subjective  factors.  The Company also does not  allocate  assets by
segment in evaluating the performance of each segment.  Information about each
operating segment and a reconciliation of operating  contribution to operating
income is as follows for the years ended December 31, 1999, 1998 and 1997:

                                                  1999       1998       1997
------------------------------------------------------------------------------
Net revenue:
    Software products                           $29,291    $24,786    $18,928
    Services                                     24,176     18,197     15,354
    Other                                         1,647      1,310        958
------------------------------------------------------------------------------
    Net revenue                                 $55,114    $44,293    $35,240
==============================================================================
Operating contribution:
    Software products                           $19,968    $16,971    $11,619
    Services                                     10,112      6,892      6,196
    Other revenue, net of cost                    1,437      1,109        725
    Product development expenses                (10,624)    (8,863)    (7,264)
    General and administrative expenses          (5,541)    (5,334)    (4,776)
------------------------------------------------------------------------------
    Operating income                            $15,352    $10,775    $ 6,500
==============================================================================



                                     F-11
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                        NOTES TO FINANCIAL STATEMENTS

       (Amounts in thousands, except per share amounts and percentages)

The Company operates  primarily in the United States. In terms of net revenue,
more than 94 percent of its net revenue in 1999,  1998 and 1997 was  generated
from customers located in the United States. No revenue from customers located
in any one  foreign  country  accounted  for more than  three  percent  of the
Company's net revenue during those years.


Note 9 Commitments:

The Company leases some equipment and office  facilities  under  noncancelable
operating leases.  Its major lease commitment  relates to a lease entered into
in 1996 and expiring in 2003 for additional  office space for expansion of its
former corporate  offices.  That office space is currently being subleased for
the balance of the lease term.

Total rent expense under operating leases,  net of sublease rental income, was
$188,  $825 and $986 in 1999,  1998 and  1997,  respectively.  Future  minimum
rental payments under these leases as of December 31, 1999, are as follows:

                          Year ending December 31,
                          ------------------------
                              2000     $  265
                              2001        270
                              2002        271
                              2003        107
                              2004         29
                              ---------------
                              Total    $  942
                              ===============

Future  minimum  rental  payments  shown above have not been reduced by future
minimum sublease rental income of $670 from a noncancelable sublease.


Note 10 Employee benefit plan:

The Company has a retirement  plan,  under the provisions of Section 401(k) of
the Internal Revenue Code,  covering  substantially  all employees.  Under the
terms of the plan,  employees may make contributions  computed on a percentage
of pay. The Company may match employee contributions up to a set percentage of
pay.  The  Company  may,  at  its  discretion,  make  an  additional  year-end
contribution out of profits.  Contributions by the Company under the plan were
$598 in 1999, $479 in 1998 and $393 in 1997.




                                     F-12
<PAGE>

                        TIMBERLINE SOFTWARE CORPORATION

                        NOTES TO FINANCIAL STATEMENTS

       (Amounts in thousands, except per share amounts and percentages)


Note 11 Quarterly financial information (unaudited):

                                                             Basic     Diluted
                          Net      Cost and       Net      Earnings   Earnings
                        Revenue    Expenses     Income     per Share  per Share
-------------------------------------------------------------------------------
1999
1st quarter             $13,341     $ 9,777     $ 2,230    $   0.18   $   0.17
2nd quarter              13,271       9,715       2,255        0.18       0.17
3rd quarter              13,350       9,518       2,465        0.19       0.19
4th quarter              15,152      10,752       3,244        0.25       0.25

1998
1st quarter             $ 9,383     $ 7,674     $ 1,159    $   0.09   $   0.09
2nd quarter              10,460       8,078       1,623        0.13       0.13
3rd quarter              11,078       8,447       1,726        0.14       0.13
4th quarter              13,372       9,319       2,686        0.22       0.21





                                     F-13
<PAGE>



                         INDEPENDENT AUDITORS' REPORT



Board of Directors and Shareholders
Timberline Software Corporation
Beaverton, Oregon


We have  audited  the  accompanying  balance  sheets  of  Timberline  Software
Corporation  as of December 31, 1999 and 1998,  and the related  statements of
operations, shareholders' equity and cash flows for each of the three years in
the period  ended  December  31,  1999.  These  financial  statements  are the
responsibility of the Company's  management.  Our responsibility is to express
an opinion on these financial statements based on our audits.

We  conducted  our  audits in  accordance  with  generally  accepted  auditing
standards.  Those  standards  require  that we plan and  perform  the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial  statements.  An audit
also  includes  assessing  the  accounting  principles  used  and  significant
estimates  made by  management,  as well as evaluating  the overall  financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion,  such financial  statements  present  fairly,  in all material
respects,  the financial  position of Timberline  Software  Corporation  as of
December  31,  1999 and 1998 and the  results of its  operations  and its cash
flows for each of the three years in the period ended  December  31, 1999,  in
conformity with generally accepted accounting principles.



/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP
Portland, Oregon
January 21, 2000


                                     F-14
<PAGE>


                        TIMBERLINE SOFTWARE CORPORATION

                  FORM 10-K FOR YEAR ENDED DECEMBER 31, 1999

                                EXHIBIT INDEX*



    Consents

     23   Independent Auditors' Consent

    Miscellaneous

     27   Financial Data Schedule for the year ended December 31, 1999




*    See Item  14(a)(3) of this Report for a list of all  exhibits,  including
     those incorporated by reference.