<PAGE>   1
================================================================================


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

                  --------------------------------------------

                                   FORM 10-QSB


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE QUARTER ENDED SEPTEMBER 30, 2000         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)


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

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

<TABLE>
<CAPTION>
                                                        OUTSTANDING AT
               CLASS                                   OCTOBER 15, 2000
<S>                                                    <C>
   Common Stock, $.01 Par Value                            3,793,498
</TABLE>

================================================================================



<PAGE>   2

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                 TIMELINE, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                           September 30,        March 31,
                                                                               2000               2000
                                                                           -----------         -----------
CURRENT ASSETS:                                                            (unaudited)          (audited)
<S>                                                                        <C>                 <C>
  Cash and cash equivalents                                                $   266,281         $ 1,470,703
  Marketable securities -- trading                                           1,026,623           1,546,256
  Marketable securities -- available for sale                                  688,170                  --
  Short-term restricted investments                                                 --           3,030,000
  Securities held for others                                                   170,000             170,000
  Accounts receivable, net of allowance of $33,100 and $38,500                 769,562             323,387
  Prepaid expenses and other                                                   113,864              70,372
                                                                           -----------         -----------
               Total current assets                                          3,034,500           6,610,718
PROPERTY AND EQUIPMENT, net of accumulated
  depreciation of $1,079,013 and $1,794,311                                    228,408             266,073
CAPITALIZED SOFTWARE COSTS, net of accumulated
  amortization of $246,584 and $163,622                                      1,519,121             555,617
CAPITALIZED PATENTS, net of accumulated amortization of $10,845
  and $7,429                                                                   112,130              99,582
GOODWILL, net of accumulated amortization of $6,562 and $0                      71,714                  --
OTHER ASSETS                                                                     6,552               2,185
                                                                           -----------         -----------
               Total assets                                                $ 4,972,425         $ 7,534,175
                                                                           ===========         ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                         $   328,530         $   303,885
  Accrued expenses                                                             622,743             444,093
  Notes Payable                                                                  8,002              43,828
  Deferred revenues                                                            366,788             372,000
  Current portion of obligations under capital leases                               --               4,309
                                                                           -----------         -----------
               Total current liabilities                                     1,326,063           1,168,115
OTHER LIABILITIES                                                               25,039                  --
                                                                           -----------         -----------
               Total liabilities                                             1,351,102           1,168,115
                                                                           -----------         -----------
STOCKHOLDERS' EQUITY:
  Common stock, $.01 par value, 20,000,000 shares authorized,
    3,761,176 and 3,449,112 issued and outstanding                              37,623              34,492
  Additional paid-in capital                                                 9,927,882           9,124,178
  Other comprehensive income                                                   439,495           2,658,825
  Foreign currency adjustment                                                  (39,397)                 --
  Accumulated deficit                                                       (6,744,280)         (5,451,435)
                                                                           -----------         -----------
               Total stockholders' equity                                    3,621,323           6,366,060
                                                                           -----------         -----------
               Total liabilities and stockholders' equity                  $ 4,972,425         $ 7,534,175
                                                                           ===========         ===========
</TABLE>


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

<PAGE>   3


                                 TIMELINE, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                 Three Months Ended                     Six Months Ended
                                          September 30,      September 30,       September 30,       September 30,
                                              2000                1999                2000                1999
                                          -----------         -----------         -----------         -----------
<S>                                       <C>                 <C>                 <C>                 <C>
REVENUES:
  Software license                        $   675,534         $   121,957         $   787,925         $   198,612
  Other licenses                                   --             602,000                  --           5,602,000
  Software development                         16,587              22,313              22,116              22,313
  Maintenance                                 186,634             225,406             340,896             430,474
  Consulting and other                        236,579             217,494             309,208             424,013
                                          -----------         -----------         -----------         -----------
    Total revenues                          1,115,334           1,189,170           1,460,145           6,677,412
                                          -----------         -----------         -----------         -----------
COST OF REVENUES:                             301,486             251,956             479,926             642,493
                                          -----------         -----------         -----------         -----------
  Gross profit                                813,848             937,214             980,219           6,034,919
                                          -----------         -----------         -----------         -----------
OPERATING EXPENSE:
  Sales and marketing                         357,411             133,857             591,748             380,057
  Research and development                    336,667             304,429             658,145             611,610
  General and administrative                  698,614             459,798           1,270,034           1,179,244
  Depreciation                                 37,028              42,775              84,128              90,775
  Amortization: intangibles/
    goodwill                                  100,494                  --             100,494                  --
                                          -----------         -----------         -----------         -----------
    Total operating expenses                1,530,214             940,859           2,704,549           2,261,686
                                          -----------         -----------         -----------         -----------
    (Loss) income from operations            (716,366)             (3,645)         (1,724,330)          3,773,233

OTHER INCOME (EXPENSE):
  Gain on securities                          181,125                  --             454,765                  --
  Interest expense and other                  (31,452)            (15,146)            (35,961)            (23,196)
  Other income                                 (2,245)             40,000              (2,244)             40,000
  Interest income                               4,825              42,805              14,924              43,766
                                          -----------         -----------         -----------         -----------
    Total other income                        152,253              67,659             431,484              60,570
                                          -----------         -----------         -----------         -----------
      Net (loss) income                   $  (564,113)        $    64,014         $(1,292,846)        $ 3,833,803
                                          ===========         ===========         ===========         ===========
Basic net (loss) income per
   common share                           $     (0.15)        $      0.02         $     (0.36)        $      1.19
                                          ===========         ===========         ===========         ===========
Diluted net (loss) income per
   common and common equivalent share     $     (0.15)        $      0.02         $     (0.36)        $      1.10
                                          ===========         ===========         ===========         ===========
Shares used in calculation of
   basic earnings per share                 3,757,817           3,223,709           3,603,715           3,212,935
                                          ===========         ===========         ===========         ===========
Shares used in calculation of
   diluted earnings per share               3,757,817           3,617,587           3,603,715           3,483,865
                                          ===========         ===========         ===========         ===========
</TABLE>

    The accompanying notes are an integral part of these financial statements

<PAGE>   4

                                 TIMELINE, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     2000                1999
                                                                 -----------         -----------
<S>                                                              <C>                 <C>
CASH FLOW FROM OPERATING ACTIVITIES:
    Net cash (used in) provided by operations                    $(2,174,707)        $ 4,282,638
                                                                 -----------         -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Cash acquired in AFL acquisition                                    29,056                  --
  Purchase of property and equipment                                 (19,085)            (27,065)
  Proceeds from property and equipment                                22,075                  --
  Payments for capitalized software development costs                (87,486)           (158,607)
  Purchase of short-term investments                                (586,150)         (4,432,859)
  Proceeds from sale of short-term investments                     1,683,049             425,000
  (Issuance) proceeds of note receivable                                (952)              8,204
                                                                 -----------         -----------
    Net cash provided by (used in) investing activities            1,040,507          (4,185,327)
                                                                 -----------         -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on capital lease obligation                                (4,309)            (15,014)
  Payment of notes payable                                           (35,826)                 --
  Borrowing under line of credit                                          --             287,012
  Repayments under line of credit                                         --            (310,717)
  Payment on long term debt                                               --            (122,916)
  Exercise of stock options/warrants                                   9,310              31,070
                                                                 -----------         -----------
    Net cash used in financing activities                            (30,825)           (130,565)
                                                                 -----------         -----------
EFFECT OF FOREIGN EXCHANGE RATE                                      (39,397)                 --

NET CHANGE IN CASH AND CASH EQUIVALENTS                           (1,204,422)            (33,254)

CASH AND CASH EQUIVALENTS, beginning of period                     1,470,703              59,453
                                                                 -----------         -----------
CASH AND CASH EQUIVALENTS, end of period                         $   266,281         $    26,199
                                                                 ===========         ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest during year                             $     4,508         $    20,199

Non-cash transactions:
  Equity consideration for AFL acquisition                           797,525                  --
  Unrealized (loss) gain on available for sale securities         (2,219,330)            246,000
  Offset of accounts receivable for capitalized software                  --             125,000
  Retirement of unallocated ESOP shares                                   --             135,417
</TABLE>


    The accompanying notes are an integral part of these financial statements

<PAGE>   5


                                 TIMELINE, INC.

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                               SEPTEMBER 30, 2000


1.      INTERIM FINANCIAL STATEMENTS

The accompanying condensed consolidated interim financial statements of
Timeline, Inc. (the Company) are unaudited. In the opinion of the Company's
management, the financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to state fairly the financial
information set forth therein. Results of operations for the three-month and
six-month periods ended September 30, 2000 are not necessarily indicative of
future financial results.

Certain notes and other information have been condensed or omitted from the
condensed consolidated interim financial statements presented in this Quarterly
Report on Form 10-QSB. Accordingly, these financial statements should be read in
conjunction with the Company's annual financial statements for the year ended
March 31, 2000, previously reported.

2.      MARKETABLE SECURITIES -- TRADING

The Company invests in various marketable securities through investment accounts
with brokers. At September 30, 2000, these investments included common and
preferred stock and had a fair market value of $1,026,623. The Company has
classified these investments as trading securities under Statement of Accounting
Standards (SFAS) 115 as it is the Company's intent to actively buy and sell
individual securities within these investment accounts.

3.      MARKETABLE SECURITIES -- AVAILABLE FOR SALE

In September 1999, the Company settled a patent infringement lawsuit filed
against Broadbase Software, Inc. (Broadbase). As part of the settlement, the
Company received 80,000 shares of Broadbase restricted common stock with a fair
market value of $392,000 at the date of the settlement. The Company was subject
to restrictions on the sale of these securities for a period of one year from
the date that they were received. These restrictions lapsed in September 2000.
Accordingly, the Company has reclassified this investment as marketable
securities in the accompanying balance sheets.

In March 2000, the Company entered into an agreement with two shareholders to
reacquire 75,000 shares of its outstanding common stock. In exchange, the
shareholders will receive 4,250 shares of Broadbase common stock after the
transfer restrictions lapse in September 2000. The shareholders also received a
cash payment of $130,000 at the date of that agreement. In connection with this
transaction, the Company recognized the unrealized gain of $149,175 on these
shares. This amount is included as a component of the gain on securities in the
accompanying statement of operations. The Company has recorded a liability of
$170,000, which represents the fair value of the shares to be transferred at the
date of that agreement. This amount is included in accrued expenses in the
accompanying Balance Sheet.

In June 2000, the Company sold 15,000 shares of Broadbase common stock to its
investment broker at a price of $30.24 per share. In connection with this
transaction the Company recognized the unrealized gain of $380,100 on these
shares. This amount is included as a component of the gain on securities in the
accompanying statement of operations.

The total value of noncommitted Broadbase common stock was $688,170 at September
30, 2000. The Company has accounted for these shares as available for sale
securities as required under SFAS 115. Accordingly, the unrealized gain on this
stock of $439,495 at September 30, 2000, is recorded as other comprehensive
income in the accompanying balance sheet. Broadbase completed a two-for-one
stock split on April 10, 2000. All per share amounts have been adjusted to
reflect this stock split.


<PAGE>   6

4.      SHAREHOLDERS' EQUITY

Changes in shareholders' equity for the period from March 31, 2000 to September
30, 2000 were as follows:

<TABLE>
<CAPTION>
<S>                                                    <C>
Shareholders' equity, March 31, 2000                   $ 6,366,060
Exercise of common stock options                             9,310
Equity consideration issued for AFL acquisition            797,525
Foreign currency adjustment                                (39,397)
Other comprehensive income -- unrealized loss on
   available-for-sale securities                        (2,219,330)
Net loss                                                (1,292,846)
                                                       -----------
Shareholders' equity, September 30, 2000               $ 3,621,322
                                                       ===========
</TABLE>

5.      NET INCOME PER COMMON SHARE

Basic net income per share is the net income divided by the average number of
shares outstanding during the year. Diluted net income per share is calculated
as the net income divided by the sum of the average number of shares outstanding
during the year plus the net additional shares that would have been issued had
all dilutive options been exercised, less shares that would be repurchased with
the proceeds from such exercise (Treasury Stock Method). For the three and six
month periods ended September 30, 2000, all options and warrants were
anti-dilutive and accordingly, they were not included in the calculation of net
income per common share.

The computation of diluted net income (loss) per common and common equivalent
share is as follows for the three-month and six-month periods ended September
30:

<TABLE>
<CAPTION>
                                                   Three Months Ended                       Six Months Ended
                                             September 30,      September 30,        September 30,        September 30,
                                                 2000                1999                2000                1999
                                              -----------         -----------         -----------         -----------
<S>                                           <C>                 <C>                 <C>                 <C>
Net income (loss)                             $  (564,113)        $    64,014         $(1,292,846)        $ 3,833,803
                                              -----------         -----------         -----------         -----------
Weighted average common shares
outstanding                                     3,757,817           3,223,709           3,603,715           3,212,935
Plus: dilutive options and warrants                    --             862,676                  --             788,072
Less: shares assumed repurchased
    with proceeds from exercise                        --            (468,798)                 --            (517,142)
                                              -----------         -----------         -----------         -----------
Weighted average common and common
    equivalent shares outstanding               3,757,817           3,617,587           3,603,715           3,483,865
                                              ===========         ===========         ===========         ===========
Diluted net income (loss) per
    common and common equivalent share        $     (0.15)        $      0.02         $     (0.36)        $      1.10
                                              ===========         ===========         ===========         ===========
</TABLE>

6.      LITIGATION

In March 1999, the Company filed an action in the U.S. Federal District Court
for Western Washington against Sagent Technologies, Inc., seeking monetary
damages and an injunction from further unauthorized licensing of certain
products that Timeline believes infringe on Timeline's patent rights under U.S.
Patent #5,802,511, 6,023,694, and 6,026,392. The litigation process is in the
discovery phase, and the trial is set for January 2001.

In July 1999, the Company was served a complaint by Microsoft Corporation in the
Superior Court of Washington for King County alleging breach of contract
regarding a Patent License Agreement signed by both companies in June 1999. The
Company believes the claims made by Microsoft have no merit. The trial was held
in early October, 2000. Post-trial briefs have been submitted and a decision is
expected soon.

In July 2000, the Company filed a lawsuit against Oracle Corporation seeking
monetary damages and injunctive relief. The Company's claims are based on
Oracle's alleged introduction of elements in its product family that

<PAGE>   7


utilize technology similar to the Company's patented technology licensed to
Microsoft. The litigation process is in the discovery phase.

From time to time, the Company may pursue litigation against other third parties
to enforce or protect its rights under this patent or its intellectual property
rights generally.*

<PAGE>   8


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

This Quarterly Report on Form 10-QSB includes a number of forward-looking
statements that reflect our 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 we use the words "anticipate,"
"believe," "could," "should," "predict," "may," "will," "expect" and similar
expressions as they relate to Timeline, we are identifying such forward-looking
statements, but these words are not the exclusive means of identifying such
statements. Our actual results, performance or achievements could differ
materially from the results expressed in, or implied by, these forward-looking
statements. We do 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, WE HAVE 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 us in this report
and in our other reports previously filed with the Securities and Exchange
Commission (the "SEC"), including our periodic reports on Forms 10-KSB and
10-QSB, and those described from time to time in our press releases and other
communications, which attempt to advise interested parties of the risks and
factors that may affect our business.


RESULTS OF OPERATIONS

REVENUES

<TABLE>
<CAPTION>
                               Three Months Ended                      Six Months Ended
                                  September 30,                           September 30,
                               2000         1999         Change         2000        1999          Change
--------------------------------------------------------------------------------------------------------
<S>                           <C>          <C>           <C>           <C>          <C>           <C>
(Dollars in Thousands)

Software license                676          122          454%           788          199          296%
Other license                     0          602         (100)%            0        5,602         (100)%
Maintenance                     186          225          (17)%          341          430          (21)%
Consulting and Other            237          218            9%           309          424          (27)%
Software development             16           22          (23)%           22           22            0%
                              ------------------                       ------------------
Revenues                      1,115        1,189           (6)%        1,460        6,677          (78)%
--------------------------------------------------------------------------------------------------------
</TABLE>

Our total operating revenues of $1,115,000 for the quarter ended September 30,
2000 were 6% lower than the $1,189,000 for the quarter ended September 30, 1999.
However, there were substantial changes in the nature of revenue for these two
periods. Revenues for the quarter ended September 30, 1999 consisted primarily
of revenue from patent licensing, whereas the comparable quarter in fiscal 2001
did not include any revenue from patent licensing. Revenue for the quarter ended
September 30, 2000 consisted primarily of significant increases in revenue from
software licenses (454% increase) and consulting (9% increase), which was
partially offset by decreases in software development (23% decrease) and
maintenance revenue (17% decrease). In addition, results of operations for the
quarter ended September 30, 2000 include the operations of Analyst Financials
Limited (AFL), which we acquired as of June 30, 2000, and accordingly, results
of operations for periods in fiscal 2000 (prior to the AFL acquisition) to
fiscal 2001 (after the AFL acquisition) are not directly comparable. For the
period ended September 30, 1999, AFL was only accounted for on the basis of
royalties paid to Timeline on AFL license and maintenance revenue under its then
distributor agreement. These amounted to $54,913 and $27,672, respectively, in
the second quarter of fiscal 2000 as compared to license revenue of $317,357 and
maintenance revenue of $77,941 in the second quarter of fiscal 2001 generated
through the AFL office.

The increase in revenue from software licenses in fiscal 2001 over fiscal 2000
is directly attributable to improved results from our third-party distribution
partners. During the second quarter of fiscal 2001, we had sales through

<PAGE>   9


eight alliance partners, which represented an increase in the number of
revenue-generating distribution partners from four in the prior quarter. We
believe there is continued weakness in the enterprise resource planning (ERP)
and accounting software markets, which weakness directly affects the sale and
distribution of our products as an additional module on their products or as an
"after-market" add-on. However, we have continued to establish strategic
alliances with national and international distribution partners, including ID
Application a.s. and Applied Systems, Inc., and anticipate that such channels
will result in increases to software licenses during fiscal 2001.* In addition,
although we continue to pursue additional patent licenses, we believe that the
current litigation regarding our patents has had a negative impact on our
ability to enter into additional patent licenses. The ultimate outcome of any of
these litigation matters could adversely affect our ability to enter into
additional patent licenses and our existing patent licenses.* We cannot predict
the outcome of ongoing and future negotiations and there are no assurances that
we will be successful in entering into additional patent licenses, or the timing
of any such licenses.*

Maintenance fee revenue decreased by 17% for the comparable three-month periods
and 21% for the comparable six-month periods ended September 30, 2000 and 1999,
respectively. This reflects the fact we began outsourcing the maintenance on our
product series based on our older VAX-based product line as of May 1, 2000. We
continue to experience increased maintenance revenue from maintenance contracts
for our Microsoft-based product lines in the quarterly and six-month comparisons
from fiscal 2000 to fiscal 2001.

Consulting and other revenue increased 9%, from $218,000 to $237,000 in the
quarters ended September 30, 1999 and September 30, 2000. For the six-month
periods, consulting and other revenue decreased by 27%. Fluctuations in
consulting revenue are reflective of the number of new licenses entered into at
any particular time and the backlog, if any, of previously licensed systems not
yet installed. We believe that these fluctuations will become less material in
the future as a larger percentage of new product licensing is transacted through
OEM channels that directly provide installation services to end-users.* In
addition, as a result of the AFL acquisition, the number of consultants on staff
has increased, and we expect that this increase will result in increased
consulting revenue for future periods when compared to results in the prior
fiscal year prior to the AFL acquisition.*

Development fee revenue was $17,000 and $22,000 in the quarters ended September
30, 2000 and 1999, respectively, and $22,000 for each of the six-month periods
ended September 30, 2000 and 1999, respectively. Development revenues are not
material to overall revenue and we do not anticipate that development revenue
will contribute significantly to revenue in fiscal 2001 as there are no
substantial contracts currently in place or being pursued for development
efforts.* We do not consider software development for fees to be a line of
business that should be pursued except in exceptional situations.

GROSS PROFIT

<TABLE>
<CAPTION>
                                  Three Months Ended                 Six Months Ended
                                     September 30,                    September 30,
                                   2000        1999      Change      2000        1999      Change
---------------------------------------------------------------------------------------------------
<S>                                <C>        <C>        <C>         <C>        <C>       <C>
(Dollars in Thousands)

Gross profit                       814        937       (13)%        980        6,035     (84)%
Percentage of operating revenues    73%        79%                    67%          90%
---------------------------------------------------------------------------------------------------
</TABLE>

Our gross profit decreased 13% for the comparable quarters in fiscal 2001 and
2000, and decreased 6% as a percentage of operating revenue for the comparable
quarters. The gross profit for the comparable three- and six-month periods are
not directly comparable because of the high-margin patent license revenue we
received in fiscal 2000. Gross profit in the quarter ended September 30, 2000
represented an increase in the cost of revenue due to increased revenue from
software licenses and consulting (rather than higher-margin patent licenses) and
from increased amortization, in part resulting from the AFL acquisition. In
general, we expect to see continued improvements to our gross profit due to our
shift in focus to higher-margin software and patent licenses, and less focus on
lower margin consulting and maintenance revenue which is labor intensive.*
Additionally, since patent licenses, to date, have tended to be driven by legal
actions and/or negotiated settlements of threatened legal actions, the costs of
securing patent licenses vary greatly from license to license. As patent
licensing is expected to continue to be both relevant and widely different
between reporting periods, substantial fluctuations in comparative margins may
continue to occur.* In addition, we expect that amortization expenses in future
quarters will increase over that experienced in the comparable quarters in
fiscal 2000.* This expected increase is a result of the acquisition of AFL which
caused a substantial capitalization of the purchase price as amortizable assets
from July 1, 2000 forward (typically over the next 12 quarters).*


<PAGE>   10


SALES AND MARKETING EXPENSE

<TABLE>
<CAPTION>
                                             Three Months Ended                  Six Months Ended
                                               September 30,                       September 30,
                                             2000        1999         Change     2000        1999        Change
<S>                                          <C>         <C>          <C>        <C>         <C>         <C>
---------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)

Sales and marketing                           357         134         166%        592         380         56%
Percentage of operating revenues               32%         11%                     41%          6%
---------------------------------------------------------------------------------------------------------------
</TABLE>

Sales and marketing expenses in actual dollar amounts increased by 166% and 56%,
respectively, between the quarters and six-month periods ended September 30,
2000 and September 30, 1999. In addition, sales and marketing expenses as a
percentage of operating revenue increased from 11% to 32% for the three months
ended September 30, 1999 and 2000, and from 6% to 41% for the six months ended
September 30, 1999 and 2000. The increase in actual dollar amounts was primarily
due to an increase in the number of sales and marketing personnel from four to
12 as a result of the AFL acquisition. The increase as a percentage of operating
revenue reflects not only the increased costs from increased personnel, but also
the change in the sources of revenue from the comparable periods in fiscal 2001
and 2000 -- fiscal 2000 included significant revenue from patent license fees,
whereas fiscal 2001 includes a greater emphasis on software license revenue,
which required greater sales and marketing expense.

RESEARCH AND DEVELOPMENT EXPENSE

<TABLE>
<CAPTION>
                                            Three Months Ended                   Six Months Ended
                                               September 30,                       September 30,
                                             2000        1999         Change     2000        1999        Change
<S>                                          <C>         <C>          <C>        <C>         <C>         <C>
---------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)

Research and development                      337         304          11%        658         612          8%
Percentage of operating revenues               30%         26%                     45%         9%
---------------------------------------------------------------------------------------------------------------
</TABLE>

Research and development expenses increased 11% and 8%, respectively, during the
quarters and six-month periods ended September 30, 2000 and 1999. These
increases in research and development expenses were attributable to making
certain software enhancements to meet the particular needs of our distributors,
to integrate our products with the accounting package(s) of our various vendors,
and to allow better operations on new products released by Microsoft
Corporation. These increases also included normal salary increases and marginal
costs as the number of personnel employed in these activities has remained
relatively stable. The AFL acquisition did not result in an increase in the
number of employees in this area. Changes in research and development expenses
as a percentage of revenue for the comparable periods, is primarily due to
changes in the volume of revenue, rather than changes in headcount. Furthermore,
in the three and six month periods ended September 30, 2000 and 1999, the
portion of our staff's efforts capitalized for future amortization did not vary
significantly.

We believe the actual dollar amount of research and development expenses will
increase moderately in future quarters. We expect to hire additional personnel
in future quarters to meet the demand generated by our success in entering into
distribution and private label agreements with various accounting vendors.**

GENERAL AND ADMINISTRATIVE EXPENSE

<TABLE>
<CAPTION>
                                            Three Months Ended                   Six Months Ended
                                               September 30,                       September 30,
                                             2000        1999         Change     2000        1999        Change
<S>                                          <C>         <C>          <C>        <C>         <C>         <C>
---------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)

General and administrative                    699         460           52%      1,270       1,179            8%
Percentage of operating revenues               63%         39%                      87%         18%
---------------------------------------------------------------------------------------------------------------
</TABLE>

General and administrative expenses increased 52% and 8%, respectively, between
the comparable three-month and six-month periods ended September 30, 2000 and
September 30, 1999. The large increase in the quarter ended

<PAGE>   11


September 30, 2000 is a direct result of an increase of three personnel through
the AFL acquisition and increased attorneys' fees associated with our patent
litigation and our contract litigation with Microsoft. For the comparable
six-month periods, however, the impact of increased expenses in fiscal 2001
noted above are almost completely offset by substantial bonuses which were paid
in the quarter ended June 30, 1999 as a result of the high gross revenue
generated in that quarter from patent license revenue.

The increase of these costs as a percentage of revenues for the comparative
periods is due to the significant revenue generated through licensing of the
patented technology in the periods in fiscal 2000. We believe that general and
administrative expenses should remain relatively stable over the next several
quarters unless there are settlements in various litigation matters.*
Furthermore, these expenses will continue to include substantial legal fees
arising out of the litigation with Microsoft, which went to trial in October
2000, our patent litigation against Sagent Technologies, Inc., for which trial
is currently scheduled to begin in January 2001, and our lawsuit against Oracle
Corporation, which is in the discovery period.*

OTHER INCOME

Other income increased from $67,000 in the second quarter of fiscal 2000 to
$152,000 in the second quarter of fiscal 2001. The increase was primarily due to
realized and unrealized gains on securities of approximately $181,000, which was
partially offset by increased interest expense and decreased interest income in
the second quarter of fiscal 2001.

INCOME TAX

Income taxes are provided in the statement of operations in accordance with the
asset and liability method. We have determined that the tax assets generated by
the net operating losses and research and experimentation credits do not satisfy
the recognition criteria set forth under the liability method. Accordingly, a
valuation allowance is recorded against the applicable deferred tax assets and
therefore no tax benefit is recorded.

In connection with our initial public offering in January 1995, we experienced a
significant change in ownership, which limits the amount of net operating loss
carry forwards and credits which may be used in any given year. However, we do
not expect this to be a factor in fiscal 2001.*

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalent and short-term investment balances at September 30,
2000 stood at approximately $1,981,000 compared to approximately $6,047,000 at
March 31, 2000. At September 30, 2000, we also maintained a balance of $170,000
of securities we have committed to transfer under securities sales agreements
(see Footnote 3 to Unaudited Consolidated Financial Statements) in addition to
our cash and short-term investment balances. This balance of $1,981,000 at
September 30, 2000 includes approximately $688,000 of securities that are
classified as available for sale for accounting purposes (see Footnote 3 to
Unaudited Consolidated Financial Statements). At March 31, 2000, the market
value of these securities stood at $3,030,000. The substantial decrease in our
cash and cash equivalent and short-term investment balances is attributable to
the large operating losses during the first two quarters of fiscal 2001, cash
expenditures associated with the acquisition of AFL, and substantial decreases
in the market value of shares of Broadbase Software, Inc. between March and
September 2000. The Broadbase shares were received in settlement of patent
litigation and were restricted until mid-September 2000 in a manner that did not
allow us to hedge our position (see Footnote 3 to Unaudited Consolidated
Financial Statements). Total obligations, excluding deferred income items, were
approximately $984,000 at September 30, 2000 as compared to approximately
$796,000 at March 31, 2000. This increase is primarily due to expenses accrued
as a result of the acquisition of AFL.

Net cash used in operating activities was approximately $2,175,000 in the
six-month period ended September 30, 2000. This was primarily due to our
generating net losses for the first six months of fiscal 2001. We generated
$1,041,000 from investing activities and used approximately $31,000 for
financing activities.

Based on current cash and cash equivalent balances, along with our current
ability to sell restricted securities, we believe we have adequate resources to
fund operations, as well as continued costs and expenses of litigation, through
fiscal 2001.*

<PAGE>   12


OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS

Our operating results may fluctuate due to a number of factors, including, but
not limited to, the success and revenue growth of our products, our ability to
continue to develop and expand distribution channels and to develop
relationships with third-party distributors and licensees of our products, our
ability to successfully integrate our business operations with AFL, our ability
to manage growth, our ability to integrate our products with those of its
third-party distributors and licensees, our ability to hire qualified sales and
marketing personnel and to generate revenue from such sales and marketing
personnel, the outcome of the litigation involving Microsoft Corporation, Sagent
Technologies, Inc. and Oracle Corporation, the outcome and costs of pursuing
patent litigation against third parties, the availability of additional
financing or capital resources, the volume and timing of systems sales and
licenses, reductions in the size or volume of maintenance contracts with
clients, changes in the product mix of revenues, changes in the level of
operating expenses, and general economic conditions in the software industry.
All of the above factors are difficult for us to forecast, and can materially
adversely affect our business and operating results for one quarter or a series
of quarters.**

YEAR 2000 COMPLIANCE

We experienced no material issues or problems as a result of the transition into
the year 2000 with regard to internal operations or our software products. We
will continue to monitor our software products to ensure no problems arise
either with regard to leap year or Y2K issues, but anticipate no material
additional costs.*

<PAGE>   13


                          PART II. - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In March 1999, the Company filed an action in the U.S. Federal District Court
for Western Washington against Sagent Technologies, Inc., seeking monetary
damages and an injunction from further unauthorized licensing of certain
products that Timeline believes infringe on Timeline's patent rights under U.S.
Patent #5,802,511, 6,023,694, and 6,026,392. The litigation process is in the
discovery phase, and the trial is set for January 2001.

In July 1999, the Company was served a complaint by Microsoft Corporation in the
Superior Court of Washington for King County alleging breach of contract
regarding a Patent License Agreement signed by both companies in June 1999. The
Company believes the claims made by Microsoft have no merit. The trial was held
in early October, 2000. Post-trial briefs have been submitted and a decision is
expected soon.

In July 2000, the Company filed a lawsuit against Oracle Corporation seeking
monetary damages and injunctive relief. The Company's claims are based on
Oracle's alleged introduction of elements in its product family that utilize
technology similar to the Company's patented technology licensed to Microsoft.
The litigation process is in the discovery phase.

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

At our Annual Meeting of Shareholders held on July 20, 2000, two director
nominees were duly elected on the following vote:

<TABLE>
<CAPTION>
                               Affirmative Votes           Votes Withheld
<S>                            <C>                         <C>
Donald K. Babcock                  2,845,225                    475
Kent L. Johnson                    2,845,225                    475
</TABLE>

A second proposal, the ratification of Arthur Andersen LLP as our independent
auditors for the year ending March 31, 2001, was voted on and approved at our
Annual Meeting on the following vote:

<TABLE>
<CAPTION>
    Affirmative Votes            Negative Votes             Abstentions
<S>                              <C>                        <C>
        2,832,200                    1,825                     11,675
</TABLE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)    Exhibits

               27.1   Financial Data Schedule

        (b)    A report on Form 8-K was filed on August 2, 2000, reporting Item
               2 information relating to the purchase of the outstanding shares
               in Analyst Financials Limited, the European distributor for our
               products. The acquisition was effective as of June 30, 2000. We
               previously owned 12.5% of the outstanding shares in AFL and
               through this transaction, acquired the remaining 87.5%, and AFL
               became our wholly-owned subsidiary. On September 12, 2000,
               Timeline filed a Form 8-K/A amending the previously filed report,
               to add the pro forma financial statement information required to
               be filed.


<PAGE>   14

                                          SIGNATURES


In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



                                 Timeline, Inc.
                                 (Registrant)

Date:   November 13, 2000        By:  /s/ Charles R. Osenbaugh
                                     -------------------------------------------
                                 Charles R. Osenbaugh
                                 President/Chief Financial Officer

                                 Signed on behalf of registrant and as principal
                                 financial officer.

<PAGE>   15


                                 EXHIBITS INDEX


<TABLE>
<CAPTION>
       EXHIBIT
        NUMBER                              DESCRIPTION
       -------                              -----------
<S>                     <C>
         27.1           Financial Data Schedule
</TABLE>