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

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

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

                                   FORM 10-QSB

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

For the Quarterly Period Ended June 30, 2002      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                                (IRS Employer
 incorporation or organization)                              Identification No.)

                        3055 112th Avenue N.E., Suite 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:

                                                              Outstanding at
            Class                                             July 30, 2002
Common Stock, $.01 Par Value                                    4,165,998

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

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                                 TIMELINE, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                      As of             As of
                                                                     June 30,          March 31,
                                                                       2002              2002
                                                                   -----------       -----------
<S>                                                                <C>               <C>
                       ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                        $    37,485       $    82,956
  Marketable securities - available for sale                           100,465           203,130
  Accounts receivable, net of allowance for doubtful
    accounts of $4,680 and $61,827                                     523,630           636,201
  Prepaid expenses and other                                           134,951           142,492
                                                                   -----------       -----------
            Total current assets                                       796,531         1,064,779

PROPERTY AND EQUIPMENT, net of accumulated
  depreciation of $785,597 and $772,873                                108,190           120,464

CAPITALIZED SOFTWARE, net of accumulated
  amortization of $486,604 and $435,755                                157,188           208,037

CAPITALIZED PATENTS, net of accumulated
  amortization of $29,162 and $26,056                                  194,418           187,375

INTANGIBLE ASSETS, net of accumulated
  amortization of $923,884 and $872,678                                600,554           781,760

GOODWILL, net of accumulated
  amortization of $123,938 and $48,105                                  70,183            34,432
                                                                   -----------       -----------

            Total assets                                           $ 1,927,064       $ 2,396,847
                                                                   ===========       ===========

      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                 $   439,899       $   474,133
  Accrued expenses                                                     452,689           469,758
  Deferred revenues                                                    533,842           569,825
                                                                   -----------       -----------
            Total current liabilities                                1,426,430         1,513,716
                                                                   -----------       -----------

STOCKHOLDERS' EQUITY:
  Common stock, $.01 par value, 20,000,000 shares authorized,
    4,165,998 and 4,153,498 shares issued and outstanding               41,660            41,535
  Additional paid-in capital                                        10,456,304        10,448,488
  Accumulated other comprehensive income (loss)                        (72,765)           17,107
  Accumulated deficit                                               (9,924,565)       (9,623,999)
                                                                   -----------       -----------
            Total stockholders' equity                                 500,634           883,131
                                                                   -----------       -----------

            Total liabilities and stockholders' equity             $ 1,927,064       $ 2,396,847
                                                                   ===========       ===========
</TABLE>

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


                                       2
<PAGE>

                                 TIMELINE, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                For the Three Months Ended June 30, 2002 and 2001
                                   (unaudited)

                                                       2002             2001
                                                    ----------       ----------
REVENUES:
  Software license                                  $  271,321       $  250,202
  Other licenses                                        25,000        1,100,000
  Software development                                      --            3,090
  Maintenance                                          270,699          225,034
  Consulting and other                                 346,624          154,505
                                                    ----------       ----------

    Total revenues                                     913,644        1,732,831
                                                    ----------       ----------

COST OF REVENUES:                                      179,036          242,696
                                                    ----------       ----------

  Gross profit                                         734,608        1,490,135
                                                    ----------       ----------

OPERATING EXPENSES:
  Sales and marketing                                  183,410          361,756
  Research and development                             207,140          481,197
  General and administrative                           500,495          659,333
  Depreciation                                          12,511           14,000
  Amortization of intangibles and goodwill             130,142          142,294
                                                    ----------       ----------

    Total operating expenses                         1,033,698        1,658,580
                                                    ----------       ----------

    Loss from operations                              (299,090)        (168,445)
                                                    ----------       ----------

OTHER INCOME (EXPENSE):                                 16,940          (12,402)
                                                    ----------       ----------

    Loss before income taxes                          (282,150)        (180,847)
                                                    ----------       ----------

Income tax expense                                     (18,416)              --
                                                    ----------       ----------

    Net loss                                        $ (300,566)      $ (180,847)
                                                    ==========       ==========

BASIC AND DILUTED NET LOSS PER COMMON SHARE         $    (0.07)      $    (0.04)

SHARES USED IN CALCULATION OF NET
LOSS PER SHARE                                       4,125,029        4,040,998
                                                    ==========       ==========

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


                                       3
<PAGE>

                                 TIMELINE, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                For the Three Months Ended June 30, 2002 and 2001
                                   (unaudited)

                                                            2002         2001
                                                          --------     --------
CASH FLOWS FROM OPERATING ACTIVITIES
    Net cash (used in) provided by operating activities   $(84,784)    $187,014
                                                          --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                            --       (9,361)
  Investment in capitalized software and patents           (10,149)          --
  Proceeds from sale of short-term investments              46,861           --
                                                          --------     --------
    Net cash provided by (used in) investing activities     36,712       (9,361)
                                                          --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings under line of credit                               --       50,361
                                                          --------     --------
    Net cash provided by financing activities                   --       50,361
                                                          --------     --------

EFFECT OF FOREIGN EXCHANGE RATE FLUCTUATIONS                 2,601       (3,770)

NET CHANGE IN CASH AND CASH EQUIVALENTS                    (45,471)     224,244

CASH AND CASH EQUIVALENTS, beginning of period              82,956           --
                                                          --------     --------

CASH AND CASH EQUIVALENTS, end of period                  $ 37,485     $224,244
                                                          ========     ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
  Cash paid for interest                                  $  3,674     $ 10,817

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


                                       4
<PAGE>

                                 TIMELINE, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                  June 30, 2002

1. The Company

Organization

The accompanying consolidated financial statements are for Timeline, Inc. and
subsidiaries (the Company). The Company, which is headquartered in Bellevue,
Washington and has operations in the United Kingdom, develops, markets and
supports enterprise-wide financial management, budgeting and reporting software
and event-based notification, application integration and process automation
systems. Timeline's software products are designed to automatically access and
distribute business information with full accounting control.

Operations

The Company has historically suffered recurring operating losses and negative
cash flows from operations. As of June 30, 2002, the Company had a net working
capital deficit of approximately $630,000 and had an accumulated deficit of
approximately $9,925,000 with total stockholders' equity of approximately
$501,000. These condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America, assuming that the Company will continue as a going concern.
Management believes that current cash and cash equivalent balances, along with
the ability to sell marketable securities, and any net cash provided by
operations, may not provide adequate resources to fund operations through March
31, 2003. See "Liquidity and Capital Resources" below. Management is
contemplating a number of alternatives to enable the Company to continue
operating including, but not limited to:

      o     engaging a financial advisor to explore strategic alternatives,
            which may include a merger, asset sale, joint ventures or another
            comparable transaction;
      o     raising additional capital to fund continuing operations by private
            placements of equity or debt securities or through the establishment
            of other funding facilities, which may be on terms unfavorable to
            the Company;
      o     forming a joint venture with a strategic partner or partners to
            provide additional capital resources to fund operations; and
      o     loans from management or employees, salary deferrals or other cost
            cutting mechanisms.

There can be no assurance that any of these alternatives will be successful. If
the Company is unable to obtain sufficient cash when needed to fund its
operations, it may be forced to seek protection from creditors under the
bankruptcy laws and/or cease operations.

The Company's inability to obtain additional cash as needed could have a
material adverse effect on its financial position, results of operations and its
ability to continue in existence. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.


                                       5
<PAGE>

2. Interim Financial Statements

The accompanying condensed consolidated financial statements of 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 herein in
conformity with accounting principles generally accepted in the United States of
America. Results of operations for the three-month period ended June 30, 2002
are not necessarily indicative of future financial results.

Certain notes and other information have been condensed or omitted from the
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, 2002, as
previously reported in the Company's 10-KSB.

3. Basis of Presentation

All subsidiaries of the Company are wholly-owned. The accompanying consolidated
financial statements include the accounts and operations of these subsidiaries.
All intercompany balances and transactions have been eliminated in
consolidation. Reclassifications have been made to the fiscal 2002 amounts to
conform to the fiscal 2003 presentation.

4. Marketable Securities

In December 2000, the Company settled a patent infringement lawsuit filed
against Sagent Technology, Inc. (Sagent). As part of the settlement, the Company
licensed certain patented technology to Sagent in exchange for $600,000 and
600,000 shares of Sagent common stock with a fair market value of $1,425,000 at
the date of the settlement. There are no restrictions on the sale of these
securities.

The Company has accounted for these securities as available for sale securities
under Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115). Accordingly,
these securities are stated at fair value, based on quoted market prices, with
unrealized gains and losses excluded from results of operations and reported as
a component of accumulated other comprehensive income (loss) on the Company's
balance sheet. Realized gains and losses on sales of these securities are
determined on the specific identification method and included in results of
operations. As of June 30, 2002 and March 31, 2002, the Company owned 150,800
and 203,100 shares of Sagent common stock, respectively, which had a fair market
value of $100,465 and $203,100, respectively. During the first quarter of fiscal
2003, the Company sold 52,300 shares resulting in realized losses of
approximately $6,000.

The Company periodically reviews the carrying value of its available for sale
securities to determine if the decline in the fair value of the securities is
other than temporary. Factors considered by the Company in its review include
the time period and extent for which the quoted market prices were less than the
accounting basis, the investees' financial condition and overall industry
health. In performing its review in the fourth quarter of fiscal 2002, the
Company determined that the decline in the fair value of the Sagent shares
through March 31, 2002 was other than temporary. As a result, the Company
recognized a loss on the impairment of available for sale securities of $279,262
in the fourth quarter. This established a new accounting basis in the
securities. The Company determined that the decline in the fair value of the
securities from the new accounting basis in the first quarter of fiscal


                                       6
<PAGE>

2003 was temporary. Accordingly, this decline has been reflected as an
unrealized loss and reported as a component of accumulated other comprehensive
loss as of June 30, 2002.

As of August 9, 2002, the market value of the Sagent stock declined to $0.20 per
share from $0.66 per share on June 28, 2002.

5. Revenue Recognition

The Company recognizes revenue pursuant to the requirements of Statement of
Position No. 97-2, "Software Revenue Recognition" (SOP 97-2), as amended by
Statement of Position No. 98-9, "Software Revenue Recognition with Respect to
Certain Arrangements." Under SOP 97-2, revenue attributable to an element in a
customer arrangement is recognized when persuasive evidence of an arrangement
exists and delivery has occurred, provided the fee is fixed or determinable,
collectibility is probable and the arrangement does not require significant
customization of the software.

For all sales, the Company uses either a binding purchase order or signed
agreement, depending on the nature of the transaction, as evidence of an
arrangement. Sales through its resellers are evidenced by a master agreement
governing the relationship.

For software license fees in single element arrangements and multiple element
arrangements that do not include customization or consulting services, delivery
typically occurs when the product is shipped to customers.

At the time of each transaction, the Company assesses whether the fee associated
with its revenue transactions is fixed and determinable and whether or not
collection is reasonably assured. The Company assesses whether the fee is fixed
and determinable based on the payment terms associated with the transaction. If
a significant portion of a fee is due after the Company's normal payment terms,
is based upon a variable matrix such as a minimum level of distribution or is
subject to refund, the Company accounts for the fee as not being fixed and
determinable. In these cases, it defers revenue and recognizes it when it
becomes due and payable.

The Company assesses the probability of collection based on a number of factors,
including past transaction history with the customer and the current financial
condition of the customer. It does not request collateral from its customers. If
the Company determines that collection of a fee is not reasonably assured, it
defers revenue until the time collection becomes reasonably assured.

For multiple element arrangements, when Company-specific objective evidence of
fair value exists for all of the undelivered elements of the arrangement, but
does not exist for one or more of the delivered elements in the arrangement, the
Company recognizes revenue under the residual method.

Under the residual method, at the outset of the arrangement with a customer, the
Company defers revenue for the fair value of its undelivered elements such as
consulting services and product support and upgrades, and recognizes the revenue
for the remainder of the arrangement fee attributable to the elements initially
delivered, such as software licenses, when the criteria in SOP 97-2 have been
met. Company-specific objective evidence is established for support and upgrades
of standard products for which no installation or customization is required
based upon the amounts charged when support and upgrades are sold separately.
Company-specific objective evidence is established for consulting and
installation services based on the hourly rates charged for its employees when
they are performing these services provided the Company has the ability to
accurately estimate the hours required to complete a project based upon its
experience with similar projects. For multiple element


                                       7
<PAGE>

arrangements involving installation or customization, Company-specific objective
evidence is established for support and maintenance arrangements if its
customers have an optional annual renewal rate specified in the arrangement and
the rate is substantive.

The Company recognizes revenue from nonrefundable minimum royalty agreements
from distributors or resellers upon delivery of product to the distributor or
reseller, provided no significant obligations remain outstanding and the
conditions of SOP 97-2 have been met. Additional royalties are recognized as
revenue to the extent the minimums are exceeded when earned, based on the
distributor's or reseller's contractual reporting obligations.

Revenue from support agreements is recognized on a straight-line basis over the
life of the contract.

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

6. Comprehensive Loss

Comprehensive loss for the three months ended June 30, 2002 and 2001 were as
follows:

                                                            2002         2001
                                                         ---------    ---------

      Foreign currency translation                       $ (40,108)   $  (3,770)
      Unrealized loss on available for sale securities     (49,764)    (126,165)
      Net loss                                            (300,566)    (180,847)
                                                         ---------    ---------

      Total comprehensive loss                           $(390,438)   $(310,782)
                                                         =========    =========

7. Net Loss per Common Share

Basic net loss per share is the net loss divided by the weighted average number
of shares outstanding during the year less, for the three months ended June 30,
2002, 39,321 issued and outstanding restricted shares of common stock that are
subject to repurchase. Diluted net loss per share is calculated as the net loss
divided by the sum of the weighted 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). The effect of including
outstanding options and warrants is antidilutive for all periods presented.
Therefore, options and warrants have been excluded from the calculation of
diluted net loss per share.

Shares issuable pursuant to stock options and warrants that have not been
included in the calculation of net loss per share because they are antidilutive
totaled 672,129 and 694,092 for the three month periods ended June 30, 2002 and
2001, respectively.

8. Intangible Assets and Goodwill

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141),
and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method


                                       8
<PAGE>

business combinations completed after June 30, 2001. SFAS 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill. SFAS 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS 142. SFAS 142 also requires that intangible assets
with definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-lived Assets" (SFAS 144).

The provisions of SFAS 141 were adopted effective June 30, 2001. No business
combinations have been completed since July 1, 2001. The Company adopted the
provisions of SFAS 142 on April 1, 2002.

SFAS 141 requires, upon adoption of SFAS 142, that the Company evaluate its
existing intangible assets and goodwill that were acquired in a prior purchase
business combination, and make any necessary reclassifications in order to
conform with the new criteria in SFAS 141 for recognition apart from goodwill.
Upon adoption of SFAS 142, the Company is required to reassess the useful lives
and residual values of all intangible assets acquired in purchase business
combinations, and make any necessary amortization period adjustments by the end
of the first interim period after adoption. In addition, to the extent an
intangible asset is identified as having an indefinite useful life, the Company
is required to test the intangible asset for impairment in accordance with the
provisions of SFAS 142 within the first quarter of Fiscal 2003. Any impairment
loss will be measured as of April 1, 2002 and recognized as the cumulative
effect of a change in accounting principle in the first quarter of 2002.

In connection with the transitional goodwill impairment evaluation, SFAS 142
requires the Company to perform an assessment of whether there is an indication
that goodwill is impaired as of April 1, 2002. To accomplish this the Company
must identify its reporting units and determine the carrying value of each
reporting unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units as of the date of
adoption. The Company will then have until September 30, 2002 to determine the
fair value of each reporting unit and compare it to the reporting unit's
carrying amount. To the extent a reporting unit's carrying amount exceeds its
fair value, an indication exists that the reporting unit's goodwill may be
impaired and the Company must perform the second step of the transitional
impairment test. In the second step, the Company must compare the implied fair
value of the reporting unit's goodwill, determined by allocating the reporting
unit's fair value to all of its assets (recognized and unrecognized) and
liabilities in a manner similar to a purchase price allocation in accordance
with SFAS 141, to its carrying amount, both of which would be measured as of the
date of adoption. This second step is required to be completed as soon as
possible, but no later than March 31, 2003.

Upon adoption of SFAS 142 on April 1, 2002, the Company reclassified a
workforce-in-place intangible asset with an unamortized balance of $54,167 to
goodwill. As a result of the reclassification of the workforce-in-place
intangible asset to goodwill and the corresponding reduction in the related
deferred tax liability, the Company's valuation allowance for deferred tax
assets was increased resulting in income tax expense of $18,416. The Company has
also reviewed the useful lives of its identifiable intangible assets and
determined that the original estimated lives remain appropriate. The Company has
completed the transitional goodwill impairment test and has determined that the
Company did not have a transitional impairment loss to record.

As required by SFAS 142, the Company has ceased amortization of goodwill
effective April 1, 2002.


                                       9
<PAGE>

Net loss and net loss per share for the three months ended June 30, 2001 and for
the years ended March 31, 2002 and 2001, adjusted to exclude goodwill
amortization are as follows:

<TABLE>
<CAPTION>
                                          Three Months      Year Ended        Year Ended
                                             Ended           March 31,         March 31,
                                         June 30, 2001         2002              2001
                                         -------------     -----------       -----------
<S>                                        <C>             <C>               <C>
Net loss:
  Reported net loss                        $(180,847)      $(2,286,932)      $(1,885,632)
  Goodwill amortization                       17,711            70,879            53,059
                                           ---------       -----------       -----------
    Adjusted net loss                      $(163,136)      $(2,216,053)      $(1,832,573)
                                           =========       ===========       ===========

Basic and diluted net loss per share:
  Reported basic and diluted
  net loss per share                       $   (0.04)      $     (0.57)      $     (0.48)
  Goodwill amortization                           --              0.02              0.01
                                           ---------       -----------       -----------
    Adjusted basic and diluted
    net loss per share                     $   (0.04)      $     (0.55)      $     (0.47)
                                           =========       ===========       ===========
</TABLE>

Expected future amortization expense related to identifiable intangible assets
is as follows:

July 1, 2002 to March 31, 2003              $406,692
Year ending March 31, 2004                   193,862
                                            --------

Total                                       $600,554
                                            ========

9. Impairment of Long-lived Assets

On April 1, 2002, the FASB issued the Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144), which supersedes certain provisions of APB Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" (APB 30) and supersedes Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121). In accordance
with SFAS 144, the Company evaluates long-lived assets, including intangible
assets other than goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable based on estimated undiscounted cash flows attributable to that
asset. The amount of any impairment is measured as the difference between the
carrying value and the fair value of the impaired asset. The Company does not
currently believe that any of its long-lived assets are impaired. However, as
discussed in the following Management's Discussion and Analysis or Plan of
Operations under Critical Accounting Policies - Impairment of Long-lived Assets,
Goodwill and Other Intangibles, upon conclusion of the Company's initial
impairment review, the Company may record an impairment charge.


                                       10
<PAGE>

10. Litigation

In July 1999, the Company was served a complaint by Microsoft Corporation in the
Superior Court of Washington for King County alleging breach of contract
regarding a Patent License Agreement signed by both companies in June 1999. In
December 2000, the Court issued a Memorandum Decision and in January 2001 issued
a Final Judgment in the lawsuit holding the language of the agreement would
support Microsoft's right to sublicense its customers to use Microsoft's SQL
Server by adding code or software products to it so long as the added code or
software does not itself independently infringe Timeline's patent. The Company
filed an appeal of the lower court's Final Judgment in the Washington State
Court of Appeals, and in March 2002 the Appellate Court remanded the case to the
Superior Court and ordered it to enter a judgment in the Company's favor.
Microsoft has filed a motion for certiorari requesting the Washington Supreme
Court to hear an appeal of the case. A response is expected in November or
December 2002.

In June 2001, the Company filed and subsequently served a complaint against
Hyperion Solutions, Inc. in the Federal District Court for the Western District
of Washington, alleging infringement of certain of its patents. The Company
intends to seek monetary damages and an injunction against Hyperion licensing
certain of its products. The trial date is set for March 2003.

In June 2001, the Company filed a complaint against Lawson Software Inc. in the
Federal District Court for the Western District of Washington, alleging
infringement of certain of its patents. Additionally, Lawson is a reseller of
software provided by Hyperion. On December 3, 2001, the Company signed a
settlement agreement with Lawson in which it granted to Lawson a license to its
patented technology and Lawson would pay a license fee of $450,000, over time.
As of June 3, 2002, all license fees have been fully paid under the settlement
agreement.

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.

11. Segment Information

The Company follows the requirements of Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (SFAS 131). As defined in SFAS 131, the Company operates in two
reportable segments that are based on geographic business units in the United
States (Timeline) and Europe (Analyst Financials). Both segments generate
revenues from the license and support of the Company's software products.
Revenues from other licenses are included in the Timeline segment. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies included herein and in the Company's
annual financial statements for the year ended March 31, 2002. During the first
quarter of fiscal year 2003 and fiscal year 2002, the Timeline segment includes
intersegment revenues and the Analyst Financials segment includes intersegment
expenses that totaled $141,805 and $66,289, respectively. These intersegment
transactions are recorded at market rates as if the transactions occurred with
third parties. The following table summarizes operations by segment during the
quarter ended June 30, 2002 and June 30, 2001.


                                       11
<PAGE>

Quarter Ended June 30, 2002:
                                                     Analyst
                                    Timeline        Financials          Total
                                    --------        ----------          -----

Revenues, net of intersegment      $  562,015       $  351,629       $  913,644
Operating income (loss),
   net of intersegment               (303,825)           4,735         (299,090)
Depreciation and amortization          61,308           81,345          142,653
Long lived assets                     733,808          396,725        1,130,533
Total assets                        1,244,981          682,083        1,927,064

Quarter Ended June 30, 2001:
                                                     Analyst
                                    Timeline        Financials          Total
                                    --------        ----------          -----

Revenues, net of intersegment       1,480,237          252,594       $1,732,831
Operating income (loss),
   net of intersegment                 50,997         (219,442)        (168,445)
Depreciation and Amortization          63,871           92,423          156,294
Long lived assets                   1,157,736          793,379        1,951,115
Total assets                        2,658,605        1,025,327        3,683,932


                                       12
<PAGE>

Item 2. Management's Discussion and Analysis or Plan of Operations

This Quarterly Report on Form 10-QSB includes a number of forward-looking
statements that reflect the 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 used herein, the
words "anticipate," "believe," "estimate," "intend," "may," "could," "will,"
"expect," "project," "plan," and variations of such words 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. 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 in this report and in
the 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 the Company's business.

CRITICAL ACCOUNTING POLICIES

We have identified the policies below as critical to our business operations and
the understanding of our results of operations. The impact and any associated
risks related to these policies on our business operations is discussed
throughout Management's Discussion and Analysis or Plan of Operation where such
policies affect our reported and expected financial results. For a detailed
discussion on the application of these and other accounting policies, see the
Notes to Condensed Consolidated Financial Statements of this Form 10-QSB and
Note 2 to the Consolidated Financial Statements of our Annual Report on Form
10-KSB for the year ended March 31, 2002. Note that our preparation of our
financial statements requires us to make estimates and assumptions that affect
the reported amount of assets and liabilities, disclosure of contingent assets
and liabilities at the date of our financial statements and the reported amounts
of revenue and expenses during the reporting period. There can be no assurance
that actual results will not differ from those estimates.*

Revenue Recognition

We recognize revenue pursuant to the requirements of Statement of Position No.
97-2, "Software Revenue Recognition" (SOP 97-2), as amended by Statement of
Position No. 98-9, "Software Revenue Recognition with Respect to Certain
Arrangements." Under SOP 97-2, revenue attributable to an element in a customer
arrangement is recognized when persuasive evidence of an arrangement exists and
delivery has occurred, provided the fee is fixed or determinable, collectibility
is probable and the arrangement does not require significant customization of
the software.


                                       13
<PAGE>

For all sales, we use either a binding purchase order or signed agreement,
depending on the nature of the transaction, as evidence of an arrangement. Sales
through our resellers are evidenced by a master agreement governing the
relationship.

For software license fees in single element arrangements and multiple element
arrangements which do not include customization or consulting services, delivery
typically occurs when the product is shipped to customers.

At the time of each transaction, we assess whether the fee associated with our
revenue transactions is fixed and determinable and whether or not collection is
reasonably assured. We assess whether the fee is fixed and determinable based on
the payment terms associated with the transaction. If a significant portion of a
fee is due after our normal payment terms, is based upon a variable matrix such
as a minimum level of distribution or is subject to refund, we account for the
fee as not being fixed and determinable. In these cases, we defer revenue and
recognize it when it becomes due and payable.

We assess the probability of collection based on a number of factors, including
past transaction history with the customer and the current financial condition
of the customer. We do not request collateral from our customers. If we
determine that collection of a fee is not reasonably assured, we defer revenue
until the time collection becomes reasonably assured.

For multiple element arrangements, when Company-specific objective evidence of
fair value exists for all of the undelivered elements of the arrangement, but
does not exist for one or more of the delivered elements in the arrangement, we
recognize revenue under the residual method.

Under the residual method, at the outset of the arrangement with a customer, we
defer revenue for the fair value of its undelivered elements such as consulting
services and product support and upgrades, and recognize the revenue for the
remainder of the arrangement fee attributable to the elements initially
delivered, such as software licenses, when the criteria in SOP 97-2 have been
met. Company-specific objective evidence is established for support and upgrades
of standard products for which no installation or customization is required
based upon the amounts we charge when support and upgrades are sold separately.
Company-specific objective evidence is established for consulting and
installation services based on the hourly rates we charge for our employees when
they are performing these services provided we have the ability to accurately
estimate the hours required to complete a project based upon our experience with
similar projects. For multiple element arrangements involving installation or
customization, Company-specific objective evidence is established for support
and maintenance arrangements if our customers have an optional annual renewal
rate specified in the arrangement and the rate is substantive.

We recognize revenue from nonrefundable minimum royalty agreements from
distributors or resellers upon delivery of product to the distributor or
reseller, provided no significant obligations remain outstanding and the
conditions of SOP 97-2 have been met. Additional royalties are recognized as
revenue to the extent the minimums are exceeded when earned, based on the
distributor's or reseller's contractual reporting obligations.

Revenue from support agreements is recognized on a straight-line basis over the
life of the contract.


                                       14
<PAGE>

Allowance for Doubtful Accounts

Our management must estimate the collectibility of our accounts receivable.
Management analyzes accounts receivable and analyzes historical bad debts,
customer concentrations, customer credit-worthiness, current economic trends and
changes in our customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts. Material differences may result in the amount
and timing of our bad debt expenses for any period if management made different
judgments or utilized different estimates.*

Capitalized Patents

We capitalize the costs to obtain patents on our technology. Such costs are
amortized over the life of the patent. Should we determine that we will not be
able to generate future revenues as a result of these patents, we would need to
write off the patent in the period we determine that the patent is impaired.*
Costs of defending our patents are expensed as incurred, which, depending on the
nature and complexity of the legal defense strategy, could materially impact our
results of operations in any given period.*

Capitalized Internally Developed Software

We capitalize internally-developed software costs subsequent to establishing
technological feasibility of a project. Such costs are amortized over the
projects useful lives using the greater of the ratio of current gross revenues
to total current and projected future gross revenues for the product or the
straight line method. Useful lives are based on management's estimates of the
period that the assets will generate revenue. Material differences may result in
the amount and timing of our amortization expense for any period if management
made different judgments or utilized different estimates.*

Valuation of Acquired Businesses and Assets

Our business acquisitions typically result in goodwill and other intangible
assets, which affect the amount of future period amortization expense and
possible impairment expense that we will incur. The determination of the value
of such intangible assets requires management to make estimates and assumptions
that materially affect our financial condition and results of operations.

Impairment of Long-lived Assets, Goodwill and Other Intangibles

Property and equipment, goodwill, identifiable intangibles and certain other
long-lived assets are amortized over their useful lives. Useful lives are based
on management's estimates of the period that the assets will generate revenue.
We assess the impairment of these assets whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Our
judgments regarding the existence of impairment indicators are based on legal
factors, market conditions and operational performance of our acquired
businesses. Future events could cause us to conclude that impairment indicators
exist and that certain assets are impaired.* On April 1, 2002, we began to
assess the impairment of goodwill in accordance with the provisions of SFAS 142
and other assets in accordance with the provisions of SFAS 144.* We may record
an impairment charge upon completion of the initial impairment review.* Any
resulting impairment loss could have a material adverse impact on our financial
condition and results of operations.*


                                       15
<PAGE>

Impairment of Investments

As part of the process of preparing our consolidated financial statements, we
periodically evaluate whether any declines in the fair value of our investments
are other-than-temporary. Significant judgments and estimates must be made to
assess whether an other-than-temporary decline in fair value of investments has
occurred. The factors we considered in evaluating whether declines in fair value
of our investments were other-than-temporary include the time period and extent
for which the quoted market price is less than the accounting basis, the
investees' financial condition and overall industry health.

ADOPTION OF NEW ACCOUNTING STANDARDS

During the three months ended June 30, 2002, we adopted new accounting standards
related to the accounting for: business combinations; intangible assets and
goodwill; impairment of long lived assets; and discontinued operations. There
was no cumulative transition adjustment recorded upon the adoption of any of
these accounting standards and the adoption of these accounting standards did
not have a material impact on our consolidated financial position, results of
operations or cash flows other than the discontinuance of goodwill amortization
as discussed below. The following is a brief summary of the accounting standards
adopted during the three months ended June 30, 2002:

Business Combinations

On July 1, 2001, we adopted certain provisions of SFAS 141, although no business
combinations have been consummated since June 30, 2001. We adopted the remaining
provisions of SFAS 141 effective April 1, 2002. SFAS 141 requires that all
business combinations be accounted for using the purchase method, thereby
prohibiting the pooling-of-interests method. SFAS 141 also specifies criteria
for recognizing and reporting intangible assets apart from goodwill; however,
workforce-in-place must be recognized and reported in goodwill.

Goodwill and Intangible Assets

We adopted the provisions of SFAS 142 effective April 1, 2002. SFAS 142 requires
that intangible assets with an indefinite life should not be amortized until
their life is determined to be finite and all other intangible assets must be
amortized over their useful life. SFAS 142 also requires that goodwill not be
amortized but instead tested for impairment at the reporting unit level at least
annually and more frequently upon the occurrence of certain events. We have
completed the first step of the transitional goodwill impairment test and have
determined that there was no transitional impairment upon full adoption on April
1, 2002. If the non-amortization provisions of SFAS 142 had been effective in
fiscal year 2002, net loss and basic and diluted net loss per share for the
three months ended June 30, 2001, would have been a loss of $163,136 and $0.04
per share, respectively.

Impairment of Long-Lived Assets and Discontinued Operations

On April 1, 2002, we adopted SFAS 144. SFAS 144 supersedes certain provisions of
APB Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" and supersedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." There was no cumulative transition adjustment required upon
adoption


                                       16
<PAGE>

and we do not have any long-lived assets that we consider to be impaired.
However, upon conclusion of our initial impairment review, we may have an
impairment charge.*

RESULTS OF OPERATIONS

Revenues

                                   Three Months Ended June 30,
                                        2002          2001         Change
--------------------------------------------------------------------------------
(Dollars in Thousands)

Software license                        271            250            8%
Other licenses                           25          1,100          (98%)
Software development                      0              3          N/A
Maintenance                             271            225           20%
Consulting                              347            155          124%
                                   ---------------------------
Total Revenues                          914          1,733          (47%)
--------------------------------------------------------------------------------

For the quarter ended June 30, 2002, our total operating revenues were $914,000
compared to $1,733,000 for June 30, 2001, representing a decrease of
approximately 47%. However, if "Other licenses", consisting entirely of patent
licenses in each period, are excluded, revenue rose by 40%. These increases were
driven by software licenses, maintenance, and consulting revenue. The largest
increase was in consulting and reflects the increased emphasis we have placed on
services in an attempt to counter concerns about weakening demand for licenses
in the U.S. due to a weak economy.

The quarter-to-quarter other licenses revenue decreased by 98% for fiscal 2003
over fiscal 2002. This reflects the fact that in the quarter ended June 30, 2001
(fiscal 2002) a substantial one-time patent license fee was recorded.
Conversely, we only received a relatively small patent license fee in the first
quarter of fiscal 2003. While we are vigorously pursuing additional patent
license agreements, we cannot predict the outcome of ongoing and future
negotiations and there are no assurances that we will be successful in entering
into additional patent licenses, or the timing of any such licenses.* In
addition, we are currently in litigation regarding our patents, the ultimate
outcome of which could adversely affect our ability to enter into additional
patent licenses.*

Despite the small increase in software license revenue between these comparable
quarters, during fiscal 2003, we have witnessed significant diminution of
license revenue by several key distribution partners in the United States,
presumably based upon the general decline in economic conditions. Higher license
revenue in Europe has more than offset this decrease.

Maintenance revenue increased 20% to $271,000 for the first quarter of fiscal
2003 as compared to $225,000 for the first quarter of fiscal 2002. The increase
in maintenance revenue is primarily due to increased maintenance fees from new
customers who have installed and are using our software. Future fiscal 2003
quarters may show mixed results depending upon the commencement of new
maintenance agreements and the expiration of existing maintenance agreements.*

Software development revenue decreased to $0 for the first quarter of fiscal
2003 as compared to $3,000 for the first quarter of fiscal 2002. Development
revenues are not material to overall revenue and we do not anticipate that
development revenue will contribute significantly to our revenue during the rest
of fiscal 2003.* We currently do not have any substantial contracts in place for
fee-based


                                       17
<PAGE>

software development. We do not consider software development for fees to be a
line of business that should be pursued except in exceptional situations.

Gross Profit

                               Three Months Ended June 30,
                                    2002          2001          Change
--------------------------------------------------------------------------------
(Dollars in Thousands)

Gross profit                        735           1,490          (51%)
Percentage of revenues               80%             86%
--------------------------------------------------------------------------------

Our gross profit for the first quarter of fiscal 2003 was dramatically less than
in the comparable period in fiscal 2002 primarily due to a one-time patent
license fee recorded in fiscal 2002. Patent licenses also result in unusually
high gross profits as a percentage of revenue. Without this one-time license
fee, our gross profit for the first quarter of fiscal 2003 would have been 62%
of revenue, representing an 82% increase from the first quarter of fiscal 2003.
The increase in gross profit, after excluding one-time patent license fees, was
primarily attributable to increased consulting, maintenance and software license
revenues and lower cost of revenues. The increase in gross profit as a
percentage of revenues, after excluding the one-time patent license fee, was
primarily attributable to higher margins on our maintenance and consulting
contracts resulting from decreased labor costs in providing these services.

Sales and Marketing Expense

                               Three Months Ended June 30,
                                    2002          2001          Change
--------------------------------------------------------------------------------
(Dollars in Thousands)

Sales and marketing                 183            362           (49%)
Percentage of revenues               20%            21%
--------------------------------------------------------------------------------

Sales and marketing expenses in actual dollar amounts decreased by 49% between
the three months ended June 30, 2002 and June 30, 2001, primarily due to a
substantial decrease in the number of sales and marketing personnel. Sales and
marketing expenses are expected to continue to be less in fiscal 2003 compared
to fiscal 2002 as the decrease in personnel occurred gradually throughout fiscal
2002.* This decrease in personnel is a direct reflection of disappointing
license revenue throughout fiscal 2002 which, we believe, is reflective of a
weak economy in the U.S., particularly after September 11, 2001. Software
licenses appear to be particularly hard hit. Sales and marketing expenses
quarter-to-quarter in fiscal 2003 are expected to remain relatively stable.*

Sales and marketing expenses as a percentage of revenues decreased slightly in
the first quarter of fiscal 2003 over the same period in fiscal 2002 primarily
due to a reduction in sales and marketing personnel. Sales and marketing
expenses as a percentage of revenue may vary widely based upon the level and
type of gross revenue in each quarter.*


                                       18
<PAGE>

Research and Development Expense

                               Three Months Ended June 30,
                                    2002          2001          Change
--------------------------------------------------------------------------------
(Dollars in Thousands)

Research and development            207            481           (57%)
Percentage of revenues               23%            28%
--------------------------------------------------------------------------------

Research and development expenses decreased during the quarter ended June 30,
2002 in actual dollar amounts by 57% over the period ended June 30, 2001. This
decrease is primarily attributable to a decrease in the number of research and
development personnel due to the consolidation of resources after the
acquisition of WorkWise and Analyst Financials, as well as reduced headcount
from our efforts to cut costs. We expect future quarters to reflect a decrease
in research and development expenses due to additional staff reductions.*

Research and development expenses during the quarters ended June 30, 2002 and
June 30, 2001 were primarily attributable to the enhancement of the
functionality of the current product lines and to integration of our products
with various accounting packages. We anticipate such efforts will continue
throughout the remainder of the 2003 fiscal year.*

General and Administrative Expense

                               Three Months Ended June 30,
                                    2002          2001          Change
--------------------------------------------------------------------------------
(Dollars in Thousands)

General and administrative          500            659           (24%)
Percentage of revenues               55%            38%
--------------------------------------------------------------------------------

General and administrative expenses decreased by 24% between the comparable
three-month periods ended June 30, 2002 and 2001. This decrease from period to
period is due in part to the impact of our consolidation of functions between
Europe and the United States and reductions of head count in line with cost
cutting efforts. Additionally, general and administrative costs are greatly
impacted from period to period by attorney's fees and costs associated with
various litigation matters relevant to the patents. During the June 30, 2002
quarter, litigation activity was substantially less than in the quarter ended
June 30, 2001 which resulted in less fees and costs. However, general and
administrative expenses as a percentage of revenues for the first quarter of
fiscal 2003 were significantly higher due to the fact that revenue from patent
licenses in the June 30, 2001 quarter was much greater than the June 30, 2002
quarter.

Except for attorneys' fees and expert witness fees associated with ongoing and
anticipated patent licensing and enforcement actions, we expect general and
administrative expenses to remain relatively steady throughout the remainder of
fiscal 2003 at levels similar to those experienced in the first fiscal quarter
of 2003.* Due to the uncertainties associated with patent litigation and
negotiations, it is difficult to estimate the level of litigation expenses on an
ongoing basis. However, in light of the scheduled trial of Timeline vs. Hyperion
in March of 2003, we anticipate litigation expenses and fees will be higher in
the remaining quarters of fiscal 2003 than those experienced in the June 30th
quarter.*


                                       19
<PAGE>

Depreciation and Amortization

Depreciation expense was relatively stable having decreased in the quarter ended
June 30, 2002 by 7% to $13,000 from $14,000 in the quarter ended June 30, 2001.
Additionally, amortization of intangible assets due primarily to the acquisition
of Analyst Financials and WorkWise decreased by 8% from $142,000 to $130,000
between comparable quarters. Similar amounts will continue to be amortized in
future quarters of fiscal 2003. We adopted SFAS 142 on April 1, 2002 and
accordingly we ceased amortization of goodwill.

Other Income (Expense)

Other income increased to $17,000 in the first fiscal quarter of 2003 versus a
net expense in the first quarter of fiscal 2002 of approximately $12,000. The
increase includes the affect of a lesser amount of realized losses in the first
quarter of fiscal 2003 on the sale of securities resulting in realized losses of
$6,000 as compared to approximately $24,000 in realized losses on the sale of
securities for the comparable period of fiscal 2002. Lower interest costs and
increased benefits from foreign currency conversions also contributed to the
improvement between the comparable periods.

Income Tax

We recorded income tax expense of approximately $18,000 in the first quarter of
fiscal 2003, which results from the reclassification of our workforce-in-place
intangible asset to goodwill upon adoption of SFAS 142 on April 1, 2002. As a
result of the reclassification, we reduced the deferred tax liability related to
the acquired identifiable intangibles with a corresponding decrease in goodwill.
Due to the reduction in the deferred tax liability, the valuation allowance for
deferred tax assets was increased resulting in income tax expense of
approximately $18,000.

LIQUIDITY AND CAPITAL RESOURCES

We have historically suffered recurring operating losses and negative cash flows
from operations. As of June 30, 2002, we had a net working capital deficit of
$630,000 ($96,000 when excluding deferred revenue). In addition, our cash and
cash equivalent and marketable securities balances as of June 30, 2002 stood at
approximately $138,000 compared to approximately $286,000 as of March 31, 2002.
Total obligations, excluding deferred income items, totaled approximately
$874,000 as of June 30, 2002 as compared to approximately $944,000 as of March
31, 2002. These balances include available for sale securities as of June 30,
2002 of approximately $100,000 compared to approximately $203,000 as of March
31, 2002.

The decrease in the total amount of our cash and cash equivalent and short-term
investment balances, as well as the decrease in marketable securities are
attributable to the operating losses during the first quarter of fiscal 2003 and
the continued decline in value of the Sagent stock. Furthermore, as of August 9,
2002, the market value of Sagent stock was $0.20 per share, a decrease of $0.44
per share from June 30, 2002. Net cash consumed by operating activities was
$85,000 in the quarter ended June 30, 2002. In order to cover this shortfall and
an additional $10,000 of capitalized costs related to pending new patents, we
sold approximately $47,000 of our marketable securities.

During fiscal 2003, we expect to generate cash from increased consulting and
maintenance revenues and to a lesser extent software license revenues and
possibly additional licenses of our patented technology.* We expect that our
primary uses of cash will be salaries and other expenses associated


                                       20
<PAGE>

with General and Administrative, Research and Development, and Sales and
Marketing activities.* We intend to continue to monitor new license activity
closely and may have to reduce staff, and/or seek outside financing or a sale or
merger of the Company if consulting and maintenance revenues and patent and
software licenses do not substantially increase quarter-to-quarter during fiscal
2003. By taking this cautious approach combined with our current cash and cash
equivalent balances and our ability to sell marketable securities, we believe we
have adequate resources to fund operations, as well as continued costs and
expenses of litigation, through fiscal 2003.* However, there can be no assurance
that we will obtain sufficient cash to fund operations through fiscal 2003.
Additionally, our auditors added an explanatory paragraph to their opinion on
our 2002 financial statements stating that there was substantial doubt about our
ability to continue as a going concern. **

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, reductions in
the size or volume of consulting or maintenance contracts with existing clients
and potential clients, 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 manage growth, our ability to
integrate our products with those of our 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 and Hyperion Solutions, Incorporated, 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, 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.**


                                       21
<PAGE>

                          PART II. - OTHER INFORMATION

Item 1.     Legal Proceedings

In July 1999, we were served a complaint by Microsoft Corporation in the
Superior Court of Washington for King County alleging breach of contract
regarding a Patent License Agreement signed by both companies in June 1999. In
December 2000, the Court issued a Memorandum Decision and in January 2001 issued
a Final Judgment in the lawsuit holding the language of the agreement would
support Microsoft's right to sublicense to its customers the right to use
Microsoft's SQL Server by adding code or software products to it so long as the
added code or software does not itself independently infringe our patents. We
filed an appeal of the lower court's Final Judgment in the Washington State
Court of Appeals, and in March 2002 the Appellate Court remanded the case to the
Superior Court and ordered it to enter a judgment in our favor. Microsoft has
filed a motion for certiorari requesting the Washington Supreme Court to hear an
appeal of the case. A response is expected in November or December 2002.

In June 2001, we filed and subsequently served a complaint against Hyperion
Solutions, Inc. in the Federal District Court for the Western District of
Washington, alleging infringement of certain of our patents. We intend to seek
monetary damages and an injunction against Hyperion licensing certain of its
products. The trial date is set for March 2003.

From time to time, we may pursue litigation against other third parties to
enforce or protect our rights under these patents or our intellectual property
rights generally.

Item 2.     Changes in Securities and Use of Proceeds

In December 2001, two of our officers, Frederick W. Dean and Michael Evans each
received a performance-based award of 6,250 shares of Timeline common stock. Mr.
Dean and Mr. Evans each earned a second performance-based award of 6,250 shares
of Timeline common stock in March 2002, which were issued in April 2002.

Item 6.     Exhibits and Reports on Form 8-K

(a) Exhibits

    99.1    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) A report on Form 8-K was filed on June 3, 2002, reporting Item 4 information
relating to the change in our independent audit firm from Arthur Andersen LLP to
KPMG LLP, effective May 28, 2002.


                                       22
<PAGE>

                                   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: August 12, 2002                     By:    /s/ Charles R. Osenbaugh
                                                 -----------------------------
                                          Charles R. Osenbaugh
                                          President/Chief Financial Officer


                                          Signed on behalf of registrant and as
                                          principal financial officer.


                                       23