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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

           [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended March 31, 1999

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
             For the transition period from __________ to __________

                         Commission File Number 1-13524

                                 TIMELINE, INC.
        (Exact name of small business issuer as specified in its charter)

         WASHINGTON                                   91-1590734
(State or other jurisdiction of                    (I.R.S. Employer
incorporation or organization)                    Identification No.)

                        3055 112TH AVENUE N.E., STE. 106
                               BELLEVUE, WA 98004
                    (Address of principal executive offices)
                                 (425) 822-3140
                           (Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act:
                                               COMMON STOCK, $.01 PAR VALUE
                                               WARRANTS TO PURCHASE COMMON STOCK

Securities registered under Section 12(g) of the Exchange Act:   (none)

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


Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

The issuer's revenues for its most recent fiscal year were:  $3,401,564.

As of June 1, 1999, 3,191,387 shares of the Registrant's common stock were
outstanding and the aggregate market value of such common stock held by
non-affiliates was approximately $1,893,618 based on the average of the bid
($0.75) and ask ($0.75) prices on that date of $0.75.

                       DOCUMENTS INCORPORATED BY REFERENCE

(1) Proxy Statement relating to the Company's July 29, 1999 Annual Meeting of
Shareholders and to be filed with the Commission within 120 days of the end of
the fiscal year (the "Proxy Statement").

Transitional Small Business Disclosure Format (Check One):  Yes  [ ]  No  [X]
================================================================================

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                                     PART I


This Annual Report on Form 10-KSB includes a number of forward-looking
statements which reflect the Company's current views with respect to business
strategies, products, future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties
including those discussed below that could cause actual results to differ
materially from historical results or those anticipated. When used herein, the
words "anticipate," "believe," "estimate," "intend," "may," "will," "expect" and
similar expressions as they relate to the Company are intended to identify such
forward-looking statements, but are not the exclusive means of identifying such
statements. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these
forward-looking statements. The Company does not undertake any obligation to
revise these forward-looking statements to reflect any future events or
circumstances. In addition, the disclosures under the caption "Other Factors
that May Affect Operating Results," consist principally of a brief discussion of
risks which may affect future results and are thus, in their entirety,
forward-looking in nature. TO FACILITATE READERS IN IDENTIFYING FORWARD-LOOKING
STATEMENTS IN THE OTHER SECTIONS OF THIS DOCUMENT, THE COMPANY HAS ATTEMPTED TO
MARK SENTENCES CONTAINING SUCH STATEMENTS WITH A SINGLE ASTERISK AND PARAGRAPHS
CONTAINING ONLY FORWARD LOOKING STATEMENTS WITH DOUBLE ASTERISKS. HOWEVER, NO
ASSURANCE CAN BE MADE ALL SUCH STATEMENTS HAVE BEEN IDENTIFIED AND MARKED.
Therefore, readers are urged to carefully review and consider the various
disclosures made by the Company in this report and in the Company's other
reports previously filed with the Securities and Exchange Commission (the
"SEC"), including the Company's periodic reports on Forms 10-KSB and 10-QSB, and
the Company's registration statements on Forms SB-2 and S-3, and those described
from time to time in the Company's press releases and other communications,
which attempt to advise interested parties of the risks and factors that may
affect the Company's business.


ITEM 1:  DESCRIPTION OF BUSINESS

OVERVIEW

        The Company develops, markets and supports enterprise-wide financial
management, budgeting and reporting software. Timeline's software products
automatically access and distribute business information with full accounting
control. Although the Company has products which permit the processing of
transactions, Timeline's marketing and development strategy is focused on
products which report accounting data in meaningful and flexible formats. These
reporting products allow end users to gather and disseminate business
information throughout the enterprise while the enterprise maintains maximum
flexibility in determining the types of transaction processing systems it will
use.

        A significant percentage of the financial analysis and management
reporting done in businesses today is accomplished through keying data from
paper or fixed reports into spreadsheets. This reflects a desire to have data
reside in a user friendly environment, such as Microsoft(R) Office, where the
information is then available for automated inclusion in word processing
documents, forwarding and distribution through electronic mail, manipulation in
spreadsheets, etc. Electronic data residing in common desktop environments is
also potentially available for distribution through the Internet.

        Many financial and management reporting products are focused on the
presentation, either electronically or on paper, of processed data in formatted
reports. While Timeline products can present information in formatted reports,
the Company's technology also permits the distribution of an actual database of
information to the end user's personal computer. These databases are built
through selective criteria which limit data transfer to only that data relevant
to each particular end user. This design is intended to allow for the
distribution of manageable packets of data over networks or the Internet while
maintaining corporate security. Each database can be arranged in a unique
"view," or "orientation," as desired by the end user. The end user may then view
the data through standard corporate reports or through his or her library of
customized personal reports. Additionally, the data resides in Microsoft Office,
which makes it automatically available for use in Microsoft(R) Excel
spreadsheets and all other Microsoft Office tools.

        Timeline believes that its proprietary technology, designed to allow the
enterprise to avoid time-consuming, error-prone and costly keying of data,
distinguishes Timeline's products from other vendor's reporting software.* The
data resident at the desktop is as valid as the data in the underlying
accounting system. Moreover, the type of underlying accounting system, and the
platform on which it resides, is immaterial. While many enterprises are
migrating accounting functions from larger mainframe- and minicomputer-based
systems to client/server systems, others have elected to retain their existing,
or "legacy" accounting systems. Timeline's business strategy is focused on
meeting the financial management needs of both types of enterprise by providing
products that accept and report on data from both legacy and



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newer systems.

        The Company's Timeline(R) Analyst and Timeline(R) Server product lines
are designed to gather data from multiple operating systems and hardware
platforms, old and new, for translation into a Microsoft client/server
environment. Timeline products emphasize financial reporting and management
functions, connectivity to multiple systems, the ability to distribute data to
the desktop, and budgeting.

        The Timeline products are designed to extend the life of an enterprise's
existing systems, allow the purchase of less expensive new systems, and deliver
data for reporting and analysis throughout the enterprise. The Company believes
its Timeline products can complement accounting and reporting software vendors'
products by adding functionality to eliminate competitive disadvantages in their
products.* These vendors are thus considered by management as candidates to
bundle or distribute Timeline products in conjunction with their accounting and
reporting systems. It is through licensing and distribution agreements with such
third-party vendors that management believes most license fee revenue will be
generated in fiscal 2000.*

        At March 31, 1999, Timeline employed 35 full-time employees in the
United States.

        The Company spent in the aggregate approximately $1,080,930 in fiscal
1999 and $1,001,000 in fiscal 1998 for research and development and capitalized
software costs, and received $41,000 and $381,000, respectively, in software
development revenue.

TECHNOLOGY BACKGROUND

        Timeline Technologies. Timeline's client/server software is designed to
overlay an enterprise's entire computing infrastructure with a reporting engine
which can accept and organize data, with full accounting controls, from both
legacy systems and newer technologies. Timeline's proprietary "architecture," in
conjunction with its proprietary "generation engine," is designed to accomplish
this task. Compatibility with legacy systems allows the enterprise to preserve
hardware and software investments or commence the transition to a client/server
environment while providing enhanced reporting capabilities throughout the
enterprise. In environments already using client/server systems, Timeline's
technology provides distributed data marts which enhance the productivity of
reporting, budgeting and analysis professionals throughout the enterprise. The
use of filtering technology not only automates the transfer of data from
accounting and information systems into desktop databases, but can automatically
rebuild such databases to reflect changes introduced in the underlying
accounting structure. This eliminates costly dual maintenance of data structures
between the transaction-based and the Timeline systems.

        The following is a brief discussion of the Company's three primary
proprietary technologies:

        -    Timeline Architecture. Timeline's architecture is a
             multi-dimensional data segmentation capacity which exceeds the
             capacity of all accounting data structures known to the Company.
             This capacity enables the Timeline reporting products to accept
             data from multiple transaction processing systems concurrently, to
             combine such data into a single database and to add reporting
             relationships not present in the source system(s).

        -    Generation Engine. The Company's generation engine enables
             Timeline's products to automate the conversion of accounting data
             structures into Microsoft-compatible databases. Prior technologies
             required substantial human intervention to manually build tables,
             input forms and manipulate other attributes of the data. It is this
             technology which allows automated building of any number of
             databases for distribution throughout the enterprise. On September
             1, 1998 Timeline received a US Patent on this and other technology.

        -    Filter Technology. Filtering allows the Timeline product to
             duplicate data directly from one or more transaction processing
             systems, and to feed the data to the generation engine to
             automatically build a new database resident in the Timeline
             architecture. The Timeline product is tied directly to the
             underlying systems. Changes made in these underlying systems (such
             as adding a new accounting relationship for a newly purchased
             company) are reflected in the Timeline database in an automated
             manner. Prior technologies required substantial human intervention
             to manually extract and import data and to maintain the
             synchronization of the accounting and information systems.

        Timeline has been granted two patents by the U.S. Patent and Trademark
Office on its technology and the Company believes additional US patents will be
granted during fiscal 2000*. The Company is currently filing for patent
protection in certain countries outside the United States.



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PRODUCTS

        The Company's products allow the distribution of data sets of
information to the desktop. Timeline's primary product family, Timeline Analyst
and Timeline Server, consists of a set of client/server software applications
based on Microsoft Windows(TM)/Windows NT(TM) and Microsoft Office operating
systems. Once data is contained in a local Microsoft Office database, the data
is available for each end user to develop his or her own analysis or personal
reports using normal Microsoft or Timeline-enhanced technology. The user can be
assured the data is as accurate as is the data in the underlying accounting
system.

        Timeline Server was introduced in late 1995 as a financial and
management reporting system which included modules to allow traditional
financial reporting, budgeting, foreign currency conversion, consolidations and
allocations. The various modules in the Timeline Server product provide desktop
and network reporting on information originating in a single or multiple
accounting systems within the enterprise. While this product can provide many
transaction-driven benefits, the Company's market focus is to use Timeline
Server as the data warehouse to handle larger volumes of data in conjunction
with Timeline Analyst.

        In 1996, the Company made its first commercial release of Timeline
Analyst as a stand alone "data mart," which enables the user to view, create and
distribute reports in Microsoft Excel based on data from a single accounting
system. Timeline Analyst is also the client to Timeline's server-based software,
allowing the distribution of reporting databases to end-users throughout a
larger enterprise.

        Also in 1996, the Company released the Manager upgrade to Timeline
Analyst designed for the "mid-level" market (i.e., businesses with approximately
six to 100 desktop users). This product completes the Timeline Analyst suite by
allowing the assignment of new reporting relationships at the desktop level and
the distribution of data marts between Timeline Analyst users without the
requirement of Timeline Server.

        Timeline Budgeting consists of applications and tools built on the
underlying Timeline data marts. The combination of Excel interfaces and data
base controls provides a system which management believes will be a major area
of revenue growth starting in the third quarter of fiscal 2000.* Functionality
includes automatic dissemination of budget templates, consolidation of budget
input, allocations, and multiple spread methods.

        In addition to client/server products, the Company develops, markets and
supports a fully integrated line of host-based accounting applications that
operate on VAX(R) and AXP(R) computer systems from the Digital division of
Compaq Computer Corporation. This product line represents a continuation of
Timeline's historical core business and provides ongoing maintenance, license
and consulting revenue. Products in this market include General Ledger, Accounts
Payable, Accounts Receivable, Digibase, Digicalc II(R), Fixed Assets, Inventory,
Purchase Order and Association Management.

YEAR 2000 COMPLIANCE

        The statements in the following section include "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness Act.
The Company has undertaken a plan to address the potential impact to its
business of "Year 2000 issues" (i.e., issues that may arise as a result of
computer programs that use only the last two, rather than all four, digits of
the year). The plan addresses Internal Matters, which are under the Company's
operation and over which the Company exercises some control, and External
Matters, which are outside the Company's control and influence.

        Internal Matters. The Company's review of Internal Matters falls into
two categories which are identified and addressed separately below.

        Computer Hardware and Software:

        1. The Y2K compliance status of the Microsoft products used by the
Company is found at http://www.microsoft.com/technet/topics/year2k/default.htm.
All products used by the Company are deemed compliant by Microsoft with one
exception. Microsoft Access 2.0 requires an update be applied in order to pass
Microsoft's Y2K compliance test. However, the Company's use of Access 2.0 as
required for its Financial Server products has been tested and it is the
Company's belief that Financial Server using Access 2.0 is Y2K compliant.



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        2. The DEC VAX system and a DEC AXP system run OpenVMS. The AXP has been
upgraded to V7.1 and the upgrade of the VAX to V7.1 is scheduled for the first
half of calendar 1999. Compaq's Y2K position on OpenVMS V7.1 (compliant) is
stated at http://www.openvms.digital.com/openvms/products/year2000/index.html.
The BASIC compiler and the C Compiler that is used for maintenance of the
Company's VMS products will be upgraded during the third quarter of calendar
1999.*

        3. PC hardware. The Company has less than 75 PC's in use and estimates
that fewer than 25% of those will need upgrades to be compliant. This upgrade
project is expected to be completed by September 30, 1999.*

        4. Various other software packages. Certain employees of the Company
require software products to assist them in their jobs. The number of these
products is estimated to be fewer than ten, and assessment of the products for
Year 2000 compliance is scheduled to take place in the first half of calendar
1999.

        5. A listing of printers, modems and other computer hardware is being
assembled, reviewed and assessed for Year 2000 compliance. After the review is
completed, a determination will be made regarding the need to upgrade or replace
the various hardware products.

        The Company estimates that the cost for the upgrades listed above and
any replacements will not exceed $15,000. The Company intends to fund Year 2000
upgrades and changes through operating cash flow and indebtedness.**

        Timeline Software Products:

        The Company's current versions of its products and services are designed
to be Year 2000 compliant. Following is a list showing the current version
number of the software products that are believed to be Year 2000 compliant:

        Vax/Alpha Version 6.0
        Financial Analytics Version 2.5 and higher
        MV Server Versions 2.4d and 2.5c
        Analyst 1.5 compatible suite(1)
        Third-Party Alliance Partner Filters

        (1) Designed to be Y2K compliant, but no testing performed. Upgrade
            recommended to Financial Analytics

        The Company recognizes that certain customers may have made custom,
site-specific changes to software provided by the Company. The Company cannot
assess the number or nature of such customizations nor their Y2K compliance. To
the extent the customization work was performed by the Company, customers may
request a review and, if possible, an upgrade to the customization on a time and
materials basis. While the Company's above-listed products have been released as
Year 2000 compliant, certain customers have not yet upgraded to these versions.
Although the Company believes that its internal systems, products and services
are currently Year 2000 compliant, a re-testing of the current release of the
software is scheduled to be completed by September 1999.* However, there can be
no assurances that the Company's products and systems contain all necessary date
codes. In addition, there can be no guarantee that the systems of other
companies on which the Company relies or with whom it does business will be Year
2000 compliant and would not have an adverse effect on the Company's business.*

        Timeline makes no representation or warranty as to, and will not
address, the Year 2000 readiness of any hardware, firmware, software, services
protocols, data, interfaces to third party systems, or user-customized functions
or features that may be used with Timeline software other than those Company
products discussed above. The Company does not plan to test any products other
than the current version and will not provide Year 2000 support for any products
other than those identified on the list. The information contained on the list
is based on data available to the Company at the time of its preparation. From
time to time, Timeline may change the information on the list without notice to
the customer.

        The Company estimates that the cost to date for upgrading its products
to be Year 2000 compliant is approximately $160,000. These costs have been
incurred over a several year period and have been funded by operating cash flow.
Although future expenses are not known at this time, the Company believes they
will not be material.**

        The Company estimates that it has completed approximately 70% of its
Year 2000 Plan regarding Internal Matters. The Internal Matter review process is
planned for completion by the end of the September 1999.**



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        External Matters. The Company has commenced a review of External Matters
which are outside the Company's control and influence. This process consists of
a determination of the customer and supplier relationships and third-party
alliance partners that could have a potential material impact upon the Company
and its ongoing operations. Confirmation of Y2K compliance has been received
from the building management with regard to building systems, the telephone
system and service providers, and the Company's business equipment such as
copiers, postage and fax machines. Additional vendors and suppliers may be added
if further analysis determines the impact on the Company would be material in
the event of a Year 2000 compliance failure. The Company will be contacting its
third-party alliance partners with regard to their Year 2000 compliance status
and any compatibility issues that may arise.*

        A contingency plan for External Matters has not yet been completed and
there can be no assurance that Year 2000 problems resulting from customer,
supplier or third-party alliance partner relationships will not have a material
adverse impact on the Company. The Company anticipates completion of this
process by July 30, 1999.**

        The Company estimates that it has completed approximately 70% of its
Year 2000 plan for External Matters. To date, it has incurred expenses of less
than $15,000, and anticipates future direct costs to be no more than an
additional $20,000.**

        Although the Company believes that it has an effective plan in place
that will resolve any Year 2000 issues in a timely manner, the Company may be
adversely impacted by Year 2000 issues if its re-testing of its software
products indicate Year 2000 processing problems, or if upgrades to internal
computer hardware and software are not completed on schedule. In the event that
third parties do not complete the necessary remediation, the Company could be
subject to interruption of its normal business activities, including its ability
to meet product development deadlines, maintain consulting schedules, generate
revenue through third-party alliance partners, deliver software to customers,
invoice customers, collect payments or engage in similar business activities.
Such an event could result in a material adverse effect on the Company's
revenues or in litigation surrounding such business interruptions. In addition,
disruptions in the economy generally resulting from the Year 2000 issue could
materially adversely affect the Company. The amount of potential liability and
revenues cannot reasonably be estimated at this time.**

OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS

        Accumulated Deficit; Recent Operating Results. The Company has
demonstrated an historical inability to operate profitably and had an
accumulated deficit of approximately $8,363,013 at March 31, 1999. In order to
achieve profitability, the Company must increase licensing and maintenance
revenues of its existing client/server products, licensing of patented
technology to third parties, and development of new products, and must control
its expenses. There can be no assurance the Company will meet these objectives
or achieve sustained profitability. Although the Company believes its cash
balances and anticipated operating results are sufficient to fund the Company in
fiscal 2000, no assurance can be given that sufficient sales will be generated
or that sufficient financing will be obtained to enable the Company to obtain or
sustain profitability. See "Limited Product Line; Uncertainty of Market
Acceptance," "Reliance on Licensing and Distribution Relationships," "Future
Capital Needs and Uncertainty of Additional Financing," and "Competition."

        Limited Product Line; Uncertainty of Market Acceptance. The Company's
future will depend upon the successful development, marketing and licensing of
its existing product line and other new products. There can be no assurance the
Company will achieve or sustain revenue growth for its actual, scheduled or
anticipated products, that enhancements to such products and other applications
can be successfully developed, that demand for such products will continue to
grow or be sustained, or that the Company's products will successfully compete
with the products of others. To the extent demand for the Company's products
does not develop due to competition, poor product performance, customer negative
assessment of the Company's financial resources and expertise, technological
change or other factors, the Company's operations may be materially and
adversely affected.

        Reliance on Licensing and Distribution Relationships. The Company
increasingly is reliant on agreements with third party licensees and
distributors, and less on direct sales efforts, for sales and licensing of the
Company's products. The Company's agreements with its licensees and distributors
generally are not exclusive, may be terminated by either party without cause,
and generally do not impose minimum licensing or purchase requirements. The
effectiveness of third-party licensing or distribution depends in part on the
market acceptance and distribution channels of such third-party's products and
services, the ability of the Company to integrate its products with those of the
third party, and the continued viability and financial stability of such third
parties, which, in turn, depends in part on the economic health of the software
industry. In addition, these third party licensees and distributors have shown a
weakness in new license sales due to Year 2000 compliance concerns on the part
of prospective licensees. There can be no assurance that these licensees and



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distributors will perform their contractual obligations as expected or that the
Company will derive any additional revenue from such arrangements, that the
Company will be successful in developing new relationships or maintaining
existing relationships with third-party licensees and distributors, that such
licensees and distributors will be able to market the Company's products
effectively, or that any existing licensee or distributor will continue to
represent the Company's products, any of which could materially adversely affect
the Company's results of operations.

        Reliance on Microsoft. The Company has developed all of its
client/server products to function in the Microsoft Windows and/or Windows NT
environments, and anticipates future products will also be designed for use in
these Microsoft environments. In light of this product strategy, sales of the
Company's new products would be materially and adversely affected by market
developments adverse to Microsoft Windows and/or Windows NT. The success of the
Company's strategy of developing products using the Microsoft Windows and/or
Windows NT environments is substantially dependent on its ability to gain timely
access to, and to develop expertise in, current and future developments by
Microsoft, of which there can be no assurance. Moreover, the abandonment by
Microsoft of its current operating system product line or strategy would
materially and adversely affect the Company.

        Fluctuations in Performance. The Company's results of operations have
historically varied substantially from period to period (quarterly or
otherwise), and the Company expects they will continue to do so. The timing and
amount of the Company's net revenues are substantially dependent upon such
factors as the size and timing of licensing agreements and customer orders, the
timing of the introduction and customer acceptance of new products or product
enhancements by the Company or its competitors, changes in pricing policies by
the Company or its competitors, and changes in general economic conditions.

        Over the past several years, the Company has made great efforts to
reduce its operating and other expenses, including significant reductions in its
sales and marketing staff and research and development activities. There can be
no assurance that these expense reductions will have the desired result of
enabling the Company to achieve profitability or that they will not have adverse
effects on the Company. In addition, the Company currently is more reliant on
licensing and distribution arrangements and less on direct sales, and
accordingly the Company expects that timing of revenues will fluctuate from
quarter to quarter, which may cause significant variations in periodic results
of operations. There can be no assurance that the Company's business strategy
will be successful or will result in an increase in revenues. In the event the
Company determines to increase its direct sales and marketing efforts or to
undertake research and development not funded by third parties, the Company's
operating expenses would increase and may have an adverse impact on the
Company's results of operations. The Company does not take any measures
specifically designed to limit fluctuations in the Company's periodic results of
operations. There can be no assurance the Company will be profitable on a
quarter-to-quarter or any other basis in the future.

        Future Capital Needs and Uncertainty of Additional Financing. The
Company's net working capital (excluding deferred revenue) at March 31, 1999 was
approximately $25,000. The Company's capital needs in the future will depend
upon factors such as the market acceptance of its products and any other new
products developed by the Company, the success of the Company's third-party
licensing and distribution arrangements and the Company's ability to develop and
maintain sustained maintenance and support revenue, none of which can be
predicted with certainty. There can be no assurance the Company will not require
substantial additional financing in the future for which it has no commitments
or arrangements, and there can be no assurance any additional financing, if
required, will be available, if at all, in a timely manner or on terms
acceptable to the Company. The inability to obtain required financing could have
a material adverse effect on the Company's results of operations, and could
cause the Company to significantly reduce or suspend its operations, seek a
merger partner, sell certain of its assets, sell additional securities on terms
which are highly dilutive to existing investors, or obtain funds through
arrangements that are unfavorable to the Company.

        Technological Change and Uncertainty. The market for the Company's
products is characterized by rapidly changing technology, evolving industry
standards, changes in customer needs and frequent new product introductions. The
Company's future success will depend on its ability to enhance its current
products and develop new products on a timely and cost-effective basis, to meet
changing customer needs and to respond to emerging industry standards and other
technological changes. In particular, the Company's products must maintain
compatibility with existing and future Microsoft Windows and Windows NT
operating environments, database systems and development tools. Any failure by
the Company to anticipate or to respond promptly and adequately to changes in
technology and customer preferences, or any significant delays in product
development or introduction, would have a material adverse effect on the
Company's results of operations. There can be no assurance the Company will be
successful in developing new products or enhancing its existing products on a
timely basis, or that such new products or product enhancements will achieve
market acceptance.



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        Software products as complex as those offered by the Company may contain
undetected errors or failures when first introduced or as new versions are
released. There can be no assurance that, despite significant testing by the
Company and by current and potential customers, errors will not be found in new
products after commencement of commercial shipments, resulting in loss of or
delay in market acceptance. Furthermore, from time to time the Company and
others may announce new products, capabilities or technologies which have the
potential to replace or shorten life cycles of the Company's existing products
and which may cause customers to defer purchasing existing Company products.
Delays or difficulties associated with new product introductions or product
enhancements could have a material adverse effect on the Company's results of
operations.

        Competition. The business information software market is highly
competitive. Management believes the primary products in competition with its
products are products provided by Hyperion Solutions, Inc., Comshare, Inc., FRX,
Cognos Corporation, and various budgeting vendors such as IBM and Unix vendors.
The Company also expects to face competition with respect to those products it
is developing and has scheduled for release. Most of the Company's competitors
have significantly greater financial, technical, sales, marketing, research and
development and other resources, as well as greater name recognition and larger
installed bases, than the Company. Because there are minimal barriers to entry
into the software market, the Company believes sources of competition will
continue to proliferate. The market for the Company's products is characterized
by significant price competition, and the Company expects it will face
increasing pricing pressures. There can be no assurance the Company will be able
to compete effectively, if at all, and its inability to do so would adversely
affect the Company's results of operations.

        Dependence on Key Personnel; Management of Operations. The Company's
success depends to a significant extent on the continued contributions of
several management personnel, in particular Charles Osenbaugh, the Company's
Chief Executive Officer and Chief Financial Officer. The Company currently does
not have key person life insurance on Mr. Osenbaugh and does not have an
employment agreement with Mr. Osenbaugh. The loss of the services of Mr.
Osenbaugh would have a material adverse effect on the Company.

        The Company's success also depends in part on its ability to attract and
retain qualified professional, technical, managerial and marketing personnel.
Competition for such personnel in the software industry is intense, and there
can be no assurance the Company will be successful in attracting and retaining
the personnel it requires to conduct its operations successfully. The Company's
results of operations could be adversely affected if the Company were unable to
attract, hire, train and manage qualified personnel. The ability of the Company
to manage operations will depend in part on the ability of its officers and key
personnel to continue to successfully implement appropriate management,
operational and financial systems and controls.

        Intellectual Property and Proprietary Rights. The Company relies on a
combination of copyright, trademark and trade secret laws, patents,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company seeks to protect its software, documentation and other
written materials under patent, trade secret and copyright laws, which afford
only limited protection. The Company has received two U.S. patents and Notice of
Issuance by the U.S. Patent Office of a Continuance and Continuance in Part
related to one of the patents, and has filed for patent protection in certain
foreign countries. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information the Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and although
the Company is unable to determine the extent, if any, to which piracy of its
software products currently exists, it can be expected to occur in the future.
In addition, the laws of some foreign countries do not protect proprietary
rights to the same extent as do the laws of the U.S. There can be no assurance
proprietary protections will be adequate or that the Company's competitors will
not independently develop similar technology. The Company has not obtained an
opinion of counsel as to the validity of its proprietary rights. The Company has
stated it intends to protect its patent rights against infringement through
negotiation and litigation, if necessary. Such litigation could be costly and
there are no assurances the Company would be successful.

        No claims have been made against the Company for infringement of
proprietary rights of third parties. There can be no assurance, however, that
third parties will not assert infringement claims against the Company in the
future. The cost of responding to any such claim may be substantial, whether or
not the assertion is valid.

        International Operations. Historical net revenues attributable to
licenses made outside the U.S. have been relatively insignificant, however, the
Company anticipates, international licenses will account for an increasing
portion of its net revenues in the future. The Company's international licenses
and other revenues are subject to fluctuations in U.S. currency valuations. The
Company does not currently engage in foreign currency hedging transactions,
although it may implement such transactions in the future. In addition, foreign
countries may impose limitations on the amount of currency



                                     Page 8
<PAGE>   9

which may be withdrawn from such countries, thereby adversely affecting the
Company's liquidity and geographic market scope.

        Possible Illiquidity of Trading Markets. The Common Stock and its
warrants are currently listed for trading on the OTC Bulletin Board, and as a
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's securities than if the
securities were traded on the Nasdaq Stock Market or another national exchange.
In addition, the Common Stock and warrants are also listed for trading on the
Boston Stock Exchange. If the Company were to experience significant or
prolonged losses or otherwise, it may be unable to maintain the standards for
continued listing on the Boston Stock Exchange. As a result, an investor would
find it more difficult to dispose of, or to obtain accurate quotations for, the
Company's securities.

        The Company's securities are subject to certain rules and regulations
relating to "penny stock" (generally defined as any equity security that is not
quoted on Nasdaq and that has a price less than $5.00 per share, subject to
certain exemptions). Broker-dealers who sell penny stocks are subject to certain
"sales practice requirements" for sales in certain nonexempt transactions (i.e.,
sales to persons other than established customers and institutional "accredited
investors"), including requiring delivery of a risk disclosure document relating
to the penny stock market and monthly statements disclosing recent price
information for the penny stock held in the account, and certain other
restrictions. For as long as the Company's securities are subject to the rules
on penny stocks, the market liquidity for such securities could be materially
and adversely affected.


ITEM 2.  DESCRIPTION OF PROPERTY

        Timeline leases approximately 12,354 square feet of office space at 3055
112th Ave. N.E., Bellevue, Washington, under a lease which expires April 30,
2001. Of this amount, 1,134 square feet are subleased to a third party for the
remainder of the term of the lease, under an agreement with a 60-day termination
provision.

        Timeline does not own any real estate.


ITEM 3.  LEGAL PROCEEDINGS

        In May 1998, the Company, certain of its directors, former directors and
officers, were named as defendants in a securities class action lawsuit, Tennant
v. Timeline, Inc., et al., Case No. 9805-03737, in the Circuit Court of the
State of Oregon for Multnomah County. The lawsuit alleged certain violations of
Oregon state securities laws filed by several individual shareholders who
purchased stock primarily in the 1996 private placement. Although the ultimate
outcome of such litigation is uncertain, management does not believe that the
resolution of this lawsuit will have a material impact on the future financial
results of the Company.*

        In October 1998, the Company filed an action in the US Federal District
Court for Western Washington against Clarus Corporation. In March 1999, the
Company filed an action in the US Federal District Court for Western Washington
against Sagent Technologies, Inc. Both of these actions seek monetary damages
and an injunction against the respective defendants from further unauthorized
licensing of certain products that Timeline believes infringe on Timeline's U.S.
Patent rights under U.S. Patent #5,802,511.*


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year.



                                     Page 9
<PAGE>   10


                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Timeline's common stock is traded on the OTC Bulletin Board ("OTCBB")
and the Boston Stock Exchange ("BSE") under the symbols "TMLN" and "TML",
respectively. Additionally, warrants to purchase common stock are traded on both
OTCBB and BSE under the symbols "TMLNW" and "TMLW", respectively. Prior to
November 1997, Timeline's common stock and warrants were traded on the Nasdaq
SmallCap Market (Nasdaq). Both classes of securities initiated trading on
January 18, 1995, the effective date of the Company's initial public offering of
common stock and warrants. The following table contains the high and low bid
information as reported by OTCBB and Nasdaq, for each quarter of fiscal 1998 and
1999. The quotations from the OTCBB reflect inter-dealer prices without retail
mark up, mark down, or commissions and may not represent actual transactions.

<TABLE>
<CAPTION>
                               Fiscal 1998                                 Fiscal 1999
                 ---------------------------------------     ---------------------------------------
                   1st        2nd       3rd         4th       1st         2nd        3rd       4th
                 Quarter    Quarter    Quarter   Quarter     Quarter    Quarter    Quarter   Quarter
                 -------    -------    -------   -------     -------    -------    -------   -------
<S>              <C>        <C>        <C>       <C>         <C>        <C>        <C>       <C>
Common Stock
    High         1 3/8      1 5/8      1 1/8      2 3/8      2 1/2      1 5/8      1 1/16      7/8
    Low            5/8        25/32      3/8        9/16       7/8        11/16      7/16      3/8
Warrants
    High           7/16       11/32      9/32       3/10      37/100      1/16       1/16      1/20
    Low            1/4         1/4       3/100      3/100     13/100      1/16       1/50      1/50
</TABLE>

        At June 1, 1999 there were 3,191,387 shares of common stock outstanding
held by approximately 77 holders of record. An additional 1,000,000 warrants to
purchase common stock were outstanding held by approximately 21 holders of
record, each warrant allowing the purchase of one share of stock on or before
January 17, 2000 at a price of $6.25 per share.

        In February 1999, the Company granted a performance-based stock option
to purchase 50,000 shares of common stock to Charles R. Osenbaugh, the Company's
President and CEO, at an exercise price of $1.00 per share. This option becomes
vested upon achieving 10 consecutive days of the Company's stock closing trading
at $5.00 per share or higher. At the same time, the vesting schedule was revised
on a prior grant of a performance-based option to purchase 75,000 shares made to
Mr. Osenbaugh in fiscal 1998. Under the revised vesting schedule, 50% vests and
becomes exercisable when the common stock closes trading at $2.00 or more per
share for 10 consecutive days and the remainder vests and becomes exercisable
when the Company's stock closes trading at $3.00 or more per share for 10
consecutive days. In any event, all options discussed in this paragraph shall
vest, if not otherwise vested, seven years from the date of grant provided Mr.
Osenbaugh is then employed by the Company.

        In April 1999, the Company issued a warrant to acquire up to 21,000
shares of its common stock to Len Cereghino & Co. for services rendered, at an
exercise price of $1.00 per share.

        No cash dividends have been paid on the stock of the Company and no
dividends are currently contemplated by management. There are no restrictions on
the payment of dividends.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The charts below containing interim period information are provided solely as
part of Registrant's annual report to securityholders, and are not submitted as
a response to Item 6 of Form 10-KSB. The inclusion of the charts below does not
constitute or imply Registrant's agreement that such charts are subject to
Section 18 of the Exchange Act.

RESULTS OF OPERATIONS

        For fiscal year ending March 31, 1999, Timeline generated a net loss of
$366,000, compared to net income of $175,000 for the period ended March 31,
1998. This decrease was attributable, in large part, to recognition in fiscal
1998 of a $988,000 gain on the sale of a majority interest in Analyst Financials
Limited (formerly Timeline Europe Limited).



                                    Page 10
<PAGE>   11

        Other significant factors in the results for fiscal year ended March 31,
1999 were lower revenues generated from consulting and software development
activities, offset somewhat by a reduction in expenses from sales and marketing
and research and development. General and administrative expenses were the
exception, increasing slightly for the year.

                                  GROSS REVENUE

<TABLE>
<CAPTION>
                          Three Months Ended                   Twelve Months Ended
                               March 31,                             March 31,
                           1999        1998       Change         1999        1998       Change
----------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S>                          <C>         <C>         <C>         <C>         <C>             <C>
Software license             362         979         (63%)       1,794       1,747           3%
Maintenance                  188         176           7%          854         777          10%
Consulting                   173         213         (19%)         713         979         (27%)
Software Development          12           6         100%           41         381         (89%)
                             ---------------                     -----------------
Net sales                    736       1,374         (46%)       3,402       3,884         (12%)
----------------------------------------------------------------------------------------------
</TABLE>

        Total revenue decreased 12% to $3,402,000 for the fiscal year ended
March 31, 1999. Revenues generated by license fees were slightly higher in
fiscal 1999 over fiscal 1998, despite lower average per license fees. Management
believes license fee revenue will continue to increase in fiscal 2000 due to the
increased opportunity to license and distribute its software in conjunction with
a number of third parties.* However, the Company may be exposed to more dramatic
swings in its revenue due to the unpredictability of license revenue generated
through sales by third party vendors.* Also, the impact of Year 2000 compliance
uncertainties on the industry as a whole may have a negative impact on license
revenue in the coming year.* The Company is currently working with Infinium
Software, Inc., Electronic Data Systems, Inc. (EDS), and Analyst Financials
Limited (formerly Timeline Europe Limited) to market the Company's products.
Starting July 1, 1999, Analyst Financials Limited's royalty payment rate to the
Company will increase from 10% to 11.5% of gross license fees.* In addition, the
Company and Navision a/s are developing software for licensing by Navision,
currently scheduled for delivery in the second quarter of fiscal 2000.*

        Consulting revenues were negatively affected by reduced staffing for a
large part of the 1999 fiscal year. The Company hired additional consulting
personnel during the fourth quarter. However, due to the length of time required
to train new consulting personnel to enable them to be productive, fourth
quarter results were not greatly impacted by the increase in resources.
Management believes the demand will be sufficient to effectively utilize these
additional resources and revenues from consulting will increase in fiscal 2000.*
Nevertheless, as already noted, there may be a negative impact on consulting
revenues as a result of Year 2000 compliance concerns on the part of prospective
licensees.*

        Maintenance revenue was also higher in fiscal 1999 than in fiscal 1998,
as the volume of fully-installed licensees of the Company's Financial Analytics
products continued to increase. However, management believes maintenance revenue
for fiscal 2000 will most likely be relatively flat.* The Company continues to
lose maintenance customers on its older VAX-based systems. In April 1999, the
single largest maintenance client in this category ($144,000 per annum)
completed its transition to new third-party software. Accordingly, maintenance
during the first several quarters of fiscal 2000 will likely be lower than in
fiscal 1999, but is expected to build as the year progresses and new licensees
are added.*

        Software development revenues continued to decrease in fiscal 1999.
Management does not anticipate that software development revenue will constitute
a significant source of revenue in fiscal 2000 as there are no substantial
contracts currently in place or being pursued for development efforts.* The
Company does not consider software development for fees to be a line of business
that should be pursued except in exceptional situations.



                                    Page 11
<PAGE>   12

                                  GROSS MARGIN

<TABLE>
<CAPTION>
                             Three Months Ended                      Twelve Months Ended
                                  March 31,                               March 31,
                              1999         1998        Change         1999         1998        Change
-----------------------------------------------------------------------------------------------------
<S>                          <C>          <C>          <C>           <C>           <C>         <C>
(Dollars in
Thousands)

Gross profit                    504          991          (49%)       2,460        2,364            4%
Percentage of net sales          68%          72%                        72%          61%

-----------------------------------------------------------------------------------------------------
</TABLE>

        Gross profit increased during the 1999 fiscal year by $96,000
representing a 4% growth over the 1998 fiscal year. Fourth quarter margins for
fiscal 1998 were skewed by an unusually large license fee of $870,000 from
Seagate Software, Inc., making the results not directly comparable to fourth
quarter 1999. Cost of revenue decreased in both real terms and as a percentage
of sales for the 1999 fiscal year. This trend, which also occurred in fiscal
1998 when compared to fiscal 1997, continues to reflect the change in approach
to cooperative distribution in conjunction with third parties. These cost
savings also reflect a decreased amortization of capitalized software costs
($268,000 in fiscal 1999 compared to $393,000 in fiscal 1998). Amortization is
expected to increase in fiscal 2000 due to a higher level of capitalized
research and development which will be amortized as the Company completes
several development projects planned in fiscal 2000.*

             SALES AND MARKETING & RESEARCH AND DEVELOPMENT EXPENSE

<TABLE>
<CAPTION>
                             Three Months Ended                      Twelve Months Ended
                                  March 31,                               March 31,
                              1999         1998        Change         1999         1998        Change
-----------------------------------------------------------------------------------------------------
<S>                           <C>          <C>         <C>           <C>           <C>         <C>
(Dollars in Thousands)
Sales and marketing             145          135            7%          599          714          (16%)
Percentage of net sales          20%          10%                        18%          18%
-----------------------------------------------------------------------------------------------------

Research & development          143          320          (55%)         657          776          (15%)
Percentage of net sales          19%          23%                        19%          20%
-----------------------------------------------------------------------------------------------------
</TABLE>

        Sales and marketing costs decreased 16% to $599,000 in fiscal 1999 from
$714,000 in fiscal 1998. This decrease was consistent for the first two quarters
of the fiscal year but the trend reversed in the final two quarters. This
reversal is due to increased personnel in these areas during the last two fiscal
quarters. Consequently, sales and marketing expenses are expected to increase in
fiscal 2000 over fiscal 1999.*

        Research and development costs were $657,000 in fiscal 1999 compared to
$776,000 in fiscal 1998, a 15% decrease. This decrease was almost entirely the
result of increased capitalization of research and development cost in fiscal
1999; i.e. a lower percentage of the Company's expenses in the product group
were expensed against current income. The Company continues to add additional
product resources and management expects research and development expenses will
be higher in fiscal 2000 than fiscal 1999.*


                       GENERAL AND ADMINISTRATIVE EXPENSE

<TABLE>
<CAPTION>
                              Three Months Ended                     Twelve Months Ended
                                   March 31,                              March 31,
                               1999         1998        Change        1999         1998        Change
-----------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S>                           <C>           <C>         <C>           <C>          <C>         <C>
General & administrative         363          220           65%       1,329        1,295            3%
Percentage of net sales           49%          16%                       39%          33%
-----------------------------------------------------------------------------------------------------
</TABLE>

        General and administrative expenses increased to $1,329,000 in fiscal
1999 from $1,295,000 in fiscal 1998, an increase of 3%. A significant portion of
this increase occurred in the fourth fiscal quarter of the year, and primarily
reflects



                                    Page 12
<PAGE>   13

an accrual for attorney's fees related to the shareholders' securities lawsuit.
It is hard to determine if these expenses will be greater or smaller in fiscal
2000 due to the unpredictability of the outcome of and expenses associated with
both the shareholders' lawsuit and lawsuits brought by the Company on alleged
patent infringements.*

        Depreciation expense decreased in fiscal 1999 to $196,000 from $240,000
in fiscal 1998.

                                  OTHER INCOME

        Interest expense decreased to $57,000 in fiscal 1999 from $158,000 in
fiscal 1998, while interest income increased to $12,000 from $5,000 for fiscal
1998. These changes reflect the Company's positive cash flow in fiscal 1999 and
its significant reductions in debt. While the Company's debt balances decreased
in fiscal 1999 as compared to fiscal 1998, the Company is again utilizing
receivable financing. If this continues through fiscal 2000 year-end, management
believes interest costs for fiscal 2000 will be greater than in fiscal 1999 and
interest income will be lower.*

        The Company did not record a tax benefit or cost in either fiscal 1999
or 1998, as the tax assets generated by the net operating losses from prior
years and fiscal 1999 did not satisfy the recognition criteria set forth by
generally accepted accounting principles. Accordingly, the Company has
established a valuation allowance that offsets net deferred tax assets. As
taxable income is accrued which is offset by previously unrecognized net
operating loss carry-forwards, the Company offsets tax costs with such net
operating losses. Management does not anticipate recognition of federal income
taxes in the near future as existing net operating loss carry-forwards are
considered adequate to cover taxable income, if any, for fiscal 2000.*


LIQUIDITY AND CAPITAL RESOURCES.

        The Company's cash and cash equivalent balances at March 31, 1999 stood
at $59,000 compared to $59,000 at March 31, 1998. Despite the fact cash did not
increase for fiscal 1999, operating activities generated $771,000 of cash and
the Company received $161,000 from a note receivable. These proceeds were
expended on equipment ($79,000), capitalized research and development costs
($424,000), and net reduction of debt obligations ($429,000).

        The $771,000 of cash flows from operating activities consisted of a net
loss of $366,000 increased by the non-cash depreciation and amortization of
$464,000, net collection of receivables of $812,000, and application of prepaid
and other non current assets of $138,000. These were offset by decreases in
payables and accrued expenses of $238,000 and increased deferred revenue of
$41,000. Net cash provided by operating activities of $771,000 in fiscal 1999
compares to $21,000 used in operating activities in fiscal 1998.

        Total obligations, excluding deferred income items, totaled $669,000 at
March 31, 1999 compared to $1,254,000 at March 31, 1998. The fiscal 1999 and
1998 obligations include a corporate guarantee of a bank note payable by the
Timeline Employee Stock Ownership Trust to Silicon Valley Bank representing
$104,000 at March 31, 1999 and $229,000 at March 31, 1998. This note was paid in
full in June 1999.

        Subsequent to the end of the 1999 fiscal year, the Company received a
payment of a one-time, nonrefundable license fee of $5,000,000 from Microsoft
Corporation in connection with a non-exclusive patent license agreement entered
into between the Company and Microsoft. Consequently, the Company has, as of
June 7, 1999, approximately $4,200,000 cash after payment of certain trade
payables and other obligations (see Note 11 in Notes to Financial Statements)
The Company believes its cash balances and anticipated operating results are,
sufficient to fund the Company in fiscal 2000.*

        At March 31, 1999, the outstanding balance on the Company's line of
credit facility was $24,000. The Company has a bank line of credit of $500,000
based upon selling its accounts receivable with recourse. In June 1997, the
Company entered into a $150,000 loan agreement, secured by certain equipment
owned by the Company, that is payable in equal monthly payments over a 24 month
period. The remaining balance of $28,000 is to be repaid in full during the
first quarter of fiscal 2000.



                                    Page 13
<PAGE>   14

ITEM 7.  FINANCIAL STATEMENTS

Financial Statements -

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
   Report of Independent Public Accountants                                   16

   Balance Sheets as of March 31, 1999 and 1998                               17

   Statements of Operations for the years ended
       March 31, 1999 and 1998                                                18

   Statements of Changes in Stockholders' Equity                              19
       for the years ended March 31, 1999 and 1998

   Statements of Cash Flows for the years ended                               20
       March 31, 1999 and 1998

   Notes to Financial Statements                                              21
</TABLE>



                                    Page 14
<PAGE>   15



                          TIMELINE, INC.

                          FINANCIAL STATEMENTS
                          AS OF MARCH 31, 1999 AND 1998
                          TOGETHER WITH AUDITORS' REPORT



                                    Page 15
<PAGE>   16

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Shareholders of
Timeline, Inc.:

We have audited the accompanying balance sheets of Timeline, Inc. (a Washington
corporation) as of March 31, 1999 and 1998, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Timeline, Inc. as of March 31,
1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.



/s/ ARTHUR ANDERSEN LLP


Seattle, Washington,
  April 30, 1999 (except with respect to Note 11, as to which the date is June
  7, 1999)



                                    Page 16
<PAGE>   17

                                 TIMELINE, INC.

                    BALANCE SHEETS -- MARCH 31, 1999 AND 1998

                                     ASSETS
<TABLE>
<CAPTION>
                                                                              1999              1998
                                                                           -----------       -----------
<S>                                                                        <C>               <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                $    59,453       $    59,022
  Accounts receivable (including $195,150 and $6,650 from affiliate),
    net of allowance of $52,010 and $60,966                                    559,666         1,372,155
  Note receivable from affiliate                                                13,567           174,864
  Prepaid expenses and other                                                    56,888            94,381
                                                                           -----------       -----------

           Total current assets                                                689,574         1,700,422

PROPERTY AND EQUIPMENT, net of accumulated
  depreciation of $1,624,597 and $1,469,026                                    371,850           490,167

CAPITALIZED SOFTWARE COSTS, net of accumulated
  amortization of $1,131,458 and $863,339                                      628,508           472,496

OTHER ASSETS                                                                     2,185            21,072
                                                                           -----------       -----------

           Total assets                                                    $ 1,692,117       $ 2,684,157
                                                                           ===========       ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                         $   142,487       $   352,392
  Accrued expenses                                                             355,125           399,386
  Line of credit                                                                23,705           146,872
  Deferred revenues                                                            418,827           460,191
  Current portion of long-term debt                                            132,578           329,578
  Current portion of obligations under capital leases                           10,705            19,939
                                                                           -----------       -----------

           Total current liabilities                                         1,083,427         1,708,358

OBLIGATIONS UNDER CAPITAL LEASES, net of current portion                         4,309             5,781
                                                                           -----------       -----------

           Total liabilities                                                 1,087,736         1,714,139
                                                                           -----------       -----------

STOCKHOLDERS' EQUITY:
  Common stock, $.01 par value, 20,000,000 shares authorized,
    3,191,368 and 3,214,622 issued and outstanding                              31,946            32,147
  Additional paid-in capital                                                 9,070,865         9,205,706
  Unearned ESOP shares                                                        (135,417)         (270,833)
Accumulated deficit                                                         (8,363,013)       (7,997,002)
                                                                           -----------       -----------

               Total stockholders' equity                                      604,381           970,018
                                                                           -----------       -----------

               Total liabilities and stockholders' equity                  $ 1,692,117       $ 2,684,157
                                                                           ===========       ===========
</TABLE>


      The accompanying notes are an integral part of these balance sheets.



                                    Page 17
<PAGE>   18

                                 TIMELINE, INC.

                            STATEMENTS OF OPERATIONS

                   FOR THE YEARS ENDED MARCH 31, 1999 AND 1998



<TABLE>
<CAPTION>
                                                                 1999              1998
                                                              -----------       -----------
<S>                                                           <C>               <C>
REVENUES:
  Software license                                            $ 1,793,526       $ 1,747,398
  Software development                                             41,163           381,079
  Maintenance                                                     854,290           776,565
  Consulting                                                      712,585           978,920
                                                              -----------       -----------


           Total revenues                                       3,401,564         3,883,962

COST OF REVENUES                                                  941,857         1,519,623
                                                              -----------       -----------

           Gross profit                                         2,459,707         2,364,339
                                                              -----------       -----------


OPERATING EXPENSES:
  Sales and marketing                                             598,946           713,635
  General and administrative                                    1,328,715         1,295,017
  Research and development                                        656,798           776,086
  Depreciation and amortization                                   196,239           240,312
                                                              -----------       -----------

           Total operating expenses                             2,780,698         3,025,050
                                                              -----------       -----------

           Loss from operations                                  (320,991)         (660,711)
                                                              -----------       -----------

OTHER INCOME (EXPENSE):
  Gain on sale of Timeline Europe                                      --           988,409
  Interest expense and other                                      (57,010)         (158,063)
  Interest income and other                                        11,990             4,991
                                                              -----------       -----------

           Total other income (expense)                           (45,020)          835,337
                                                              -----------       -----------

           Income (loss) before income taxes                     (366,011)          174,626

           Income tax provision                                        --                --
                                                              -----------       -----------

           Net income (loss)                                  $  (366,011)      $   174,626
                                                              ===========       ===========


BASIC NET INCOME (LOSS) PER COMMON AND COMMON
  EQUIVALENT SHARE                                            $      (.12)      $       .06
                                                              ===========       ===========

DILUTED NET INCOME (LOSS) PER COMMON AND COMMON
  EQUIVALENT SHARE                                            $      (.12)      $       .05
                                                              ===========       ===========

SHARES USED IN CALCULATION OF BASIC EARNINGS PER SHARE          3,152,834         3,133,688
                                                              ===========       ===========

SHARES USED IN CALCULATION OF DILUTED EARNINGS PER SHARE        3,152,834         3,204,706
                                                              ===========       ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.



                                    Page 18
<PAGE>   19

                                 TIMELINE, INC.

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                   FOR THE YEARS ENDED MARCH 31, 1999 AND 1998

<TABLE>
<CAPTION>
                                        Common Stock
                                ---------------------------      Additional      Unearned          Stock         Foreign
                                                                  Paid-in          ESOP        Subscription      Currency
                                  Shares          Amount          Capital         Shares        Receivable      Adjustment
                                -----------     -----------     -----------     -----------     -----------     -----------
<S>                             <C>             <C>             <C>             <C>             <C>             <C>
BALANCE, March 31, 1997           3,216,153     $    32,162     $ 9,266,159     $  (391,366)    $   (95,603)    $   (15,910)
  Net income                             --              --              --              --              --              --
  Retirement of ESOP shares         (22,295)           (223)       (116,827)        117,050              --              --
  Amortization of unearned
    ESOP shares                          --              --              --           3,483              --              --
  Exercise of common stock
    options                          55,860              56          31,365              --              --              --
  Return of previously
    subscribed shares               (55,860)            (56)        (95,547)             --          95,603              --
  Sale of warrants to
    purchase 300,000 shares
    of common stock at $1.00             --              --         100,000              --              --              --
  Issuance of common stock
    for expenses                     20,764             208          20,556              --              --              --
  Foreign currency
    translation adjustment               --              --              --              --              --          15,910
                                -----------     -----------     -----------     -----------     -----------     -----------

BALANCE, March 31, 1998           3,214,622          32,147       9,205,706        (270,833)             --              --

  Net loss                               --              --              --              --              --              --
  Exercise of common stock
    options                             556              37             337              --              --              --
  Retirement of ESOP shares         (23,810)           (238)       (135,178)        135,416              --              --
                                -----------     -----------     -----------     -----------     -----------     -----------

BALANCE, March 31, 1999           3,191,368     $    31,946     $ 9,070,865     $  (135,417)    $        --     $        --
                                ===========     ===========     ===========     ===========     ===========     ===========
</TABLE>


<TABLE>
<CAPTION>


                                   Accumulated
                                     Deficit           Total
                                   -----------     -----------
<S>                                <C>             <C>
BALANCE, March 31, 1997            $(8,171,628)    $   623,814
  Net income                           174,626         174,626
  Retirement of ESOP shares                 --              --
  Amortization of unearned
    ESOP shares                             --           3,483
  Exercise of common stock
    options                                 --          31,421
  Return of previously
    subscribed shares                       --              --
  Sale of warrants to
    purchase 300,000 shares
    of common stock at $1.00                --         100,000
  Issuance of common stock
    for expenses                            --          20,764
  Foreign currency
    translation adjustment                  --          15,910
                                   -----------     -----------

BALANCE, March 31, 1998             (7,997,002)        970,018

  Net loss                            (366,011)       (366,011)
  Exercise of common stock
    options                                 --             374
  Retirement of ESOP shares                 --              --
                                   -----------     -----------

BALANCE, March 31, 1999            $(8,363,013)    $   604,381
                                   ===========     ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.



                                    Page 19
<PAGE>   20

                                 TIMELINE, INC.

                            STATEMENTS OF CASH FLOWS

                   FOR THE YEARS ENDED MARCH 31, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                    1999          1998
                                                                  ---------     ---------
<S>                                                               <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                               $(366,011)    $ 174,626
  Adjustments to reconcile net income (loss) to net cash
    used in operating activities-
      Depreciation and amortization                                 464,359       650,810
      Gain on sale of Timeline Europe                                    --      (988,409)
      Expenses paid with issuance of common stock                        --        52,185
      Loss on disposal of property and equipment                        711         3,568
  Changes in assets and liabilities:
        Accounts receivable                                         812,489      (356,690)
        Prepaid expenses and other                                  119,345       116,817
        Accounts payable                                           (147,403)      110,460
        Accrued expenses                                            (90,305)       77,880
        Deferred revenues                                           (41,364)      155,601
        Other noncurrent assets                                      18,887       (18,246)
                                                                  ---------     ---------
           Net cash provided by (used in) operating activities      770,708       (21,398)
                                                                  ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                                (78,633)      (17,867)
  Investment in capitalized software development costs             (424,132)     (224,986)
  Proceeds from note receivable                                     161,297       439,115
                                                                  ---------     ---------
           Net cash provided by (used in) investing activities     (341,468)      196,262
                                                                  ---------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on capital lease obligations                             (10,706)      (19,938)
  Borrowings under line of credit                                   134,155       806,237
  Repayments under line of credit                                  (257,322)     (859,365)
  Proceeds from notes payable                                            --       150,000
  Payments on notes payable                                        (295,310)     (480,204)
  Proceeds from exercise of stock options                               374            --
  Sale of warrants to purchase common stock                              --       100,000
                                                                  ---------     ---------
           Net cash used in financing activities                   (428,809)     (303,270)
                                                                  ---------     ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                    431      (128,406)
CASH AND CASH EQUIVALENTS, beginning of year                         59,022       187,428
                                                                  ---------     ---------

CASH AND CASH EQUIVALENTS, end of year                            $  59,453     $  59,022
                                                                  =========     =========

SUPPLEMENTAL CASH AND NONCASH DISCLOSURES:
  Cash paid during the year for interest                          $  56,510     $ 164,188
  Prepaid asset financed through accounts payable                    81,852        80,360
  Retirement of unallocated ESOP shares                             135,416       117,050
</TABLE>

   The accompanying notes are an integral part of these financial statements.



                                    Page 20
<PAGE>   21

                                 TIMELINE, INC.


                          NOTES TO FINANCIAL STATEMENTS

                                 MARCH 31, 1999


1.  THE COMPANY:

Organization

The accompanying financial statements are for Timeline, Inc. (the Company). The
Company develops, markets and supports enterprise-wide financial management,
budgeting and reporting software. Timeline's software products automatically
access and distribute business information with full accounting control.

Operations

As of March 31, 1999, the Company had an excess of current liabilities over
current assets of $393,853 and had an accumulated deficit of $(8,363,013), with
total stockholders' equity of $604,381. Management is in the process of
evaluating alternatives for raising additional funds and returning the Company
to profitable operations. These alternatives potentially include the continued
licensing or sale of part of its patented software, agreements with distribution
partners to market the Company's products and entering into additional debt
agreements. If these alternatives are unsuccessful, the Company would need to
implement a plan to reduce costs substantially until sales from operations
generate sufficient cash flows to continue to fund operations and development.*
In June 1999, the Company entered into a patent licensing agreement with
Microsoft Corporation that provided the Company with a nonrefundable payment of
$5,000,000 in cash (see Note 11).

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

These financial statements have been prepared in accordance with generally
accepted accounting principles and assuming that the Company will continue as a
going concern. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities.
Actual results could differ from these estimates.* Other significant accounting
policies are summarized in the following paragraphs.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a purchased maturity of
three months or less to be cash equivalents. Cash equivalents are valued at
cost, which approximates fair value due to the short-term nature of these
investments.

Property and Equipment

Property and equipment are stated at historical cost. Improvements and
replacements are capitalized. Maintenance and repairs are expensed when
incurred. The provision for depreciation is determined by the straight-line
method, which allocates the cost of property and equipment additions, including
capital leases, over the shorter of the lease period or their estimated useful
lives of three to seven years.



                                    Page 21
<PAGE>   22

Capitalized Software Costs and Research and Development Costs

The Company capitalizes certain internally generated software development costs,
which consist primarily of salaries, in accordance with Statement of Financial
Accounting Standards No. 86. Amounts capitalized relate to software development
costs incurred after the technological feasibility and market acceptance of a
product line have been established. Amortization is recognized using the
straight-line method over the products' remaining estimated economic life of the
products of three years. Amortization starts when the product is available for
general release to customers. During fiscal 1999 and 1998, the Company
capitalized $424,131 and $224,986, respectively, of software development costs.
Amortization expense for fiscal 1999 and 1998 was $268,120 and $393,363,
respectively. The amortization is included in cost of revenues in the
accompanying statements of operations.

All research and development costs are expensed as incurred.

Revenue Recognition

Revenue from software licenses is recognized upon shipment, provided no
significant vendor obligations remain and collection of the resulting receivable
is deemed probable. Software licenses sold, for which there are still
significant vendor obligations or right of return, are recorded as deferred
revenue and are recognized as revenue upon the fulfillment of the obligation or
lapse of the return period. Software licenses typically include a three-month
warranty period. The revenues attributable to the warranty are recognized
ratably over the warranty period.

The Company enters into post-contract customer-support maintenance agreements,
which are renewable annually. Revenue from these maintenance agreements is
recognized ratably over the maintenance period.

The Company also enters into separately priced consulting agreements with its
customers to provide installation, training and other consulting services. These
agreements are generally priced on a time and materials basis and revenues are
recognized as the services are performed. The nature of the services do not
significantly alter the licensed software.

Net Income (Loss) per Common Share

The Company adopted Statement of Financial Accounting Standard No. 128,
"Earnings per Share," effective December 15, 1998. Basic net income (loss) per
share is the net income (loss) divided by the average number of shares
outstanding during the year. Diluted net income (loss) per share is calculated
as the net income (loss) divided by the sum of the average number of shares
outstanding during the year plus the net additional shares that would have been
issued had all dilutive options been exercised, less shares that would be
repurchased with the proceeds from such exercise (Treasury Stock Method). During
fiscal year 1999, the effect of including outstanding options is antidilutive,
therefore, options have been excluded from the calculation of diluted net loss
per share. Furthermore, shares in the Employee Stock Ownership Plan, which were
not committed to be released to plan participants as of each year-end, are not
considered outstanding for the earnings per share calculation.

The computation of diluted net income (loss) per common and common equivalent
share is as follows at March 31:

<TABLE>
<CAPTION>
                                                                         1999             1998
                                                                     -----------      -----------
<S>                                                                  <C>              <C>
Net income (loss)                                                    $  (366,011)     $   174,626
                                                                     -----------      -----------

Weighted average common shares outstanding                             3,152,834        3,133,688
Plus:  dilutive options and warrants                                          --          619,144
Less:  shares assumed repurchased with proceeds from exercise                 --         (548,126)
                                                                     -----------      -----------

Weighted average common and common equivalent shares outstanding       3,152,834        3,204,706
                                                                     -----------      -----------

Diluted net income (loss) per common and common equivalent share     $      (.12)     $       .05
                                                                     ===========      ===========
</TABLE>

The calculation of diluted net income (loss) per common and common equivalent
does not include 1,964,911 and 1,201,467 options and warrants in 1999 and 1998,
respectively, as they are antidilutive.



                                    Page 22
<PAGE>   23

Reclassifications

Certain reclassifications have been made to the 1998 financial statements to
conform them to the current year's presentation.

3.  SALE OF STOCK IN SUBSIDIARY:

Effective July 3, 1997, the Company entered into an agreement pursuant to which
it sold a majority interest in its then wholly-owned subsidiary, Timeline Europe
Ltd. (Analyst Financials). Under the agreement, Analyst Financials issued 87,500
shares of common stock to certain individuals for $1,633,760. The Company
contributed a portion of its intercompany receivable from Analyst Financials for
12,499 additional shares in Analyst Financials. The result of these transactions
reduced the Company's ownership interest in Analyst Financials to 12.5% and
caused the Analyst Financials management team and certain outside investors to
obtain an 87.5% ownership interest in Analyst Financials. Analyst Financials
also repaid to the Company approximately $152,000 of prior advances and executed
a debenture securing its remaining intercompany obligation to make additional
installments totaling approximately $406,000.

In connection with the sale of the majority interest in Analyst Financials, the
Company and Analyst Financials also executed a Distributorship Agreement and
Source Code License which allows Analyst Financials to distribute, enhance and
maintain certain Timeline, Inc. software products in exchange for licensing fees
and maintenance fees payable to the Company. The licensing fees are based on a
percentage of revenues generated by Analyst Financials. During the term of this
agreement, Analyst Financials has the right to market and license certain of the
Company's products to the exclusion of the Company in Europe, the Middle East
and Africa.

As a result of this transaction, Timeline has recognized a gain on the sale of
the 87.5% interest in Analyst Financials in the amount of $988,409. This amount
represents the elimination of the Company's negative investment in Analyst
Financials due to Analyst Financials no longer being a consolidated subsidiary
of Timeline, Inc.

4.  MAJOR CUSTOMERS:

During fiscal 1999, two customers comprised approximately 28% and 14% of the
Company's total revenue. During 1998, one customer comprised approximately 23%
of the Company's total revenue. At March 31, 1999, approximately 32%, 14% and
12%, of the accounts receivable balance was due from the Company's three largest
customers. At March 31, 1998, approximately 70% of the accounts receivable was
due from one customer.

5.  PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at March 31:

<TABLE>
<CAPTION>
                                                      1999             1998
                                                   -----------      -----------
<S>                                                <C>              <C>
Computer equipment                                 $ 1,553,018      $ 1,525,461
Office equipment                                       443,429          433,732
                                                   -----------      -----------

                                                     1,996,447        1,959,193
            Less-- accumulated depreciation         (1,624,597)      (1,469,026)
                                                   -----------      -----------

            Total property and equipment           $   371,850      $   490,167
                                                   ===========      ===========
</TABLE>

6.  FINANCING ARRANGEMENTS:

In May 1997, the Company entered into a line of credit agreement with its
primary lender. Under the agreement, the Company may sell receivables with
recourse in an amount up to $500,000. Interest on the line of credit is
calculated at 2.50% of the average monthly balance plus a 1% administration fee.
At March 31, 1999 and 1998, $23,705 and $146,872 was outstanding under this
agreement, respectively.



                                    Page 23
<PAGE>   24

Secured Promissory Note

During May 1997, the Company borrowed $150,000 under a secured promissory note
agreement. The note is secured by certain property and equipment and is payable
in equal monthly installments of $7,183, with a balloon payment of approximately
$22,000 at the settlement of the note in June 1999. The note bears interest at
22.5%. At March 31, 1999, $28,411 was outstanding under this agreement.

Employee Stock Ownership Plan

During March 1996, the Company established an Employee Stock Ownership Plan
(ESOP) that covers substantially all U.S. employees. The Company registered and
sold 95,200 shares of common stock (3% of the total outstanding at March 31,
1999) to the ESOP. Financing for the purchase was provided by a $500,000 bank
loan which was a direct obligation of the Company's Employee Stock Ownership
Trust (the Trust) and was secured by a pledge of the shares purchased and was
guaranteed by the Company and the chief executive officer.

Funds for payment of the note principal and interest were obtained by the ESOP
from employee contributions and a Company match as well as Company advances to
the ESOP. The outstanding balance of $104,167 and $229,167 at March 31, 1999 and
1998, respectively, on the ESOP note is included as a liability on the balance
sheet. Subsequent to the fiscal year end, the Company paid the balance in full.
The Company has recorded the cost of unallocated shares as unearned ESOP shares.
During 1999 and 1998, the Company applied $135,416 and $117,050, respectively,
of its prepayments to the ESOP to repurchase and retire 23,810 and 22,295
shares, respectively, of its common stock.

The ESOP note bore interest at the prime rate plus 2% (10.5% at March 31, 1999
and 1998).


7.  FEDERAL INCOME TAXES:

Federal income taxes are determined using an asset and liability approach.

The Company has determined that the deferred tax assets do not satisfy the
recognition criteria set forth in SFAS No. 109. Accordingly, a valuation
allowance has been recorded against the applicable deferred tax assets and
therefore no tax benefit has been recorded in the accompanying statement of
operations. The Company's deferred tax assets (liabilities) as of March 31 are
as follows:

<TABLE>
<CAPTION>
                                                      1999             1998
                                                   -----------      -----------
<S>                                                <C>              <C>
        Net operating loss carryforward            $ 2,008,000      $ 1,832,000
        Research and experimentation credit            300,000          300,000
        Deferred revenues                              142,000          156,000
        Capitalized software costs                    (214,000)        (161,000)
        Other                                           70,000           96,000
                                                   -----------      -----------

                                                     2,306,000        2,223,000

        Less - valuation allowance                  (2,306,000)      (2,223,000)
                                                   -----------      -----------

             Net deferred tax assets               $        --      $        --
                                                   ===========      ===========
</TABLE>


The net operating loss carryforwards and research and experimentation credit
carryforwards expire through 2018.

The valuation allowance increased by $83,000 during the year ended March 31,
1999 and decreased by $489,000 during 1998.

In connection with the initial public offering, the Company experienced a
significant change in ownership, which limits the amount of previously generated
net operating loss carryforwards and research and experimentation credits of
$2,053,000 and $221,000, respectively, which may be used in any given year to
approximately $300,000.



                                    Page 24
<PAGE>   25

8.  401(k) SAVINGS AND PROFIT SHARING PLAN:

All employees of the Company over 21 years of age have the option of
participating in a company-sponsored 401(k) savings and profit sharing plan.
Employees can contribute up to 20% of their gross pay subject to statutory
maximums. At its discretion, the Company may make contributions to the plan
based on a percentage of participants' contributions. Employer contributions
vest over a period of seven years. The Company has made no contributions to the
plan in either of the years ended March 31, 1999 or 1998.

9.  COMMITMENTS AND CAPITAL LEASE OBLIGATIONS:

Leases

The Company has entered into noncancelable lease agreements involving equipment
and office space. The following is a schedule of future minimum lease payments
under both capital and operating leases as of March 31, 1999:


<TABLE>
<CAPTION>
                                                            Capital      Operating
                                                           --------      --------
<S>                                                        <C>           <C>
               2000                                        $ 15,419      $263,678
               2001                                           5,141       259,566
               2002                                              --        38,171
               2003                                              --        18,096
               2004                                              --        13,572
                                                           --------      --------

                      Total minimum lease payments           20,560      $593,083
                                                                         ========

               Less-- amount representing interest and
                   tax costs                                 (5,546)
                                                           --------

               Present value of net minimum
                 lease payments                              15,014

               Less-- current portion                        10,704
                                                           --------

                                                           $  4,309
                                                           ========
</TABLE>

Rent expense amounted to $246,303 and $326,727 for the years ended March 31,
1999 and 1998, respectively. The Company entered into a sublease agreement for a
portion of its office space during 1998. Cash collected from subleases in 1999
and 1998 was $62,496 and $40,504. respectively.

10.  STOCKHOLDERS' EQUITY:

Stock Options and Warrants

The Company has a 1994 Stock Option Plan (the "1994 Plan") and a Directors'
Nonqualified Stock Option Plan (the "Directors' Plan"). An aggregate of 400,000
shares of common stock are collectively reserved for issuance upon exercise of
options granted to the Company's employees, directors and consultants under the
1994 Plan and the Directors' Plan (collectively, the "Stock Option Plans") and
49,700 are available for grant as of March 31, 1999. The exercise price of any
options to be granted is equal to or greater than the fair market value of the
common stock at the date of grant. The Company also has a 1993 Stock Option Plan
(the "Old Plan"). A total of 132,000 shares of common stock have been reserved
for issuance under the Old Plan. At March 31, 1999, the Company had granted
options to purchase 255,273 shares of common stock which are not part of these
option plans. As of March 31, 1999, no further option grants are available under
the Old Plan. Options under these plans generally vest ratably over three- or
four-year periods. The term of the options is for a period of 10 years or less.
Options automatically expire 90 days after termination of employment.



                                    Page 25
<PAGE>   26

Options outstanding as of each period are as follows:

<TABLE>
<CAPTION>
                                                  Weighted
                                                   Average
                                    Number of     Exercise
                                     Options       Price
                                    ---------     --------
<S>                                 <C>              <C>
        Balance, March 31, 1997      411,398          2.78
           Granted                   310,360           .92
           Exercised                 (55,860)          .56
           Canceled                 (181,287)         3.22
                                    --------      --------

        Balance, March 31, 1998      484,611      $   1.68
           Granted                   172,500          1.23
           Exercised                  (5,000)         1.00
           Canceled                  (44,200)         2.35
                                    --------      --------

        Balance, March 31, 1999      607,911      $   1.50
                                    ========      ========
</TABLE>

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123). Accordingly, no compensation cost has been recognized for stock
options issued at market value on the date of grant. Had compensation cost for
the Company's stock option plans been determined based on the fair value of the
options at the grant date for awards in 1999 and 1998, consistent with the
provisions of SFAS No. 123, the Company's net income (loss) and net income
(loss) per common share would have been increased to the pro forma amounts
indicated below:


<TABLE>
<CAPTION>
                                               1999             1998
                                            -----------      -----------
<S>                                         <C>              <C>
        Net income (loss) - as reported     $  (366,011)     $   174,626
        Net income (loss) - pro forma          (466,352)          88,804
        Basic net income (loss) per
          common share - as reported               (.12)             .06
        Basic net income (loss) per
          common share - pro forma                 (.15)             .03
        Diluted net income (loss) per
          common share - as reported               (.12)             .05
        Diluted net income (loss) per
          common share - pro forma                 (.15)             .03
</TABLE>

The fair value of each option grant is established on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during 1999 and 1998: zero dividend yield; expected
volatility of 95% and 100%, respectively; risk-free interest rates varying by
grant date between 6.00% and 6.38%; and expected lives of five years. Because
the SFAS No. 123 method of accounting has not been applied to options granted
prior to April 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years. The weighted-average
grant date fair value of options granted during fiscal 1999 and 1998, was $.76
and $.78, respectively.

In connection with its initial public offering, the Company issued warrants to
purchase 1,000,000 shares of common stock for $6.25 per share, subject to
adjustment. The warrants are subject to redemption by the Company at $.05 per
warrant if the closing bid price of the common stock averages in excess of
$10.00. The warrants expire if unexercised on January 17, 2000.



                                    Page 26
<PAGE>   27

Information relating to stock options outstanding and stock options exercisable
at March 31, 1999 is as follows:

<TABLE>
<CAPTION>
                                         Options Outstanding                    Options Exercisable
                               ----------------------------------------     --------------------------
                                               Weighted       Weighted                       Weighted
                                                Average        Average                       Average
                                 Number        Remaining      Exercise        Number         Exercise
 Range of Exercise Prices       of Shares    Life in Years      Price        of Shares        Price
--------------------------     -----------  ---------------  ----------     -----------     ----------
<S>                            <C>          <C>              <C>            <C>             <C>
$.06 ....................         64,644            4.4            .06         64,644            .06
$1.00-$2.19 .............        448,104            8.7           1.18        112,604           1.32
$3.57-$6.75 .............         95,163            6.4           4.06         88,788           3.95
                                 -------        -------        -------        -------        -------

Totals ..................        607,911            7.6           1.51        266,036           1.89
                                 =======        =======        =======        =======        =======
</TABLE>

11.     SUBSEQUENT EVENT

In June 1999, the Company received $5,000,000 from Microsoft Corporation for a
fully paid, non-exclusive license to a patent owned by the Company.



                                    Page 27
<PAGE>   28

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

        None.

                                    PART III

The information called for by Items 9 through 12 of Part III is included in the
Registrant's Proxy Statement and is incorporated herein by reference. The
information appears in the Proxy Statement under the captions "Election of
Directors," "Security Ownership of Directors and Executive Officers," "Executive
Compensation" and "Certain Transactions."


ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

        (a)Exhibits

<TABLE>
<CAPTION>
       EXHIBIT
        NUMBER                            DESCRIPTION
     -----------                        ----------------
<S>                     <C>
          3.1*          Articles of Incorporation, as amended and in effect

          3.2*          Bylaws

          4.1*          Specimen Common Stock Certificate

          4.2*          Form of Warrant Agreement with Representative and
                        Warrant Agent

          4.3*          Form of Representative's Warrant

          4.4*          Specimen Redeemable Common Stock Purchase Warrant

          4.5*****      Common Stock Warrant for Infinium Software, Inc.

         10.1.A*        Amended and Restated 1993 Stock Option Plan

         10.1.B*        Form of Employee Stock Option Agreement

         10.2*          1994 Stock Option Plan

         10.3*          Directors' Nonqualified Stock Option Plan

         10.4**         Employee Stock Ownership Plan

                        Common Stock Purchase Warrants issued in consideration
                        of loans or loan guarantees:

         10.5.A*        Warrant issued July 31, 1994 to Frederick W. Dean

         10.5.B*        Warrant issued July 31, 1994 to Charles R. Osenbaugh

         10.5.C*        Warrant issued July 31, 1994 to John W. Calahan

         10.6*****      Calahan Agreement

         10.7*          Form of Indemnification Agreement with directors and
                        officers

         10.8*          Form of Employee (Confidentiality) Agreement
</TABLE>



                                    Page 28
<PAGE>   29

         10.9*          Form of License Agreement for Computer Application
                        Software (client/server)

         10.10*         Form of License Agreement for Computer Application
                        Software (VAX-based)

         10.11*         Form of Basic Service for Software Agreement

         10.12*         Form of Value Added Reseller (Distribution) Agreement

         10.13*         Solution Provider Agreement with Microsoft Corporation
                        dated September 23, 1994

         10.14*         U.S. Patent and Trademark Office Notice of Allowance
                        (Serial No. 08/162,839 [3/28/94])

         10.15.A****    Lease Agreement dated September 8, 1995, as amended,
                        with G&W Investment Partners

         10.15.B        Amendment to Lease Agreement dated March 20, 1999, with
                        G&W Investment Partners

         10.16***       Form of Consulting Partners Agreement

         10.17          Patent License Agreement with Microsoft

         10.18          Amended and Restated Accounts Receivable Purchase
                        Agreement with Silicon Valley Bank

         21.1*          Subsidiary of Timeline, Inc.

         23.1           Consent of Independent Public Accountants

         27.1           Financial Data Schedule

           *        Incorporated herein by reference from Item 27 of
                    Registrant's Form SB-2.

           **       Incorporated herein by reference from the Registrant's
                    Registration Statement on Form S-8 filed on March 11, 1996.

           ***      Incorporated herein by reference from Item 13 of
                    Registrant's Form 10-KSB for the year ended March 31, 1995.

           ****     Incorporated herein by reference from Item 13 of
                    Registrant's Form 10-KSB for the year ended March 31, 1997.

           *****    Incorporated herein by reference from Item 13 of
                    Registrant's Form 10-KSB for the year ended March 31, 1998.

        (b) No reports on Form 8-K were filed during the quarter ended March 31,
1999.



                                    Page 29
<PAGE>   30

                                   SIGNATURES


In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



                                        Timeline, Inc.


                                        By:   /s/ Charles R. Osenbaugh
                                            ------------------------------------
                                                Charles R. Osenbaugh, President

                                        Dated:  June 18, 1999


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.


<TABLE>
<CAPTION>
             Signature                           Capacities                        Date
             ---------                           ----------                        ----
<S>                                       <C>                                  <C>
                                                  Director
      /s/ Charles R. Osenbaugh                    President                    June 18, 1999
-------------------------------------     Chief Executive Officer
        Charles R. Osenbaugh              Chief Financial Officer
                                               and Treasurer


                                                  Director
       /s/ Frederick W. Dean             Executive Vice President -            June 18, 1999
-------------------------------------            Operations
         Frederick W. Dean


       /s/ Donald K. Babcock                      Director                     June 18, 1999
-------------------------------------
         Donald K. Babcock


        /s/ Kent L. Johnson                       Director                     June 18, 1999
-------------------------------------
          Kent L. Johnson
</TABLE>



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