**U.S. SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-KSB**

 

| **ý** |   | **Annual report under Section 13 or  15(d) of the Securities Exchange Act of 1934**                                                                                                                                                                                                                                                                                                                   |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |   | **For the fiscal year ended June 30, 2004**                                                                                                                                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
| **o**      |   | **Transition report under Section 13 or 15(d) of the  Securities Exchange Act of 1934**                                                                                                                                                                                                                                                                                                          |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |   | **For the transition period from                                 to                              ** |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |   | **Commission File Number 33-58694**                                                                                                                                                                                                                                                                                                                                                                   |

 

**TIME AMERICA, INC.**

(Name of small business issuer in its charter)

 

| **Nevada**                                                                    |   | **13-3465289**                        |
|-------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation of organization)               |   | (I.R.S. Employer  Identification No.) |
|                                                                          |   |                                  |
| **51 West Third Street, Suite 310, Tempe,  Arizona 85281**                    |
| (Address of principal executive offices)                                      |
|                                                                          |   |                                  |
| **(480) 296-0400**                                                            |
| (Issuer’s telephone number)                                              |
|                                                                          |   |                                  |
| Securities registered under Section 12(b) of the Exchange Act:  **None** |
|                                                                          |   |                                  |
| Securities registered under Section 12(g) of the Exchange Act:                |
| **Common Stock, $.005 par value**                                             |

 

Check whetherthe issuer: (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.    Yes  ý     No o

 

Check if thereis no disclosure of delinquent filers in response to Item 405 of Regulation S-Bis not contained in this form, and no disclosure will be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or any amendment tothis Form 10-KSB. o

 

The issuer’srevenues for the fiscal year ended June 30, 2004 were $4,837,121.

 

The aggregatemarket value of the voting stock (based on the closing price on that date) heldby non-affiliates of the registrant as of September 25, 2004 was approximately$4,275,000.

 

At September20, 2004, the issuer had outstanding 13,599,552 shares of Common Stock, parvalue $.005 per share.

 

TransitionalSmall Business Disclosure Format:  Yes   o     No  ý

 

 

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**PART I**

 

**Forward-Looking Information**

** **

This AnnualReport on Form 10-KSB contains certain forward-looking statements andinformation which we believe are within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended.  The forwardlooking statements contained herein can be identified by the use offorward-looking terminology such as “believes,” “expects,” “may,” “will,”“should,” or “anticipates,” or the negative thereof or other variations thereonor comparable terminology, or by discussions of strategy that involve risks anduncertainties.  The Company wishes tocaution the reader that these forward-looking statements that are nothistorical facts, are only predictions. No assurances can be given that the future results indicated, whetherexpressed or implied, will be achieved. While sometimes presented with numerical specificity, these projectionsand other forward-looking statements are based upon a variety of assumptionsrelating to the business of the Company, which, although considered reasonableby the Company, may not be realized. Because of the number and range of assumptions underlying the Company’sprojections and forward-looking statements, many of which are subject tosignificant uncertainties and contingencies that are beyond the reasonablecontrol of the Company, some of the assumptions inevitably will notmaterialize, and unanticipated events and circumstances may occur subsequent tothe date of this report.  Examples ofuncertainties that could cause such differences include, but are not limitedto, the ability of the Company to attract and retain key personnel, especiallyhighly skilled technology personnel, the ability of the Company to secureadditional capital to finance its business plan, competition from othercompanies providing time and labor management hardware and software products,and the Company’s reliance on technology and information and telecommunicationsystems.  These forward-lookingstatements are based on current expectations and the Company assumes noobligation to update this information. Therefore, the actual experience of the Company and the results achievedduring the period covered by any particular projections or forward-lookingstatements may differ substantially from those projected.  Consequently, the inclusion of projectionsand other forward-looking statements should not be regarded as a representationby the Company or any other person that these estimates and projections will berealized, and actual results may vary materially.  There can be no assurance that any of these expectations will berealized or that any of the forward-looking statements contained herein will proveto be accurate.

 

**Item1.  Description Of Business.**

 

**General**

** **

Time America,Inc. (formerly known as Vitrix Inc.), a Nevada corporation (the “Company” or“Time America”), through its wholly owned subsidiary, Time America, Inc.(formerly known as Vitrix Incorporated), an Arizona corporation (“TimeAmerica”), designs, develops, manufactures and markets a line of time and labormanagement hardware and software products. Our products are designed to improve productivity by automating time andattendance, workforce scheduling and management of labor resources.  We target our product solutions at small toenterprise level

 

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companies from 25 to 5,000 plusemployees. Our solutions are offered in a web-based licensed and hosted model,client/server configuration, and PC-based applications.

 

The followingparagraphs provide an overview of our development and history:

 

•                  June 6, 1988 — Richard Barrie Fragrances, Inc., a Nevada corporation,was formed on this date for the purpose of developing, manufacturing andmarketing fragrances, cosmetics, skin treatment and personal care products soldprimarily through department and specialty stores and drugstores.

 

•                  June 30, 1996 — Richard Barrie Fragrances sells substantially all ofits properties and rights to Parlux Fragrances, Inc. (the “Asset Sale”).  During the period from the date of the AssetSale to April 1999, our operations were limited to conducting administrativeactivities and discussions with third parties regarding possible businesscombinations.

 

•                  July 1, 1996 — Following the Asset Sale, Richard Barrie Fragranceschanges its name to FBR Capital Corporation and became a non-operating shellcompany.

 

•                  April 15, 1999 — FBR Capital Corporation acquires the outstandingcapital stock of Vitrix Incorporated (a privately held Arizona corporationformed on April 26, 1996) pursuant to the terms of an Exchange Agreement, datedas of such date, by and among FBR Capital Corporation, Vitrix Incorporated andcertain of the Vitrix Incorporated shareholders.  Vitrix Incorporated becomes a majority owned subsidiary of FBRCapital Corporation as a result of this transaction.  FBR Capital Corporation issued an aggregate of 8,592,826 sharesof common stock and 10,000,000 shares of preferred stock in consideration for thepurchase of Vitrix Incorporated.  Thistransaction resulted in the shareholders of Vitrix Incorporated acquiringapproximately 80%****of the outstanding shares of common stock of FBR CapitalCorporation (assuming conversion of the preferred stock into common stock andexcluding outstanding options and warrants). The existing shareholders of FBR Capital Corporation held the remaining20% of its outstanding common stock. This transaction was accounted for as a recapitalization of VitrixIncorporated and the purchase of FBR Capital Corporation by VitrixIncorporated, since Vitrix Incorporated became the controlling company afterthe transaction.

 

•                  October 7, 1999 — On this date we changed our name from FBR CapitalCorporation to Vitrix, Inc. in order to associate the name of the parentcorporation to our operating subsidiary Vitrix Incorporated.

 

•                  March 28, 2001 — Vitrix, Inc. acquires Time America in a mergertransaction pursuant to which Time America is merged into our wholly-ownedsubsidiary, Vitrix Incorporated.  Thistransaction was accounted for as a pooling of interests. As a condition to themerger, we sought and obtained the approval of our shareholders to effect a1-for-10 reverse stock split, which occurred on April 5, 2001.  We issued 3,147,914 shares of Vitrix, Inc.common stock (on a post reverse stock split basis) as consideration in themerger, which represented approximately 50% of Vitrix Inc.’s then issued andoutstanding capital stock.

 

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•                  April 17, 2001 — We changed the name of our wholly-owned subsidiaryfrom Vitrix Incorporated to Time America, Inc. in order to capitalize on TimeAmerica’s name recognition gained from its 13 year history in the time andattendance industry.

 

•                  On December 9, 2003, Vitrix Inc. (theparent company) changed its name to Time America, Inc. The Company changed itsname to Time America, Inc. as it believed that the current name of Vitrix, Inc.was not appropriately linked to the time and attendance industry.  The Vitrix name was chosen in 1996 when theCompany was in its early stage of development and considering alternativeindustry paths in the biometric identification field.

 

Time America, Inc. is aholding corporation.  Our operations areconducted through our wholly-owned subsidiary, Time America.  Unless the context indicates otherwise,references to the Company in this report shall include both Time America (theparent company organized in Nevada) and Time America (our wholly-ownedsubsidiary organized in Arizona).

 

**Products and Services**

** **

We design, develop,manufacture and market a line of time and labor management hardware andsoftware products targeting small, medium, and enterprise level companies. Oursolutions are offered in a 100% web-based licensed or hosted model,client/server configuration, and in a PC-based application.  Our products are internally developed,proprietary software applications that maintain and automate the process ofcollecting time and human resource data. We provide automated interfaces to most popular payroll, accounting andERP software solutions in the marketplace and enable users to generate avariety of reports that track and analyze workforce productivity. Our productsalso automatically accrue vacation, sick and personal time, and effectivelyreplace the traditional punch clock with a fully automated system designed toimprove workforce productivity and provide significant time and cost savings toits users.  Our current products aredescribed below:

 

**Labor Management Solutions**

** **

**100% Web-based Licensed or Hosted Product**

** **

***NETtime***

*** ***

NETtime is a100% web-based software application provided to customers through both alicensed and hosted model.  It deliversmore advanced functionality than HourTrack, its client/server predecessor.  The main features of NETtime include:

 

•                                          **HourTrack Structure –** By building on top ofthe HourTrack engine, NETtime has all of the functionality of HourTrack.  NETtime was introduced with a robust featureset in the areas of time and attendance, leave management, job and tasktracking, employee scheduling and data analysis.

 

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•                                          **Customization** – NETtime allows forcustomization and flexibility. Administrators and employees determine which data NETtime will displayfor them, allowing customers to work at optimum efficiency.  NETtime has the capability of working in anyenvironment required by clients.  Forexample, clients with a mobile workforce have the ability to access the NETtimepages using any web-enabled cellular phone.

 

•                                          **Anytime, Anywhere** – Because NETtime isdelivered via the Internet through any web browser, it brings the user closerto our “anytime, anywhere” vision for performing or self-servicing humanresources tasks.  Wherever clients haveInternet access, they have access to NETtime and the functionality and wealthof information it provides.

 

•                                          **Customer AccountSelf-Service –**NETtime gives users the ability to view their account status online.  They can even order additional Time Americaproducts, obtain system help, or contact a support representative directly fromour NETtime website.

 

**Client/Server Applications**

** **

***HourTrackand GENESIS SQL***

*** ***

Our HourTrack and GENESISSQL products are powerful, client-server software systems that help medium andenterprise level companies automate their employee time attendance collection,scheduling and job tracking, as well as job costing, benefit administration,employee review processing, access control, bell ringing and data collection.  The primary features of HourTrack andGENESIS SQL include:

 

•                                          **Time and Attendance –** HourTrack and GENESISSQL can be easily customized to conform to an organization’s unique set ofpayroll policies and concerns.

 

•                                          **Leave Management –** Leave records forvacation, sick and personal time are maintained by HourTrack and GENESISSQL.  These products also track hoursthat are specific to a certain organization (i.e. PTO, jury duty, training,etc.), and automate benefit accruals by using a company’s policies to calculatehow much benefit time an employee has earned.

 

•                                          **Job and Task Tracking –** In addition totracking total time spent on the job, HourTrack and GENESIS SQL enableemployers to track the time employees spend on specific jobs and tasks.  This powerful reporting feature assistscompanies with job costing, analysis and billing.

 

•                                          **Workforce Scheduling –** HourTrack andGENESIS SQL’s scheduling features help manage payroll costs and productivityconcerns by minimizing the likelihood of expensive overstaffing and thenegative effects of understaffing. Schedule creation is performed with theassistance of a unique visual interface, allowing administrators to viewemployees’ schedules in a convenient calendar format.

 

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•                                          **Strategic Reporting** – HourTrack and GENESISSQL also feature a multitude of standard reports. These reports allow users totransform basic data into helpful information that enable managers andexecutives to gain valuable insight and more effectively manage their organizations.Reports can also be used to share information such as time tracking, benefitusage, job costing, human resource functionality and employee scheduling withthird-party applications and/or service bureaus.

 

**PC-Based Products**

** **

***TA50PRO***

*** ***

TA50 PRO is an easy to use, yet powerful time andattendance solution designed for companies with fewer than 200 employees.  TA50 PRO enables companies to automate theirtimekeeping and attendance tracking with built-in setup wizards and simplifieddaily operations.  The main features ofTA50 PRO include:

 

•                                          **Ease of Use –** TA50 PRO is a user-friendly menu-driven solution that uses color-codedscreens to simplify its use. All processes are clearly marked and follow acommon operating theme throughout.

 

•                                          **Time and Attendance –** TA50 PRO’s tools relieve payroll staff of timeconsuming, stressful procedures such as manual review and calculation of timecards by automating the calculation of employee time and wages.

 

•                                          **Workforce Scheduling –** TA50 PRO’sscheduling features help manage payroll costs and productivity concerns byminimizing the likelihood of expensive overstaffing and the negative effects ofunderstaffing.

 

•                                          **Strategic Reporting** – TA50 PRO is capableof generating a multitude of standard reports. This reporting feature, which isalso included in the Company’s TA100 PRO and GENESIS PRO products, allows usersto transform raw data into helpful information that allows managers andexecutives to gain valuable insight and more effectively manage theirorganizations.

 

***TA50XL***

 

TA50XL is auser friendly time and attendance solution that includes the software featuresof TA50 PRO and an XL data terminal and accessories in a cost-effectivepackage.

 

***TA100PRO***

 

The TA100 PRO time andattendance solution is designed for companies with fewer than 500 employees andautomatically calculates employee time and wages using the client’s specificpayroll policies.  An optional featureof the TA100 PRO solution includes a Bell Control Module that allows

 

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a client to define bell-ringingschedules and prompt terminals to activate a user supplied bell, alarm, orother audible signaling device. The main features of TA100 PRO include:

 

•                                          **Time and Attendance –** TA100 PRO is easilycustomized to conform to an organization’s unique set of payroll policies andconcerns.

 

•                                          **Policy Management –**Rounding rules can be setup around start/stop times or the actual punch time toavoid overpaying employees.  Overtimecan be paid on a weekly, bi-weekly, or semi-monthly basis.

 

•                                          **Workforce Scheduling –** This feature has thesame functionality as the Company’s TA50 PRO and GENESIS products.

 

•                                          **Strategic Reporting** – TA100 PRO is capableof generating over 100 standard reports. Reports can also be used to share information such as time tracking,benefit usage, job costing, human resource functionality and employeescheduling with third-party applications and/or service bureaus.

 

***GENESISPRO***

*** ***

GENESIS PRO isan enterprise level PC-based software application that has the same feature setof GENESIS SQL, as discussed above in the client/server product section.

 

***Data CollectionOptions***

 

Our time and attendance product solutions include hardware devicesdesigned to collect employees’ clock in and out times.  Set forth below are the various hardwaredevices developed to meet the challenges of a diverse array of workenvironments:

 

•                                          **Badge Terminals** – Our badge readers arewell suited for a wide variety of environments, from doctors’ offices tomanufacturing plants. Employees clock in and out by simply sliding a badgethrough a scanner.

 

•                                          **HandPunch Biometric Terminals –**Our devicesanalyze the biometric measurements of a user’s hand to verify theiridentity.  Instead of using a badge, anemployee clocks in and out by placing his or her hand onto the scanner andawaiting verification.  This methodeliminates losses due to buddy-punching (the practice of one employee clockingin or out for another employee).

 

•                                          **Iris Technology Terminal –**Our iris technology devices use digitalvideo imaging of the unique patterns found in the iris of the eye and providehigh integrity biometric authentication of an employee without PIN numbers,passwords or ID cards.

 

•                                          **TelePunch –**Our TelePunch solution allowsemployees to clock in and out for the day, for jobs, or for departments usingany touch-tone telephone.  Clients whopurchase this solution receive a pre-configured, telephony server from us. Thisserver

 

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runs oursoftware, and allows callers to interact with HourTrack from a remote location.

 

•                                          **WebClock –** Our eWebClock partially reducesa user’s total time and attendance product investment by utilizing the Internetto collect employee clock in and out times. Employees can clock in and out by simply logging on to a web page (viathe local network or the World Wide Web).

 

•                                          **PC Time Clock –** PC Time Clock, allowsemployees to clock in and out on a Windows-based computer.  This device is generally beneficial inoffice environments where employees each have access to their own desktopcomputer.

 

•                                          **Web browser** – NETtime allows clients toaccess their time and attendance service through a standard web browser.  The full range of actions (clocking in andout, transferring jobs and departments, etc.) and information (hours worked,schedules, status board, etc.) are available.

 

•                                          **Web-enabled cell phone –** A streamlinedversion of NETtime is available to clients accessing the service through atext-only browser, such as those operating on cell phones with wireless accessprotocol (wap) capability.  Essentialservices such as clocking in and out are available.

 

•                                          **TCP/IP-enabled hardware** – Customers mayutilize TCP/IP-enabled hardware devices, such as badge readers, to collectclock in and out data from their employees.

 

•                                          **Wireless enabled hardware –** Our wirelessenabled hardware devices allow clients to connect their time clocks to a hostsystem without the inconvenience of wiring. The wireless units are small,reliable and easy to integrate into a user’s existing system.

 

**Services and Support**

** **

We maintain aprofessional service and technical support organization, which provides a suiteof maintenance and professional services. These services are designed to support Time America customers throughoutthe life cycle of our products.  Ourprofessional services include implementation, training, and technicalconsulting.  Maintenance service optionsare delivered through our centralized support operation or through localservice personnel.  Our educational servicesoffer a full range of curriculums, which are delivered through local trainingat our Tempe, Arizona headquarters via the Internet.  When necessary, we also may provide software customizationservices to meet a customer’s unique requirements.

 

**Marketing and Sales**

** **

We market and sell ourproducts to the small, medium and enterprise markets in the United States andforeign countries through our direct sales and support organization, ourReseller Program

 

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and our Business AllianceProgram.  We believe the market for timeand labor management products consists of the following three businesssegments:

 

•                                          *Small Businesses*.  This segmentis comprised of companies with fewer than 250 employees and one to threeadministrator(s) who perform time sheet edits and prepare employee hours forpayroll.

 

•                                          *Medium Sized Businesses*.  This segmentis comprised of companies with 250 to 1,000 employees.  These companies normally have two or moreadministrators who perform time sheet edits and prepare employee hours from asingle office.  In many cases multiplestations are necessary for clocking in and out, however, all data isadministered from a central location.

 

•                                          *Enterprise Businesses*.  Enterprisebusinesses generally have over 1,000 employees with multiple field offices,each of which have one or more administrators. Payroll is performed at a central or headquarters office.  An enterprise customer is analogous to acollection of mid-sized businesses requiring centralized data collection andstorage.

 

***Direct Sales***

 

The Company has fivedirect sales account managers responsible for designated geographicregions.  The account managers work inoffices in their respective regions. The primary markets for direct sales are the upper mid-sized andenterprise markets.  End users includecompanies in the manufacturing and service industries, and in the public andprivate sectors.  For the fiscal yearsended June 30, 2004 and 2003, the Company’s direct sales efforts accounted forapproximately 40% and 38% of the Company’s total revenues, respectively.

 

***Partner Sales***

 

Partner sales areconducted through our Business Alliance and Reseller Programs. Our BusinessAlliance Program is a program that allows organizations to align with theCompany through the use of private label, OEM or referral programs.

 

Our Reseller Program iscomprised of a network of approximately 250 value added resellers locatedthroughout the United States and in certain foreign countries.  These resellers market our products alongwith their complementary product and service offerings and typically sell tothe small and medium markets.  For thefiscal years ended June 30, 2004 and 2003, the Company’s reseller sales effortsaccounted for approximately 60% and 62% of the Company’s total revenues,respectively.

 

***Backlog***

 

TheCompany believes that the dollar amount of backlog is not material to anunderstanding of its business since substantially all of the Company’s productrevenues in each quarter result from orders received in that quarter.

 

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**Manufacturing and Sources of Supply**

** **

The duplication of oursoftware products is performed internally. The printing of documentation is primarily outsourced to suppliers.Although most of the parts and components included within our products areavailable from multiple suppliers, certain parts and components are purchasedfrom single suppliers.  We have chosento source these items from single suppliers because we believe that thesupplier chosen is able to consistently provide us with the highest qualityproduct at a competitive price on a timely basis.  While to date we have been able to obtain adequate supplies ofthese parts and components, the inability to transition to alternate supplysources on a timely basis if required in the future, could result in delays orreductions in product shipments, which could have a material adverse effect onour business and operating results.

 

**Product Development**

** **

Our product development efforts are primarily focusedon enhancing and increasing the performance of our existing products anddeveloping new products. During fiscal 2004 and 2003, research and developmentexpenses were $890,093 and $641,125, respectively.  We intend to continue to commit resources to enhance and extendour product lines and develop interfaces to third party products.  Although we are continually seeking tofurther enhance our product offerings and to develop new products, there can beno assurance that these efforts will succeed, or that, if successful, suchproduct enhancements or new products will achieve widespread market acceptance,or that our competitors will not develop and market products that are superiorto our products or achieve greater market acceptance.  We also depend upon the reliability and viability of a variety ofsoftware development tools owned by third parties to develop our products. Ifthese tools prove inadequate or are not properly supported, our ability torelease competitive products in a timely manner could be adversely impacted.

 

**Proprietary Rights**

** **

We rely on acombination of trademarks, trade secret law and contracts to protect ourproprietary technology.  We generallyprovide software products to end-users under non-exclusive shrink-wrap licensesor under signed licenses, both of which may be terminated by Time America ifthe end user breaches the terms of the license. These licenses generallyrequire that the software be used only internally subject to certainlimitations, such as the number of employees, simultaneous users, computermodel and serial number, features and/or terminals for which the end user haspaid the required license fee.  Weauthorize our resellers to sublicense software products to end users undersimilar terms.  In certaincircumstances, we also make master software licenses available to end users,which permit either a specified limited number of copies or an unlimited numberof copies of the software to be made for internal use.  Some customers license software productsunder individually negotiated terms. Despite the precautions we have taken to protect our proprietarytechnology, it may be possible to copy or otherwise obtain and use our productsor technology

 

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without authorization.  In addition, effective copyright and******trade secretprotection may be unavailable or limited in certain foreign countries.

 

**Competition**

** **

We provide time labor management and data collectionsolutions that enable businesses to optimize their labor resources.  The labor management industry is highlycompetitive.  Competition is increasingas businesses in related industries, such as human resources management,payroll processing and enterprise resource planning (“ERP”) enter the time andattendance market.  Advances in softwaredevelopment tools have accelerated the software development process and,therefore, enable competitors to penetrate our markets more readily.  Although we believe we have certaintechnological and other advantages over our current competitors, maintainingthose advantages will require continued investment by the Company in researchand development and marketing and sales initiatives.  There can be no assurance that we will have sufficient resourcesto make such investments or to achieve the technological advances necessary tomaintain our competitive advantages. Increased competition could adversely affect our operating resultsthrough price reductions and/or loss of market share.

 

We compete primarily on the basis ofprice/performance, quality, reliability and customer service.  In the time and attendance market, wecompete against firms that sell automated time and attendance products to manyindustries, firms that focus on specific industries, and firms selling relatedproducts, such as payroll processing, human resources management, or ERPsystems.  Our major competitor, KronosCorporation, is substantially larger and has access to significantly greaterfinancial resources than the Company. Competitive market conditions could have a material adverse effect onour business, financial condition and results of operations.

 

**Employees**

** **

As of June 30,2004, we employed forty individuals. None of our employees are represented by a union or other collectivebargaining agreement, and we consider our relations with our employees to begood.  We have encountered competitionfor experienced technical personnel for product development, technical supportand sales and expect such competition to continue in the future.  Any inability to attract and retain asufficient number of qualified technical personnel could adversely affect ourability to produce, support and sell products in a timely manner.

 

**Item2. Properties.**

 

Our executiveoffices are located in Tempe, Arizona and consist of approximately 7,700 squarefeet under a lease that will expire in December 2004. Our rental expense forthis facility in fiscal 2004 was approximately $208,000.  The Company has not executed a leaseagreement for the period subsequent to December 31, 2004.  The Company is currently in negotiationswith respect to a new site and anticipates it will enter into a new facilitylease for a five-year term with an approximate annual expense of $275,000.

 

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We believe ourpresent facilities are adequate for our current requirements and thatadditional space will be available as needed in the future.

 

**Item3. Legal Proceedings.**

 

We are fromtime to time involved in legal proceedings arising from the normal course ofbusiness.  As of the date of thisreport, we were not currently involved in any legal proceedings.

 

**Item4. Submission Of Matters To A Vote Of Security Holders.**

 

No matter wassubmitted to vote of our security holders during the fourth fiscal quartercovered by this report.

 

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**PART II**

 

**Item 5. Market For Common Equity AndRelated Stockholder Matters.**

 

**Market for Common Stock**

 

Our common stock, parvalue $.005 per share (“Common Stock”), is traded on the Over-The-Counterelectronic bulletin board (the “OTC Bulletin Board”) maintained by the NASDunder the symbol “TMAM.OB”.  The quotedprices reflect inter-dealer prices without retail mark-up, markdown, or commissionsand may not represent actual transactions.

 

The table below reflectsthe high and low sales prices of our common stock for the periods indicated asreported by the OTC Bulletin Board.

 

**Fiscal Year 2004**

 
| **Period**     |   | **High** |   | **Low** |   |
|----------------|--------|----------|--------|---------|--------|
|           |   |     |   |    |   |
| First quarter  |   | $        | 1.00   |    | $      | 0.50 |   |
| Second quarter |   | 1.40     |   | 0.85    |   |
| Third quarter  |   | 1.30     |   | 1.05    |   |
| Fourth quarter |   | 1.20     |   | 0.85    |   |
|                |        |          |        |         |        |  |  |

 

**FiscalYear 2003**

 
| **Period**     |   | **High** |   | **Low** |   |
|----------------|--------|----------|--------|---------|--------|
|           |   |     |   |    |   |
| First quarter  |   | $        | 0.40   |    | $      | 0.17 |   |
| Second quarter |   | 0.30     |   | 0.16    |   |
| Third quarter  |   | 0.23     |   | 0.15    |   |
| Fourth quarter |   | 0.51     |   | 0.15    |   |
|                |        |          |        |         |        |  |  |

 

**Holders**

 

As of September 24, 2004,there were approximately 160 holders of record of our common stock and theCompany believes there were approximately 1,250 beneficial owners.

 

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**Dividend Policy**

 

To date, we have not paidany cash dividends and our present policy is to retain earnings for use in ourbusiness.

 

**EQUITYCOMPENSATION PLAN INFORMATION(1)**

 

The followingtable sets forth information regarding the number of shares of our common stockthat may be issued pursuant to our equity compensation plans or arrangements asof the end of fiscal 2004.

 
| **Plan Category**                                          |   | **Number of  Securities  To Be Issued Upon  Exercise of Outstanding  Options, Warrants  and Rights(a)** |   | **Weighted-Average  Exercise Price of  Outstanding Options,  Warrants and Rights(b)** |   | **Number of  Securities  Remaining Available For  Future Issuance Under  Equity Compensation  Plans (Excluding  Securities Reflected  in Column (c))** |    |
|------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                       |   |                                                                                                    |   |                                                                                  |   |                                                                                                                                                   |    |   |
| Equity compensation plans approved by  securityholders     |   | 466,985                                                                                                 | (1)    | $                                                                                     | 3.22   |                                                                                                                                                   | 133,015 | (2) |
|                                                       |   |                                                                                                    |   |                                                                                  |   |                                                                                                                                                   |    |   |
| Equity compensation plans not approved by  securityholders |   | 2,166,212                                                                                               | (3)    | $                                                                                     | 0.73   |                                                                                                                                                   | —  |   |
| TOTAL                                                      |   | 2,633,197                                                                                               |   | $                                                                                     | 1.17   |                                                                                                                                                   | 133,015 |   |

 

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(1)          Represents shares ofcommon stock that may be issued pursuant to outstanding options granted underthe 1999 Equity Compensation Plan.

 

(2)          Represents shares ofcommon stock that may be issued pursuant to options available for future grantunder the 1999 Equity Compensation Plan.

 

(3)          Represents (a) anaggregate of 1,506,490 shares of common stock underlying non-statutory stockoptions approved by the Company’s board of directors and granted to directorsand employees of the Company (the “Options”) The options have vesting schedules ranging from immediate vesting tofour year vesting and have an exercise price equal to the closing bid price ofthe common stock on the date of grant and a ten year term; and (b) an aggregateof 659,722 shares of common stock purchasable upon exercise of warrants issuedto various parties in connection with debt and equity offerings and for servicesrendered.  See Note No. 7 to ourConsolidated Financial Statements for a detailed description of the terms ofthese warrants.

 

**Item6. Management’s Discussion And Analysis Or Plan Of Operation.**

 

The following discussionand analysis provides information that management believes is relevant to anassessment and understanding of our results of operations and financialcondition.  The following selectedfinancial information is derived from our historical financial statements andshould be read in conjunction with such financial statements and notes theretoset forth elsewhere herein and the “Forward-Looking Statements” explanationincluded herein.

 

14

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**Critical Accounting Policies**

** **

The discussion andanalysis of our financial condition and results of operations is based upon ourconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States.  The preparation of these financial statementsrequires us to make estimates and judgments that affect the reported amount ofassets and liabilities and disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amount of revenues andexpenses for each period.  Criticalaccounting policies are defined as policies that management believes are (a)the most important to the portrayal of our financial condition and results ofoperations; and (b) that require our most difficult, subjective or complex judgments,often as a result of the need to make estimates about the effects of mattersthat are inherently uncertain.

 

Our significantaccounting policies are described in the audited consolidated financialstatements and notes thereto included in Item 7.  We believe our most critical accounting policies are revenuerecognition, software development costs and the allowance for potentiallyuncollectible accounts receivable. This listing is not a comprehensive list of all of our accountingpolicies.  Please refer to Note 1 in theNotes to Consolidated Financial Statements for further information.

 

We derive ourrevenue from the sale of frontline labor management systems as well as sales ofapplication software, parts and components. Our systems consist of fully integrated software and intelligent datacollection terminals.  We also deriverevenues by providing maintenance, professional and educational services to ourcustomers.  We recognize revenues fromsales of our systems, application software, parts and components at the time ofshipment, unless we have has significant obligations remaining.  When significant obligations remain, revenueis not recognized until such obligations have been completed or are no longersignificant.  We recognize revenues fromour sales-type leases of systems at the time of shipment.  Service revenues are recognized ratably overthe contractual period or as the services are performed.

 

We provideinstallation services and certain warranties to our customers.  We also provide certain software productenhancements for customers covered under software maintenance contracts.  The provision for these expenses are made atthe time revenues are recognized.

 

We capitalizesoftware development costs in accordance with Statement of Financial AccountingStandards No. 86, “Accounting for the Costs of Computer Software to be Sold,Leased, or Otherwise Marketed.” Capitalization of software development costsbegins upon the establishment of technological feasibility of the product.  The establishment of technologicalfeasibility and the ongoing assessment of the recoverability of these costsrequires considerable judgment by management with respect to certain externalfactors including, but not limited to, anticipated future gross productrevenue, estimated economic life, and changes in software and hardwaretechnology.  Amortization of capitalizedsoftware development costs begins when the products are available for generalrelease to customers and is computed on a product-by-product basis using straight-lineamortization with useful lives of five years or, if less, the remainingestimated economic life of the product. Amounts related to internal software development that could becapitalized under this statement were deemed immaterial.

 

15

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We provide forpotentially uncollectible accounts receivable by use of the allowance method.The allowance is provided based upon a review of the individual accountsoutstanding, and our prior history of uncollectible accounts receivable.  It is our practice to record an estimatedallowance for sales returns and adjustments based on historical experience andto record individual charges for sales returns and adjustments directly torevenue as incurred.

 

**Resultsof Operations**

 

**SELECTED FINANCIALINFORMATION**

 
|                               |   | **Fiscal  Years Ended June 30,** |      |
|------------------------------------|--------|----------------------------------|-----------|
|                               |   | **2004**                         |      | **2003** |   |
|                               |   |                             |      |   |   |
| Total Revenues                     |   | $                                | 4,837,121 |   | $ | 4,256,854 |   |
| Costs of Revenues                  |   | 2,123,704                        |      | 1,897,319 |   |
| Gross Profit                       |   | 2,713,417                        |      | 2,359,535 |   |
| Sales and Marketing Expense        |   | 1,903,044                        |      | 1,112,762 |   |
| Research and Development Expense   |   | 890,093                          |      | 641,125 |   |
| General and Administrative Expense |   | 922,495                          |      | 685,675 |   |
| Other Expense                      |   | 148,228                          |      | 72,701 |   |
| Net Loss                           |   | 1,150,443                        |      | 152,728 |   |
| Basic Loss per Share               |   | 0.09                             |      | 0.02 |   |
|                                    |        |                                  |           |  |  |  |  |

 

**Comparison of the Fiscal Years Ended June 30,2004 and June 30, 2003**

 

*Revenues*.  Revenue for the fiscal year ended June 30,2004 (the “reporting period”), increased 14% to $4,837,121, compared to revenueof $4,256,854 for the fiscal year ended June 30, 2003 (the “comparableperiod”).

 

*Product Sales. *Product sales for the reporting periodincreased 10% to $3,686,428 in the reporting period, compared to product salesof $3,362,154 in the comparable period.  The Company believes this increase was primarily due to increasedinvestments in sales personnel and marketing programs.

 

*Service Revenue. *Service revenue for the reporting periodincreased 29% to $1,150,693 in the reporting period, compared to servicerevenue of $894,700 in the comparable period. The increase in service revenue was principally the result of anincrease in product sales as services are generally sold in conjunction withproduct sales.

 

*Gross Profit*.  Gross profit as a percentage of revenues was56% in the reporting period and 55% in the comparable period.  The gross profit percentage on product salesdecreased by 1% over the comparable period and the gross profit percentage onservices revenue increased by 8% over the comparable period.

 

16

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The change inthe gross profit percentage on products is within the Company’s normal range ofgross profit percentages.  The Company’sgross profit percentage on products is typically between 55% and 60% dependingupon the mix of software versus hardware sales and the makeup of hardwaresales.  The Company’s product revenue iscomprised of software and hardware sales, with hardware sales yielding asignificantly lower gross profit than software sales.   Hardware revenue is principally comprised of two versions ofgeneral data collection terminals, badge terminals and biometric units.  Our gross profit is greater on badgeterminals than biometric units because we add value to our badge terminals byinstalling software on the terminals.

 

*Expenses*.  Total costs and expenses were $3,715,632, or77% of revenues, in the reporting period, compared to $2,439,562, or 57% ofrevenues, in the comparable period.  Theincrease in costs and expenses as a percentage of revenue in the reporting periodis primarily due to a 71% increase in sales and marketing expenses in thecurrent period. Sales and marketing expenses were $1,903,044, or 39% ofrevenues, in the reporting period, compared to $1,112,762, or 26% of revenues,in the comparable period.  [In Augustand November 2003, we closed private placement offerings that yielded netproceeds of $1,487,847.  The primary useof proceeds of those funds was to finance key marketing initiatives and addsales personnel.  We do not expectreturns in the short term on these investments.]  Research and development expenses were $890,093, or 18% ofrevenues, in the reporting period, compared to $641,125, or 15% of revenues, inthe comparable period.  The increase inresearch and development expenses is primarily attributable to the hiring ofadditional technology personnel to assist in generating new technologies forthe Company.  General and administrativeexpenses were $922,495, or 19% of revenues, in the reporting period, comparedto $685,675, or 16% of revenues, in the comparable period.  The increase in general and administrativeexpenses is primarily attributable to expenses associated with the preparationof a registration statement for filing with the Securities and ExchangeCommission and maintaining an outside investor relations program in thereporting period that were not present in the comparable period.

 

Other income(expense) was $(148,228) in the reporting period and $(72,701) in thecomparable period.  The increase inexpense is primarily due to an increase in interest expense in the reportingperiod.

 

**Liquidity and Capital Resources**

** **

As of June 30,2004, the Company had working capital of $2,020,628, as compared to $50,060 atJune 30, 2003.  Cash and cashequivalents at those dates amounted to $2,058,929 and $245,795, respectively.

 

*Operations*.  Net cash used by operations increased to$1,843,648 in the reporting period, compared to net cash used by operations of$180,141 in the comparable period.  Thenet cash used in the current period was primarily attributable to the net loss,increases in accounts receivable, inventory, prepaid expenses and other assets,and was partially offset by an increase in deferred revenue.

 

17

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*Investment Activities*.  The Company used $147,751 and $32,343, to purchaseproperty and equipment in the reporting period and comparable period,respectively.

 

*Financing Activities.*  During the reporting period, the Companyreceived net proceeds from long-term debt in the approximate amount of$2,325,000 and $1,460,000 from the sale of common stock. During the comparableperiod, the Company received net proceeds from long-term debt in theapproximate amount of $32,000 and $250,000 from the sale of common stock.

 

Based on ourcurrent level of operations, we believe that our available cash and cashequivalents, cash received from operations and available credit will besufficient to fund our working capital, capital expenditure requirements, andour debt service requirements as they come due, for the next twelve months. TheCompany may, however, seek to obtain additional capital through a line ofcredit at a financial institution or through additional debt or equityofferings during this time period.  Theraising of additional capital in public markets will primarily be dependentupon prevailing market conditions and the demand for the Company’s products andservices.  No assurance can be giventhat the Company will be able to raise additional capital, when needed or atall, or that such capital, if available, will be on acceptable terms.

 

**Certain Factors That May Affect FutureOperating Results**

 

Our actual operating results may differ fromthose indicated by forward-looking statements made in this Annual Report and/orForm 10-KSB and presented elsewhere by management because of a number offactors, including the demand for our software solutions, level of competition,success in establishing and expanding our distribution channels, success inattracting and retaining motivated and qualified personnel, ability to expandinto existing and new domestic and international markets, development andmarketing of new products and services, ability to control costs, our abilityto develop and market our products and services, competitive pricing pressure,ability to attract and retain strategic partners, managing growth and capitaland general economic conditions.  Ouroperating results will be materially and adversely affected if we do notsuccessfully address these and other risks. Many of these factors are beyond our control.

 

*Growth and CapitalNeeds.*** **Thegrowth of our business could require us to expend funds in excess of the cashgenerated by our operations.  We mayneed to raise additional funds in the future in order to fund more rapidexpansion; to develop new and enhanced products; to increase customer supportor technical staff; to respond to competitive pressures; and to acquirecomplimentary businesses, technologies, or services.  We cannot predict the timing and amount of any such capitalrequirements at this time.  If we raiseadditional funds through the issuance of equity or convertible securities,existing stockholders may experience additional dilution and such securitiesmay have rights, preferences, or privileges senior to those of the rights ofour common stockholders.  There can beno assurance that we will be able to obtain additional financing on acceptableterms, or at all.  If adequate funds arenot available on acceptable terms, we may not be able to fund expansion,promote our products, take advantage of acquisition opportunities, develop orenhance products and services, or respond to competitive pressures.

 

18

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We may wish toacquire complementary businesses, products, services, or technologies in thefuture.  We may not be able to identifysuitable acquisition candidates or make acquisitions on commercially acceptableterms.  We may have difficultyintegrating an acquired company’s personnel, operations, products, services, ortechnologies into our operations.  Thesedifficulties could disrupt our ongoing business, distract our management andemployees, increase our expenses, and adversely affect our business.

 

*Competitive Factors***.**  The market for software solutions isconstantly evolving and extremely competitive. We expect competition to intensify in the future. We compete with majordomestic companies.  Many of thesecompetitors have greater market recognition and substantially greaterfinancial, technical, marketing, distribution, and other resources than we have,and we may be unable to compete effectively against them. Emerging companiesalso may increase their participation in the market for software applicationssuch as that offered by the Company.

 

*Product Development and Technological Change*.Our success depends in part upon our ability to enhance our existing productsand services and to develop new products and services on a timely and costeffective basis.  We cannot provideassurance that we will be able to successfully identify new opportunities anddevelop and bring to market new products and services in a timely andcost-effective manner.  In addition, wecannot provide assurance that our products and services will not becomeobsolete, noncompetitive, or that they will sustain market acceptance.

 

We may not be able to adapt to rapidlychanging technologies or we may incur significant costs in doing so.  The software industry is characterized byrapidly changing technologies, evolving industry standards, frequent newproduct and service introductions, and changing customer demands.  New turn key business solution products andservices based on new technologies or new industry standards could render ourexisting products and services obsolete and unmarketable.  To be successful, we must adapt to ourrapidly evolving market by continually enhancing our products and services andintroducing new products and services to address our users’ changing andincreasingly sophisticated requirements. We may use new technologies ineffectively or we may fail to adapt ourproducts and infrastructure to meet customer requirements, competitivepressures, or emerging industry standards. We could incur substantial costs if we need to modify our services orinfrastructure.  Our business could bematerially and adversely affected if we incur significant costs to adapt, orcannot adapt, to these changes.

 

*Strategic Partners.*** **Our success depends on forming relationships with affiliates, resellersand licensees.** **Thesuccess of our business model depends upon a constant revenue stream generatedby a high number of end-users.  Ourbusiness model contemplates attracting end-users by forming relationships withaffiliates, resellers, and licensees that market our products and services.  We believe that it will be less costly andmore efficient for us to attract end-users through indirect distributionchannels than to attempt to attract the end-users directly.  Consequently, we must establish and maintainrelationships with resellers and licensees. We may not be able to attract additional affiliates, resellers, orlicensees on acceptable terms, or at all. Our business, financial condition and results of operations will bematerially and adversely affected if we fail to establish and maintain relationshipswith affiliates, resellers, and licensees on a cost-effective basis.

 

19

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**Recent Accounting Pronouncements**

 

In May 2003, theFinancial Accounting Standards Board “FASB” issued Statement of FinancialAccounting Standards No. 150 (“SFAS 150”), “Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity.”  SFAS 150 establishes standards for how anissuer classifies and measures certain financial instruments with characteristicsof both of liabilities and equity.  Itrequires that an issuer classify a financial instrument that is within itsscope as a liability (or an asset in some circumstances).  SFAS 150 is effective for financialstatements instruments entered into or modified after May 31, 2003, and otherwiseis effective at the beginning of the first interim period beginning after June15, 2003.  Adoption of SFAS did not havea significant impact on our financial statements.

 

EITF 00-21,“Revenue Arrangements with Multiple Deliverables,” was first discussed at theJuly 2000 EITF meeting and was issued in February 2002.  Certain revisions to the scope language weremade and finalized in May 2003.  EITF00-21 addresses the accounting for multiple element revenue arrangements, whichinvolve more that one deliverable or unit of accounting in circumstances wherethe delivery of those units takes place in different accounting periods.  EITF 00-21 requires disclosures of theaccounting policy for revenue recognition of multiple element revenuearrangements and the nature and description of such arrangements.  The accounting and reporting requirementsare effective for revenue arrangements entered into in fiscal periods beginningafter June 15, 2003.  Adoption of EITF00-21 did not have a significant impact on our financial statements.

 

In December 2002,the FASB issued Statement of Financial Accounting Standards “SFAS” No. 148,“Accounting for Stock-Based Compensation - Transition and Disclosure - anamendment of FASB Statement No. 123.” This statement provides alternativemethods of transition for a voluntary change to the fair value method ofaccounting for stock-based compensation. The statement amends the disclosurerequirements of FASB Statement No. 123 to require prominent disclosure in bothannual and interim financial statements about the method of accounting forstock-based compensation and the effect of the method used on reported results.The Company accounts for stock-based compensation arrangements in accordancewith the provisions of Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees,” and complies with the disclosure provisions ofFASB Statement No. 123. The transition provisions are effective for fiscalyears ending after December 15, 2002. The disclosure provisions are effectivefor interim periods beginning after December 15, 2002. The Company implementedthe required disclosure provisions in the three month period ended March 31,2003. The adoption of this statement did not have a material impact on theCompany’s consolidated financial position, results of operations or cash flowsas the Company did not make the change to the fair value method of accountingfor stock-based compensation.

 

20

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**Inflation and Seasonality**

** **

The Companydoes not believe that its operations are significantly impacted byinflation.  The Company’s business isnot seasonal in nature.

 

**Item 7. Financial Statements.**

 

The financial statements and schedules areincluded herewith commencing on page F-1.

 
| Independent  Auditors’ Report                                         |   |
|----------------------------------------------------------------------------|--------|
|                                                                       |   |
| Consolidated Balance Sheet                                                 |   |
|                                                                       |   |
| Consolidated  Statements of Operations                                     |   |
|                                                                       |   |
| Consolidated  Statements of Changes in Stockholders’ Equity (Deficit) |   |
|                                                                       |   |
| Consolidated  Statements of Cash Flows                                     |   |
|                                                                       |   |
| Notes to  Consolidated Financial Statements                                |   |

 

21

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**Report of IndependentRegistered Public Accounting Firm**

 

 

To The Stockholders and Boardof Directors of

Time America, Inc. andSubsidiary

 

We have audited theaccompanying consolidated balance sheets of Time America, Inc. and Subsidiaryas of June 30, 2004 and 2003 and the related consolidated statements ofoperations, changes in stockholders’ equity (deficit), and cash flows for theyears ended June 30, 2004 and 2003. These consolidated financial statements arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Time America, Inc.and Subsidiary as of June 30, 2004 and 2003 and the consolidated results of itsoperations, changes in stockholders’ equity (deficit), and its cash flows forthe years ended June 30, 2004 and 2003, in conformity with accountingprinciples generally accepted in the United States of America.

 

 
| /s/ Semple  & Cooper, LLP |   |
|-------------------------------|--------|
| Phoenix,  Arizona             |
| August 26,  2004              |

 

----

**TIME AMERICA, INC. ANDSUBSIDIARY**

CONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                             | ** ** | **June 30,  2004** | ** ** | **June 30,  2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
|                                                                                                                   |       |               |       |               |       |
| **ASSETS**                                                                                                             |       |               |       |               |       |
| **Current  Assets:**                                                                                                   |       |               |       |               |       |
| Cash and cash  equivalents  (Note 1)                                                                              |       | $                  | 2,058,929  |               | $          | 245,795 |   |
| Accounts  receivable – trade, net (Notes 1 and 2)                                                                 |       | 1,028,850          |       | 551,576            |       |
| Inventory (Note  1)                                                                                                    |       | 370,784            |       | 232,815            |       |
| Prepaid expenses  and other current assets (Note 4)                                                                    |       | 290,546            |       | 34,451             |       |
|                                                                                                                   |       |               |       |               |       |
| **Total  Current Assets**                                                                                              |       | 3,749,109          |       | 1,064,637          |       |
|                                                                                                                   |       |               |       |               |       |
| **Property  and equipment, net (Notes 1 and 3)**                                                                       |       | 203,309            |       | 115,633            |       |
| **Other  Assets (Note 4)**                                                                                             |       | 234,641            |       | —             |       |
|                                                                                                                   |       |               |       |               |       |
| **Total  Assets**                                                                                                      |       | $                  | 4,187,059  |               | $          | 1,180,270 |   |
|                                                                                                                   |       |               |       |               |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY (DEFICIT)**                                                               |       |               |       |               |       |
|                                                                                                                   |       |               |       |               |       |
| **Current  Liabilities:**                                                                                              |       |               |       |               |       |
| Current portion  of long-term debt (Note 4)                                                                            |       | $                  | 756,353    |               | $          | 283,148 |   |
| Accounts payable  (Note 1)                                                                                             |       | 368,230            |       | 272,129            |       |
| Accrued  liabilities                                                                                                   |       | 187,385            |       | 209,288            |       |
| Deferred revenue  (Note 1)                                                                                             |       | 416,513            |       | 250,012            |       |
|                                                                                                                   |       |               |       |               |       |
| **Total  Current Liabilities**                                                                                         |       | 1,728,481          |       | 1,014,577          |       |
|                                                                                                                   |       |               |       |               |       |
| **Long-term  debt, less current portion (Note 4)**                                                                     |       | 2,337,345          |       | 597,505            |       |
|                                                                                                                   |       |               |       |               |       |
| **Total  Liabilities**                                                                                                 |       | 4,065,826          |       | 1,612,082          |       |
|                                                                                                                   |       |               |       |               |       |
| **Commitments:  (Note 6)**                                                                                             |       | —             |       | —             |       |
| ** **                                                                                                             |       |               |       |               |       |
| **Stockholders’  Equity (Deficit): (Note 7)**                                                                     |       |               |       |               |       |
| Common stock,  $.005 par value, 50,000,000 shares authorized, 13,599,552 and 10,656,057  shares issued and outstanding |       | 67,998             |       | 53,280             |       |
| Contributed  capital                                                                                                   |       | 8,027,121          |       | 6,338,351          |       |
| Accumulated  deficit                                                                                                   |       | (7,973,886         | )          | (6,823,443         | )          |
|                                                                                                                   |       |               |       |               |       |
| **Total  Stockholders’ Equity (Deficit)**                                                                         |       | 121,233            |       | (431,812           | )          |
| ** **                                                                                                             |       |               |       |               |       |
| **Total  Liabilities and Stockholders’ Equity (Deficit)**                                                         |       | $                  | 4,187,059  |               | $          | 1,180,270 |   |

 

The Accompanying Notesare an Integral Part

ofthe Consolidated Financial Statements

 

F-2

----

 

#### **TIME AMERICA, INC. AND SUBSIDIARY**

CONSOLIDATED STATEMENTSOF OPERATIONS

 
| ** **                                         | ** ** | **Years Ended June 30,** | ** ** |
|----------------------------------------------------|------------|--------------------------|------------|
| ** **                                         | ** ** | **2004**                 | ** ** | **2003** | ** ** |
|                                               |       |                     |       |   |   |
| **Revenues:**                                      |       |                     |       |   |   |
| Product sales                                      |       | $                        | 3,686,428  |   | $ | 3,362,154 |   |
| Services revenue                                   |       | 1,150,693                |       | 894,700 |   |
|                                               |       |                     |       |   |   |
| **Total  Revenues**                                |       | 4,837,121                |       | 4,256,854 |   |
|                                               |       |                     |       |   |   |
| **Cost  of Revenues:**                             |       |                     |       |   |   |
| Product                                            |       | 1,534,061                |       | 1,366,973 |   |
| Services                                           |       | 589,643                  |       | 530,346 |   |
|                                               |       |                     |       |   |   |
| **Total  Cost of Revenues**                        |       | 2,123,704                |       | 1,897,319 |   |
|                                               |       |                     |       |   |   |
| **Gross  Profit**                                  |       | 2,713,417                |       | 2,359,535 |   |
| ** **                                         |       |                     |       |   |   |
| **Costs  and Expenses:**                           |       |                     |       |   |   |
| Sales and  marketing                               |       | 1,903,044                |       | 1,112,762 |   |
| Research and  development                          |       | 890,093                  |       | 641,125 |   |
| General and  administrative                        |       | 922,495                  |       | 685,675 |   |
|                                               |       |                     |       |   |   |
| **Total  Costs and Expenses**                      |       | 3,715,632                |       | 2,439,562 |   |
|                                               |       |                     |       |   |   |
| **Net  Loss from Operations**                      |       | (1,002,215               | )          | (80,027 | ) |
| ** **                                         |       |                     |       |   |   |
| **Other  Income (Expense):**                       |       |                     |       |   |   |
| Interest expense                                   |       | (157,893                 | )          | (79,204 | ) |
| Other                                              |       | (7                       | )          | 5,385 |   |
| Interest income                                    |       | 9,672                    |       | 1,118 |   |
|                                               |       |                     |       |   |   |
|                                               |       | (148,228                 | )          | (72,701 | ) |
|                                               |       |                     |       |   |   |
| **Net  Loss**                                      |       | $                        | (1,150,443 | ) | $ | (152,728 | ) |
| ** **                                         |       |                     |       |   |   |
| **Basic  Loss per Share (Note 1)**                 |       | $                        | (0.09      | ) | $ | (0.02 | ) |
| ** **                                         |       |                     |       |   |   |
| **Weighted  Average Number of Shares Outstanding** |       | 12,853,452               |       | 9,364,650 |   |

 

The Accompanying Notesare an Integral Part

ofthe Consolidated Financial Statements

 

F-3

----

 

**TIME AMERICA, INC. AND SUBSIDIARY**

CONSOLIDATED STATEMENTSOF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED JUNE30, 2004 AND 2003

 
| ** **                             | ** ** | **Common Stock** | ** ** | **Contributed** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
|----------------------------------------|------------|------------------|------------|-----------------|------------|-----------------|------------|-------------|------------|
| ** **                             | ** ** | **Shares**       | ** ** | **Amount**      | ** ** | **Capital**     | ** ** | **Deficit** | ** ** | **Total** | ** ** |
|                                   |       |             |       |            |       |            |       |        |       |   |   |
| Balance at June  30, 2002              |       | 9,105,828        |       | $               | 45,529     |            | $          | 6,052,120   |       | $ | (6,670,715 | ) | $ | (573,066 | ) |
|                                   |       |             |       |            |       |            |       |        |       |   |   |
| Issuance of  common stock for services |       | 161,340          |       | 807             |       | 43,175          |       | —      |       | 43,982 |   |
| Sale of common  stock                  |       | 1,388,889        |       | 6,944           |       | 243,056         |       | —      |       | 250,000 |   |
| Net loss                               |       | —           |       | —          |       | —          |       | (152,728    | )          | (152,728 | ) |
| Balance at June  30, 2003              |       | 10,656,057       |       | 53,280          |       | 6,338,351       |       | (6,823,443  | )          | (431,812 | ) |
|                                   |       |             |       |            |       |            |       |        |       |   |   |
| Exercise of  Warrants                  |       | 147,500          |       | 738             |       | 28,762          |       | —      |       | 29,500 |   |
| Exercise of  stock options             |       | 8,996            |       | 45              |       | 3,328           |       | —      |       | 3,373 |   |
| Issuance of  common stock warrants     |       | —           |       | —          |       | 156,200         |       | —      |       | 156,200 |   |
| Issuance of  common stock for services |       | 50,000           |       | 250             |       | 54,750          |       | —      |       | 55,000 |   |
| Sale of common  stock, net of costs    |       | 2,736,999        |       | 13,685          |       | 1,445,730       |       | —      |       | 1,459,415 |   |
| Net loss                               |       | —           |       | —          |       | —          |       | (1,150,443  | )          | (1,150,443 | ) |
| Balance at June  30, 2004              |       | 13,599,552       |       | $               | 67,998     |            | $          | 8,027,121   |       | $ | (7,973,886 | ) | $ | 121,233 |   |

 

The Accompanying Notesare an Integral Part

ofthe Consolidated Financial Statements

 

F-4

----

 

**TIME AMERICA, INC. AND SUBSIDIARY**

CONSOLIDATED STATEMENTS OF CASH FLOWS

 
| ** **                                                                   | ** ** | **Years Ended June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                   | ** ** | **2004**                 | ** ** | **2003** | ** ** |
| **Increase  (Decrease) in Cash and Cash Equivalents:**                       |       |                     |       |   |   |
| **Cash  flows from operating activities:**                                   |       |                     |       |   |   |
| Net Loss                                                                     |       | $                        | (1,150,443 | ) | $ | (152,728 | ) |
| Adjustments to  reconcile net loss to net cash used by operating activities: |       |                     |       |   |   |
| Depreciation                                                                 |       | 60,074                   |       | 59,694 |   |
| Common stock,  stock options and warrants issued for services                |       | 112,000                  |       | 43,982 |   |
| Changes in  Assets and Liabilities:                                          |       |                     |       |   |   |
| Accounts  receivable-trade                                                   |       | (477,274                 | )          | 63,508 |   |
| Inventory                                                                    |       | (137,969                 | )          | (58,118 | ) |
| Prepaid expenses  and other current assets                                   |       | (256,095                 | )          | 13,257 |   |
| Other assets                                                                 |       | (234,641                 | )          | — |   |
| Accounts payable                                                             |       | 96,101                   |       | (83,252 | ) |
| Accrued  liabilities                                                         |       | (21,903                  | )          | (5,353 | ) |
| Deferred revenue                                                             |       | 166,502                  |       | (61,131 | ) |
| **Net  cash used by operating activities**                                   |       | (1,843,648               | )          | (180,141 | ) |
|                                                                         |       |                     |       |   |   |
| **Cash  flows from investing activities:**                                   |       |                     |       |   |   |
| Purchase of  property and equipment                                          |       | (147,751                 | )          | (32,343 | ) |
| **Net  cash used by investing activities**                                   |       | (147,751                 | )          | (32,343 | ) |
|                                                                         |       |                     |       |   |   |
| **Cash  flows from financing activities:**                                   |       |                     |       |   |   |
| Proceeds from  long-term debt                                                |       | 2,500,000                |       | 150,000 |   |
| Repayment of  long-term debt                                                 |       | (175,613                 | )          | (117,977 | ) |
| Repayment of  capital leases                                                 |       | (12,142                  | )          | (18,993 | ) |
| Proceeds from  exercise of options and warrants                              |       | 32,873                   |       | — |   |
| Proceeds from  issuance of stock                                             |       | 1,459,415                |       | 250,000 |   |
| **Net  cash provided by financing activities**                               |       | 3,804,533                |       | 263,030 |   |
|                                                                         |       |                     |       |   |   |
| Net change in  cash and cash equivalents                                     |       | 1,813,134                |       | 50,546 |   |
|                                                                         |       |                     |       |   |   |
| Cash and cash  equivalents at beginning of year                              |       | 245,795                  |       | 195,249 |   |
|                                                                         |       |                     |       |   |   |
| Cash and cash  equivalents at end of year                                    |       | $                        | 2,058,929  |   | $ | 245,795 |   |
|                                                                         |       |                     |       |   |   |
| **Supplemental  disclosure of cash flow information:**                       |       |                     |       |   |   |
| Interest paid                                                                |       | $                        | 151,326    |   | $ | 83,178 |   |
| Income taxes  paid                                                           |       | $                        | —     |   | $ | — |   |

 

The Accompanying Notesare an Integral Part

ofthe Consolidated Financial Statements

 

F-5

----

 

**TIMEAMERICA, INC. AND SUBSIDIARY**

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

 

**Note 1**

**Summaryof Significant Accounting Policies, Nature of Operations and Use of Estimates:**

 

***Nature of Business and Name Change:***

 

Time America, Inc. (the“Company” or “Time America”), a Nevada corporation, through its wholly ownedsubsidiary, Time America, Inc., an Arizona corporation, provides time &labor management solutions. Time America products improve productivity byautomating time and attendance, workforce scheduling, and the management oflabor resources, with features such as employee self-service, data capturetechnology, time sheet submittal, strategic reporting, and interface tools forpayroll, human resources, resource planning, and third party applicationintegration. Time America solutions are offered in a Web-based product, a PCbased application, or in a client/server configuration.

 

On December 9, 2003 Vitrix, Inc. (the parent company) changed its name to TimeAmerica, Inc.

 

***Pervasiveness of Estimates:***

 

The preparation of financial statements in conformitywith generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates.

 

***Cash and Major Supplier Concentrations:***

* *

The Companymaintains cash and cash equivalents at a financial institution.  Deposits not to exceed $100,000 at thefinancial institution are insured by the Federal Deposit Insurance Corporation.  At June 30, 2004 and 2003, the Company haduninsured cash and cash equivalents of approximately $2,045,000 and $213,000,respectively.

 

For the year ended June 30, 2004, the Company had three (3) majorsuppliers representing approximately ninety five percent (95%) of cost ofproduct revenues.  At June 30, 2004, theamount due to these suppliers included in accounts payable was $133,496.

 

For the year ended June 30, 2003, the Company had three (3) majorsuppliers representing approximately eighty percent (80%) of cost of productrevenues.  At June 30, 2003, the amountdue to these suppliers included in accounts payable was $125,173.

 

***Cash and Cash Equivalents:***

 

Cash and cash equivalents are considered to be allhighly liquid investments purchased with an initial maturity of three (3)months or less.

 

***Inventory:***

 

Inventory isstated at the lower of cost (first-in, first-out method) or market.

 

F-6

----

 

***Property and Equipment:***

 

Property and equipment are recorded at cost.Depreciation is provided for on the straight-line method over the estimateduseful lives of the assets. The average lives range from three to five years.Maintenance and repairs that neither materially add to the value of theproperty nor appreciably prolong its life are charged to expense as incurred.Betterments or renewals are capitalized when incurred.  Property and equipment are reviewed each yearto determine whether any events or circumstances indicate that the carryingamount of the assets may not be recoverable. Such review includes estimating future cash flows.  Property and equipment costs are expensedwhen determined not realizable.

 

***Software Development Costs:***

 

The Companycapitalizes software development costs in accordance with Statement ofFinancial Accounting Standards No. 86, “Accounting for the Costs of ComputerSoftware to be Sold, Leased, or Otherwise Marketed.” Capitalization of softwaredevelopment costs begins upon the establishment of technological feasibility ofthe product.  The establishment oftechnological feasibility and the ongoing assessment of the recoverability ofthese costs requires considerable judgementby management with respect to certain external factors including, but notlimited to, anticipated future gross product revenue, estimated economic life,and changes in software and hardware technology.  Amortization of capitalized softwaredevelopment costs begins when the products are available for general release tocustomers and is computed on a product-by-product basis using straight-lineamortization with useful lives of five years or, if less, the remainingestimated economic life of the product. Amounts related to internal software development that could becapitalized under this statement were immaterial.

 

***RevenueRecognition and Deferred Revenue:***

 

The Company derives itsrevenues from the sale of frontline labor management systems as well as salesof application software, parts and components. The Company’s systems consist of fully integrated software andintelligent data collection terminals. The Company also derives revenues by providing maintenance, professionaland educational services to its customers. The Company recognizes revenues from sales of its systems, applicationsoftware, parts and components at the time of shipment, unless the Company hassignificant obligations remaining.  Whensignificant obligations remain, revenue is not recognized until suchobligations have been completed or are no longer significant.  The Company recognizes revenues from itssales-type leases of systems at time of shipment.  Service revenues are recognized ratably overthe contractual period or as the services are performed.

 

The Company providesinstallation services and certain warranties to its customers. It also providescertain software product enhancements for customers covered under softwaremaintenance contracts.  The provision for these expenses are made at the time revenuesare recognized.

 

***DeferredIncome Taxes****:*

 

Deferred income taxes areprovided on an asset and liability method, whereby deferred tax assets arerecognized for deductible temporary differences and operating loss and taxcredit carryforwards and deferred tax liabilities arerecognized for taxable temporary differences. Temporary differences are thedifferences between the reported amounts of assets and liabilities and theirtax basis. Deferred tax assets are reduced by a valuation allowance when, inthe opinion of management, there is uncertainty of the utilization of theoperating losses in future periods. Deferred tax assets and liabilities areadjusted for the effects of changes in tax laws and rates on the date ofenactment.

 

F-7

----

 

***FairValue of Financial Instruments:***

 

The carrying values of cash,cash equivalents, accounts receivable, accounts payable, accrued liabilitiesand current notes payable approximate their fair values because of the shortmaturity of these instruments.  Withrespect to long-term debt, the amounts reported approximate the fair value ofthe respective financial instruments, based on the borrowing rates currentlyavailable to the Company for similar bank and equipment loans.

 

***Loss Per Share:***

 

Diluted earningsper share are computed based on the weighted average number of shares of commonstock and dilutive securities outstanding during the period.  Dilutive securities are options and warrantsthat are freely exercisable into common stock at less than the prevailingmarket price.  Dilutive securities arenot included in the weighted average number of shares when inclusion wouldincrease the earnings per share or decrease the loss per share.  At June 30, 2004 and 2003, there were optionsand warrants outstanding to purchase 2,633,197 and 1,491,170, respectively,shares of the Company’s common stock and 1,606,241 and 0, respectively, sharesof common stock issuable upon conversion ofconvertible debt. None of these were included in the determination of dilutedloss per share as their effect was anti-dilutive.

 

***Stock-BasedCompensation:***

 

The company has adopted Financial Accounting Standard (“FAS”) No. 123,“Accounting for Stock-Based Compensation”. Under FAS No. 123, companies can, but are not required to, elect torecognize compensation expense for all stock-based awards using a fair valuemethodology. The Company has adopted the disclosure-only provisions, aspermitted by FAS No. 123. The Company applies APB Opinion No. 25 and relatedinterpretations in accounting for its stock-based plans.  Accordingly, there is no related compensationexpense recorded in the Company’s financial statements for the periodspresented. Had compensation cost for stock-based compensation been determinedbased on the fair value of the options at the grant dates consistent with themethod of FAS 123, the Company’s net loss and loss per share for the yearsended June 30, 2004 and 2003 would have been reduced to the pro forma amountspresented below:

 
| ** **                                                                                                                                          | ** ** | **Year Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                          | ** ** | **2004**                | ** ** | **2003** | ** ** |
| **Net  loss:**                                                                                                                                      |       |                    |       |   |   |
| As reported                                                                                                                                         |       | $                       | (1,150,443 | ) | $ | (152,728 | ) |
| Deduct: Total  stock-based employee compensation expsense  determined under the fair value based method for all awards, net of related  tax effects |       | (169,747                | )          | (116,284 | ) |
|                                                                                                                                                |       |                    |       |   |   |
| Pro forma                                                                                                                                           |       | $                       | (1,320,190 | ) | $ | (269,012 | ) |
|                                                                                                                                                |       |                    |       |   |   |
| **Loss  per share:**                                                                                                                                |       |                    |       |   |   |
| As reported                                                                                                                                         |       | $                       | (0.09      | ) | $ | (0.02 | ) |
| Pro forma                                                                                                                                           |       | $                       | (0.10      | ) | $ | (0.03 | ) |

 

F-8

----

 

The fair value ofoption grants is estimated as of the date of grant utilizing the Black-Scholes option-pricing model with the following weightedaverage assumptions:

 
| ** **                 | ** ** | **Year Ended June 30,** | ** ** |
|----------------------------|------------|-------------------------|------------|
| ** **                 | ** ** | **2004**                | ** ** | **2003** | ** ** |
|                       |       |                    |       |   |   |
| Expected  volatility       |       | 76.0                    | %          | 25.0 | % |
| Risk-free  interest rate   |       | 4.0                     | %          | 7.0 | % |
| Expected lives  (in years) |       | 3.0                     |       | 3.0 |   |

 

The weightedaverage fair value at date of grant for options granted during the years endedJune 30, 2004 and 2003 approximated $.34 and $.38, respectively.

 

***Recent AccountingPronouncements:***

* *

**In May 2003, the Financial Accounting Standards Board“FASB” issued Statement of Financial Accounting Standards No. 150 (“SFAS 150”),“Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity.”  SFAS 150establishes standards for how an issuer classifies and measures certainfinancial instruments with characteristics of both of liabilities and equity.  It requires that an issuer classify afinancial instrument that is within its scope as a liability (or an asset insome circumstances).  SFAS 150 iseffective for financial statements instruments entered into or modified afterMay 31, 2003, and otherwise is effective at the beginning of the first interimperiod beginning after June 15, 2003. Adoption of SFAS did not have a significant impact on our financialstatements.**

** **

**EITF 00-21, “Revenue Arrangements with MultipleDeliverables,” was first discussed at the July 2000 EITF meeting and was issuedin February 2002.  Certain revisions tothe scope language were made and finalized in May 2003.  EITF 00-21 addresses the accounting formultiple element revenue arrangements, which involve more that one deliverableor unit of accounting in circumstances where the delivery of those units takesplace in different accounting periods. EITF 00-21 requires disclosures of the accounting policy for revenuerecognition of multiple element revenue arrangements and the nature anddescription of such arrangements.  Theaccounting and reporting requirements are effective for revenue arrangementsentered into in fiscal periods beginning after June 15, 2003.  Adoption of EITF 00-21 did not have asignificant impact on our financial statements.**

** **

In December 2002,the Financial Accounting Standards Board “FASB” issued Statement of FinancialAccounting Standards “SFAS” No. 148, “Accounting for Stock-Based Compensation -Transition and Disclosure - an amendment of FASB Statement No. 123.” Thisstatement provides alternative methods of transition for a voluntary change tothe fair value method of accounting for stock-based compensation. The statementamends the disclosure requirements of FASB Statement No. 123 to require prominentdisclosure in both annual and interim financial statements about the method ofaccounting for stock-based compensation and the effect of the method used onreported results. The Company accounts for stock-based compensationarrangements in accordance with the provisions of Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees,” and complies withthe disclosure provisions of FASB Statement No. 123. The transition provisionsare effective for fiscal years ending after December 15, 2002. The disclosureprovisions are effective for interim periods beginning after December 15, 2002.The Company implemented the required disclosure provisions in the three monthperiod ended March 31, 2003. The adoption of this statement did not have amaterial impact on the Company’sconsolidated financial position, results of operations or cash flows as theCompany did not change to the fair value method of accounting for stock-basedcompensation.

 

F-9

----

 

**Note 2**

**AccountsReceivable - Trade:**

 

At June 30, 2004 and 2003accounts receivable – trade consists of:

 
| ** **                        | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
|                              |       |     |       |     |       |
| Accounts  receivable – trade |       | $        | 1,113,850  |     | $          | 606,576 |   |
| Less:                             |       |     |       |     |       |
| Allowance for  doubtful accounts  |       | (20,000  | )          | (15,000  | )          |
| Allowance for  sales returns      |       | (65,000  | )          | (40,000  | )          |
|                              |       |     |       |     |       |
|                              |       | $        | 1,028,850  |     | $          | 551,576 |   |

 

The Company provides for potentially uncollectible accounts receivableby use of the allowance method. The allowance is provided based upon a reviewof the individual accounts outstanding, and the Company’s prior history ofuncollectible accounts receivable. It is the Company’s practice to record anestimated allowance for sales returns and adjustments based on historicalexperience and to record individual charges for sales returns and adjustmentsdirectly to revenue as incurred.

 

**Note 3**

**Propertyand Equipment:**

 

At June 30, 2004 and 2003property and equipment consists of:

 
| ** **                         | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
|                               |       |     |       |     |       |
| Computers,  software and equipment |       | $        | 436,130    |     | $          | 312,909 |   |
| Furniture and fixtures             |       | 71,188   |       | 46,659   |       |
| Leasehold  improvements            |       | 15,103   |       | 15,103   |       |
|                               |       | 522,421  |       | 374,671  |       |
| Less:  accumulated depreciation    |       | (319,112 | )          | (259,038 | )          |
|                               |       |     |       |     |       |
|                               |       | $        | 203,309    |     | $          | 115,633 |   |

 

Depreciation expense was $60,074 and $59,694,respectively, for the years ended June 30, 2004 and 2003.

 

F-10

----

 

**Note 4**

**Long-termDebt:**

 

AtJune 30, 2004 and 2003 long-term debt consists of the following:

 
| ** **                                                                                                                                                                                                                                                                                | ** ** | **2004**  | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|----------|------------|
|                                                                                                                                                                                                                                                                                      |       |      |       |     |       |
| Prime rate  convertible term note, monthly interest and varying monthly principal  payments, due March 2007; Collateralized by all assets of the Company. Less  unamortized discount of $90,697.                                                                                          |       | $         | 1,879,303  |     | $          | — |   |
|                                                                                                                                                                                                                                                                                      |       |      |       |     |       |
| 15% promissory  note to a related party, 60 monthly principal and interest payments of  $11,821 through April 2009; Collateralized by all assets of the Company.                                                                                                                          |       | 479,831   |       | —   |       |
|                                                                                                                                                                                                                                                                                      |       |      |       |     |       |
| 15% promissory  note to a related party, 60 monthly principal and interest payments of $9,830  through March 2009; Collateralized by all assets of the Company.                                                                                                                           |       | 394,219   |       | 440,954  |       |
|                                                                                                                                                                                                                                                                                      |       |      |       |     |       |
| Prime rate plus  1 percent promissory note to a related party, monthly interest only payments  through November 2001 followed by twenty four monthly principal and interest  payments of approximately $9,000.  Due in full in October 2004. Collateralized by all assets of the Company. |       | 190,345   |       | 277,557  |       |
|                                                                                                                                                                                                                                                                                      |       |      |       |     |       |
| $400,000  revolving line of credit with a shareholder, expiring on December 31, 2005,  interest at 10%. Interest only payments due monthly.  Collateralized by all assets of the  Company.                                                                                           |       | 150,000   |       | 150,000  |       |
|                                                                                                                                                                                                                                                                                      |       |      |       |     |       |
| Capital leases  payable, interest at rates ranging from 15% to 24%, payable in monthly  installments of principal and interest.                                                                                                                                                           |       | —    |       | 12,142   |       |
|                                                                                                                                                                                                                                                                                      |       |      |       |     |       |
|                                                                                                                                                                                                                                                                                      |       | 3,093,698 |       | 880,653  |       |
| Less: current  portion                                                                                                                                                                                                                                                                    |       | (756,353  | )          | (283,148 | )          |
|                                                                                                                                                                                                                                                                                      |       |      |       |     |       |
| Long-term debt                                                                                                                                                                                                                                                                            |       | $         | 2,337,345  |     | $          | 597,505 |   |

 

In January 2004, the Company and a shareholder agreed to extend theterm of its $400,000 line of credit facility to December 31, 2005.  All other terms of the agreement remainedunchanged.

 

In March 2004, the Company consummated a private placement pursuant towhich the Company issued a $2,000,000 principal amount secured convertible termnote due March 22, 2007 (the “Laurus Note”), togetherwith a common stock purchase warrant entitling the holder to purchase 280,000shares of common stock (the “Laurus Warrant”). The Laurus Note and the LaurusWarrant were sold to a single “accredited investor” (as such term is defined inthe rules promulgated under the Securities Act of 1933, as amended (the “Act”)),Laurus Master Fund, Ltd. (“Laurus”),for a purchase price of $2,000,000.  The principal and unpaid interest onthe Laurus Note are convertible into shares of theCompany’s common stock at a price of $1.17 per share (“the Fixed ConversionPrice”), which was based on the weighted average price of the Company’s commonstock for the twenty trading days immediately prior to the issuance of the Laurus Note.  Such conversion price is subject to antidilution adjustments based on the occurrence of certain corporate events.

 

F-11

----

 

The Laurus Noteprovides for monthly payments of interest at the prime rate, which is subjectto reduction if the market price of the Company’s common stock exceeds certaindesignated thresholds.  The Laurus Note alsoprovides for monthly amortization, commencing on June 1, 2004 through February1, 2005, of $30,000 per month, $50,000 per month from March 1, 2005 through May1, 2005, $72,083 per month from June 1, 2005 through November 1, 2006 and$94,167 per month from December 2006 through February 2007.  If the Company’s common stock is trading inexcess of 110% of the Fixed Conversion Price, the debt service payment will bein shares of the Company’s common stock. The Laurus Note is secured by a first prioritylien on all of the assets of the Company.

 

The Laurus Warrantentitles the holder thereof to purchase, at any time through March 22,2011:  200,000 shares of the Company’s common stock at a price of $1.29per share; 40,000 shares of the Company’s common stock at a price of $1.35 pershare; and 40,000 shares of the Company’s common stock at a price of $1.40 pershare.

 

Pursuant to a Registration Rights Agreement(the “Registration Rights Agreement”) entered into between the Company and Laurus, the Company is obligated to: (a) file aregistration statement under the Act to register the resale of the shares ofthe Company’s common stock issuable upon conversionof the Note and exercise of the Warrant (the “Registration Statement”) within45 days of the date of the funding with respect to the LaurusNote; (b) use its best efforts to have the Registration Statement declaredeffective under the Act as promptly as possible, but in any event prior to the90th dayfollowing the funding of the Laurus Note; and (c)maintain the effectiveness of the Registration Statement until the earlier dateof when (i) all registrablesecurities have been sold or (ii) all registrablesecurities may be sold immediately without registration under the Act and withoutvolume restrictions pursuant to Rule 144(k).  Laurus,or other holders of the Laurus Note and the Laurus Warrant, are entitled to certain specified remediesif the Company does not timely comply with its registration obligations.  The registration statement has been filed.

 

The private placement of the Laurus Note and the LaurusWarrant was facilitated by The Oberon Group, LLC (Oberon) in consideration forwhich Oberon was paid an advisory fee of $150,000, and granted a warrant topurchase, at any time through March 22, 2007, 136,364 shares of the Company’scommon stock at a per share price of $1.10. The cash fee and fair value of the warrant has been recorded as adeferred loan issue charge.

 

In March 2004, the Company entered into asubordinated note agreement with a shareholder and existing debt holder.  Under the terms of the agreement, an existingterm note was refinanced as a five year term note with monthly principal andinterest payments at 15%.  Inconsideration for agreeing to subordinate repayment of the note to the Laurus Note, the Company issued 25,000 shares of restrictedcommon stock to the holder of the subordinated note.  The fair value of the stock has been recordedas a deferred loan issue charge.

 

In April 2004, the Company entered into asubordinated note agreement with a shareholder and existing debt holder.  The note is a five year term note withmonthly principal and interest payments at 15%. In consideration for agreeing to subordinate repayment of the note tothe Laurus Note, the Company issued 25,000 shares ofrestricted common stock to the holder of the subordinated note.  The fair value of the stock has been recordedas a deferred loan issue charge.

 

F-12

----

 

As of June 30, 2004 future minimum payments due under the debtagreements are as follows:

 
| **Year  Ending  June 30,** | ** ** | ** ** | ** ** |
|----------------------------|------------|------------|------------|
|                       |       |       |       |
| 2005                       |       | $          | 756,353    |   |
| 2006                       |       | 1,141,098  |       |
| 2007                       |       | 806,091    |       |
| 2008                       |       | 215,725    |       |
| 2009                       |       | 174,431    |       |
|                       |       |       |       |
| Total                      |       | $          | 3,093,698  |   |

 

The Company incurred loan issue costs associated with the issuance ofthe Laurus and shareholder notes.  The costs are being amortized over the termof the notes. Included in other assets at June 30, 2004 are deferred costs inthe amount of $371,345, net of accumulated amortization of $31,759.  Amortization expense charged to interestexpense was $31,759 and $0, respectively, for the years ended June 30, 2004 and2003.

 

The Laurus Warrants were valued at $99,200and recorded as a discount to the Laurus Note.  The discount is being amortized over the termof the note.  Amortization charged tointerest expense was $8,503 and $0, respectively, for the years ended June 30,2004 and 2003.

 

**Note 5**

**IncomeTaxes:**

 

As of June 30, 2004 and2003 deferred tax assets consist of the following:

 
| ** **                       | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|----------------------------------|------------|------------|------------|------------|------------|
|                             |       |       |       |       |       |
| Federal loss carryforwards       |       | $          | 1,570,000  |       | $          | 1,210,000 |   |
| State loss carryforwards         |       | 390,000    |       | 300,000    |       |
| Other                            |       | 50,000     |       | 34,000     |       |
|                             |       | 2,010,000  |       | 1,544,000  |       |
| Less:  valuation allowances |       | (2,010,000 | )          | (1,544,000 | )          |
|                             |       |       |       |       |       |
|                             |       | $          | —     |       | $          | — |   |

 

The Company has established a valuation allowance equal to the fullamount of the deferred tax assets primarily because of uncertainty in theutilization of net operating loss carryforwards.

 

F-13

----

 

As a result of stock ownership changes, the Company’s ability toutilize net operating losses in the future could be limited, in whole or part,under Internal Revenue Code Section 382. The Company was treated as an S-Corporation for income tax purposesthrough May 13, 1997.  As of June 30,2004 the Company’s federal net operating loss carryforwardswas approximately $4,900,000 and begins expiring in 2012 through 2022.

 

The Company’s tax expense (benefit) differed from the statutory rateprimarily due to the $466,000 change in the deferred tax asset valuationallowance from June 30, 2003.

 

**Note 6**

**Commitments:**

 

The Company currently leases a facility in Tempe, Arizona and officeequipment and services under non-cancelable operating lease agreements whichexpire through June 2005. For the years ended June 30, 2004 and 2003, expenseunder the aforementioned non-cancelable operating lease agreements wasapproximately $225,000 and $205,000, respectively.

 

Future minimum lease payments due under the operating lease agreementsare as follows:

 
| **Year Ending  June 30,** | ** ** | ** ** | ** ** |
|---------------------------|------------|------------|------------|
| 2005                      |       | 115,500    |       |
|                      |       |       |       |
|                      |       | $          | 115,500    |   |
|                           |            |            |            |  |

 

The Company’s currentfacility lease expires on December 31, 2004 and the Company has not executed alease agreement for the period subsequent to December 31, 2004.  The Company anticipates it will enter into anew facility lease for a five year term with an approximate annual expense of$275,000.

 

**Note 7**

**Stockholders’Equity:**

 

***StockOptions:***

 

On July 13, 1999, the Board of Directors authorized the implementationof the 1999 Equity Compensation Plan. The plan allows for the award of incentive stock options, non-statutorystock options or restricted stock awards to certain employees, directors,consultants and independent contractors. The Company has reserved an aggregate of 600,000 shares of common stockfor distribution under the plan. Incentive stock options granted under the plan may be granted toemployees only, and may not have an exercise price less than the fair marketvalue of the common stock on the date of grant. Options may be exercised on aone-for-one basis, with a maximum term of ten (10) years from the date ofgrant.

 

A summary of the activityof options under the plan and non-statutory options granted outside the planfollows:

 

F-14

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| ** **                    | ** ** | **Number of  Options** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|-------------------------------|------------|------------------------|------------|--------------------------------------|------------|
|                          |       |                   |       |                                 |       |
| Outstanding at  June 30, 2002 |       | 1,063,190              |       | $                                    | 1.75       |   |
|                          |       |                   |       |                                 |       |
| Granted                       |       | 288,000                |       | 0.21                                 |       |
| Exercised                     |       | —                 |       | —                               |       |
| Forfeited                     |       | (106,938               | )          | 0.73                                 |       |
|                          |       |                   |       |                                 |       |
| Outstanding at  June 30, 2003 |       | 1,244,252              |       | 1.49                                 |       |
|                          |       |                   |       |                                 |       |
| Granted                       |       | 830,020                |       | 0.82                                 |       |
| Exercised                     |       | (8,996                 | )          | 0.37                                 |       |
| Forfeited                     |       | (91,800                | )          | 1.46                                 |       |
|                          |       |                   |       |                                 |       |
| Outstanding at  June 30, 2004 |       | 1,973,476              |       | $                                    | 1.02       |   |

 

Additional informationabout outstanding options to purchase the Company’s common stock as of June 30,2004 is as follows:

 
| ** **         | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                                     | ** ** |
|--------------------|------------|-------------------------|------------|-------------------------------------------------------------|------------|
| **Exercise Price** | ** ** | **Number of  Shares**   | ** ** | **Weighted Avg.  Remaining  Contractural  Life (In Years)** | ** ** | **Weighted Avg.  Exercise Price** | ** ** | **Number of  Shares** | ** ** | **Weighted Avg.  Exercise Price** | ** ** |
|               |       |                    |       |                                                        |       |   |   |   |   |   |   |
| $13.10             |       | 4,000                   |       | 5.74                                                        |       | $ | 13.10 |   | 4,000 |   | $ | 13.10 |   |
| $9.40              |       | 100,000                 |       | 5.63                                                        |       | $ | 9.40 |   | 100,000 |   | $ | 9.40 |   |
| $3.40 - $2.20      |       | 137,023                 |       | 6.01                                                        |       | $ | 3.18 |   | 112,023 |   | $ | 3.12 |   |
| $1.40 - $1.00      |       | 301,436                 |       | 9.03                                                        |       | $ | 1.05 |   | 94,936 |   | $ | 1.09 |   |
| $0.92 - $0.60      |       | 523,520                 |       | 9.16                                                        |       | $ | 0.72 |   | 154,520 |   | $ | 0.63 |   |
| $0.44 - $0.40      |       | 420,996                 |       | 6.82                                                        |       | $ | 0.40 |   | 312,373 |   | $ | 0.40 |   |
| $0.32 - $0.14      |       | 486,500                 |       | 8.21                                                        |       | $ | 0.22 |   | 423,500 |   | $ | 0.22 |   |

 

In October 2003 the Company entered into a consulting services agreementwith a member of the Company’s Board of Directors for four years.  In exchange for the consulting services, theBoard Member was granted a non-statutory option to purchase 200,000 shares ofthe Company’s common stock at $0.75 per share. The options vest over four years and have a term of four years.  The fair value of the options issued was$62,000 and will be recognized over the term of the agreement as the optionsvest.

 

F-15

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***Non-Employee Stock Options and Warrants:***

 

In connection with its private placements of commonstock during the year ended June 30, 2000 the Company issued 366,625 commonstock warrants.  Each warrant entitlesthe holder to purchase one share of common stock at varying exercise pricesdepending on the round of funding.  Theexercise price for the first round of funding was $3.50 pershare and were exercisable until October 2002.  The exercise price for thesecond round of funding was $2.80 per share and were exercisable untilFebruary 2003.  The warrant agreementcontains a price adjustment provision that stated if the Company sells commonstock at a price below the exercise price of the warrants,the warrant exercise price would be adjusted to the price that the common stockwas sold for.  As a result of the sale ofcommon stock during the year ended June 30, 2002 at $.20 per share, thewarrants exercise price has been adjusted to $.20.  In October, 2000, the Company entered into a Warrant Exercise Agreementwith certain of its warrant holders under which participating holders of theCompany’s $3.50 per share and $2.80 per share warrants could exercise theirwarrants for one-half of the exercise price set forth in such warrants.  In addition to the reduction in exerciseprice, each holder who participated in the Warrant Exchange Agreement alsoreceived a new warrant agreement under the same terms as the warrant agreementjust exercised.  In connection with thisWarrant Exchange Agreement, the Company received approximately $122,000 fromthe exercise of warrants to purchase 84,790 shares of common stock.  In connection with a February 2002 privateplacement of common stock, the Company agreed to extend the term of 147,500 ofthe above warrants for one year to a shareholder if the Company did not file aregistration statement with the Securities and Exchange Commission to registerthe resale of the common stock purchased in the February 2002 private placementby August 2002.  The Company did not filea registration statement therefore the term of the warrants had been extendedby one year.  In September 2003 the147,500 warrants were exercised in full. The remaining 219,125 warrants expired unexercised.

 

During the year ended June 30, 2001 the Company issued12,000 warrants to an entity for consulting services.  The exercise price of the warrants rangesfrom $1.25 per share to $4.30 per share and are exercisable through March2006.  The fair value was $21,000 at thedate of grant, determined based on the value of services performed.  As of June 30, 2004 none of the warrants havebeen exercised.

 

During the yearended June 30, 2002 the Company issued 62,958 warrants to a related party inconsideration for entering into a promissory note agreement with theCompany.  The exercise price of thewarrant is $.25 per share and is exercisable through September 2006.  As of June 30, 2004 none of the warrants havebeen exercised.

 

During the yearended June 30, 2002 the Company issued 25,000 warrants to a related party inconsideration for entering into a revolving line of credit agreement with theCompany.  The exercise price of thewarrant is $.15 per share and is exercisable through November 2006.  As of June 30, 2004 none of the warrants havebeen exercised.

 

In November 2003the Company issued 143,400 warrants to brokers in connection with a privateplacement of common stock of the Company. The exercise price of the warrants is $.90 per share and is exercisablethrough November 2006.  As of June 30,2004 none of the warrants have been exercised.

 

F-16

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In March 2004, the Company consummated a private placement pursuant towhich the Company issued a $2,000,000 principal amount secured convertible termnote (the Laurus Note), together with a common stockpurchase warrant entitling the holder to purchase 280,000 shares of commonstock (the Laurus Warrant).  The Laurus Warrantentitles the holder thereof to purchase, at any time through March 22,2011:  200,000 shares of the Company’s common stock at a price of $1.29per share; 40,000 shares of the Company’s common stock at a price of $1.35 pershare; and 40,000 shares of the Company’s common stock at a price of $1.40 pershare.  As of June 30, 2004 noneof the warrants have been exercised.

 

The private placement of the Laurus Note andthe Laurus Warrant was facilitated by The OberonGroup, LLC (Oberon) in consideration for which Oberon was granted a warrant topurchase, at any time through March 22, 2007, 136,364 shares of the Company’scommon stock at a price of $1.10.  As ofJune 30, 2004 none of the warrants have been exercised.

 

F-17

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**Item8.****                     ChangesIn And Disagreements With Accountants On Accounting And Financial Disclosure.**

 

Notapplicable.

 

**Item8A.****            Controlsand Procedures.**

 

Based on an evaluation of the effectivenessof our disclosure controls and procedures (as defined in Rules 13a-15(e) or15d-15(e) under the Securities Exchange Act of 1934, as amended), our ChiefExecutive Officer and Chief Financial Officer have concluded that such controlsand procedures were effective as of the end of the period covered by thisreport.

 

In connection with such evaluation, no changein our internal control over financial reporting occurred during the fourthfiscal quarter of the period covered by this report that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

 

22

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**PART III**

 

**Item9.****                     Directors,Executive Officers, Promoters and Control Persons; Compliance With Section16(a) of the Exchange Act.**

 

Informationregarding the Company’s directors and executive officers is provided below.

 

THOMAS S. BEDNARIK.  Mr. Bednarik, age 54, has served asPresident, Chief Executive Officer and a director of the Company since February2000.  From April 1998 to February 2000,Mr. Bednarik served as Vice President of Sales and Support at NetPro Computing,Inc.  Mr. Bednarik has extensiveexecutive and sales management experience in the information technologyindustry and has served in various executive management capacities, includingChief Executive Officer, President, Vice President and Executive VicePresident, with firms such as Idea Corporation, Decision Data, AlcatelInformation Systems and ITT Corporation.

 

CRAIG J. SMITH, CPA.  Mr. Smith, age 34, has served as theCompany’s Vice President of Finance and Administration and Chief FinancialOfficer since April 1999.  From 1998 to1999, Mr. Smith served as Controller of Pacific Numerix Corporation.  From 1993 to 1998, he served as an AuditManager of Semple & Cooper LLP.  Mr.Smith earned a masters in business administration from Arizona State Universityin 2000 and a Bachelor of Science degree in finance and accounting fromMinnesota State University-Mankato in 1992.

 

TODD P. BELFER.  Mr. Belfer, age 36, has served as a directorof the Company since March 1999 and Chairman of the Board of Directors sinceNovember 1999. Mr. Belfer also served as Chairman of the Board of Directors ofTime America, Inc. (previously Vitrix Incorpated) from April 1996 until March1999.  Mr. Belfer co-founded Employee Solutions,Inc. in May 1990, and served as its Executive Vice-President and as a directorfrom 1991 to 1996.  Mr. Belfer earned aBachelor of Science in Finance and Real Estate from the University of Arizonain 1989.

 

LISEM. LAMBERT.  Ms. Lambert, age 47, hasserved as a director of the Company since April 1999 and as director of TimeAmerica, Inc. (previously Vitrix Incorporated) from January 1998 to March1999.  In 2003, Ms. Lambert joinedVistaCare, Inc. (VSTA), a Scottsdale-based health services company, where sheserves as the Sr. Vice President of Strategic Planning and Business Formation.Since 1996, Ms. Lambert has also served as President of Relevant, Inc., aconsulting company for the computer software industry.  In 1986, Ms. Lambert co-founded Mastersoft,Inc., where she served as Vice-President of Marketing from 1986 to 1990 andSenior Vice-President of Sales from 1990 to 1995. Ms. Lambert also serves asdirector for Involve Technology, Inc. Ms. Lambert earned a Bachelor of Arts degree in education and a Mastersdegree in deafness and audiology from Smith College.

 

ROBERTW. ZIMMERMAN. Mr. Zimmerman, age 52, has served as a director of the Companysince March 2001.  Mr. Zimmerman was oneof the original investors and directors of Time America, Inc. prior to itsmerger with the Company.  Mr. Zimmerman is President, co-managing shareholder and attorney forMallery & Zimmerman, S.C., a general practice law firm with offices inMilwaukee, Cedarburg, Green Bay, Stevens Point and Wausau, Wisconsin.  Mr. Zimmerman graduated from MarquetteUniversity in 1974 with majors in Accounting and Finance

 

23

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and from Marquette UniversityLaw School in 1977.  Followinggraduation from law school, Mr. Zimmerman worked in the Milwaukee office ofArthur Andersen & Co. in the tax department and received his Wisconsin CPAcertificate.

 

ROBERT J. NOVAK.  Mr.Novak, age 59, has served as a director of the Company since September2003.  Mr. Novak has been a member ofJennings, Strouss & Salmon, P.L.C., a full service law firm, since1999.  Mr. Novak is the founder andowner of Novak Companies, Inc., a diversified group of companies in real estatedevelopment, financing, management, equity financing and participation inprivate and public companies.  Mr. Novakalso founded and owned Robert J. Novak & Associates, Ltd., a law firm, from1987 to 1999.  Mr. Novak was also afounder, director and officer of Medical Safety Products, Inc., a medicalproduct developer, from 1987 to 2001. Mr. Novak earned Bachelor of Arts degrees in political science andeconomics from Drake University in 1967 and a Juris Doctorate from theUniversity of Arizona in 1971.

 

**Compliancewith Section 16(a) of the Securities Exchange Act of 1934**

 

Section 16(a) of theSecurities Exchange Act of 1934, as amended, requires the Company’s directorsand executive officers, as well as persons beneficially owning more than 10% ofthe Company’s outstanding Common Stock, to file reports of ownership andchanges in ownership with the Securities and Exchange Commission (the “SEC”)within specified time periods.  Suchofficers, directors and shareholders are also required to furnish the Companywith copies of all Section 16(a) forms they file.

 

Based solely on its review ofsuch forms received by it, or written representations from certain reportingpersons, the Company believes that all Section 16(a) filing requirementsapplicable to its officers, directors and 10% shareholders were complied withduring the fiscal year ended June 30, 2004.

 

24

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**Item10.  Executive Compensation.**

 

The following tablesummarizes all compensation to the Company’s Chief Executive Officer and to theCompany’s other most highly compensated executive officers other than the ChiefExecutive Officer whose total annual salary and bonus exceeded $100,000(collectively, the “Named Officers”), for services rendered to the Company foreach of the fiscal years ended June 30, 2003, 2002 and 2001.

 

**SUMMARY COMPENSATION TABLE**

 
|                                |   |     |   | **Annual  Compensation** |    | **Long Term  Compensation** |   |
|-------------------------------------|--------|----------|--------|--------------------------|---------|-----------------------------|--------|
|                                |   |     |   |                     |    |                        |   |   |   | **Awards** |   |
| **Name and  Principal Position(1)** |   | **Year** |   | **Salary($)**            |    | **Bonus($)**                |   | **Other  Annual  Compensation($)** |   | **Securities  Underlying  Options/SARS (#)** |   |
|                                |   |     |   |                     |    |                        |   |   |   |   |   |
| Thomas S. Bednarik(2)               |   | 2004     |   | $                        | 135,000 |                        | $      | 6,750 |   | 0 |   | 100,000 | (2) |
| President and                       |   | 2003     |   | $                        | 130,000 |                        | 0      |   | 0 |   | 150,000 | (2) |
| Chief Executive                     |   | 2002     |   | $                        | 130,000 |                        | 0      |   | 0 |   | 100,000 | (2) |
| Officer                             |   |     |   |                     |    |                        |   |   |   |   |   |
|                                     |        |          |        |                          |         |                             |        |  |  |  |  |  |  |

 

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(1)                                  No other executive officer of the Companyreceived compensation in excess of $100,000 for the periods presented.

 

(2)                                  Mr. Bednarik was appointed President and ChiefExecutive Officer of the Company effective February 17, 2000.  Pursuant to the terms of an Incentive StockOption Agreement dated August 22, 2000, Mr. Bednarik was granted options topurchase 100,000 shares of the Company’s common stock at a per share exerciseprice of $3.40.  Pursuant to the termsof a Nonstatutory Stock Option Agreement dated April 17, 2001, Mr. Bednarik wasgranted options to purchase 225,000 shares of the Company’s common stock at aper share exercise price of $0.40. Pursuant to the terms of a Nonstatutory Stock Option Agreement datedDecember 31, 2001, Mr. Bednarik was granted options to purchase 100,000 sharesof the Company’s common stock at a per share exercise price of $0.17.  Pursuant to the terms of a NonstatutoryStock Option Agreement dated December 31, 2002, Mr. Bednarik was grantedoptions to purchase 50,000 shares of the Company’s common stock at a per shareexercise price of $0.18.  Pursuant tothe terms of a Nonstatutory Stock Option Agreement dated April 15, 2003, Mr.Bednarik was granted options to purchase 100,000 shares of the Company’s commonstock at a per share exercise price of $0.16. Pursuant to the terms of a Nonstatutory Stock Option Agreement datedDecember 9, 2003, Mr. Bednarik was granted options to purchase 25,000 shares ofthe Company’s common stock at a per share exercise price of $1.17.  Pursuant to the terms of a NonstatutoryStock Option Agreement dated June 14, 2004, Mr. Bednarik was granted options topurchase 75,000 shares of the Company’s common stock at a per share exerciseprice of $1.00.

 

25

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The following table setsforth information concerning individual grants of stock options made to theNamed Officers during the fiscal year ended June 30, 2004.

 

**OPTION GRANTS IN LAST FISCAL YEAR**

 
|                                  |   | **Individual  Grants**                         |   |
|---------------------------------------|--------|------------------------------------------------|--------|
| **Name and**                          |   | **Number of  Securities  Underlying  Options** |   | **% of Total  Options  Granted to  Employees in** |   | **Exercise  Price** |   | **Expiration** |   | **Potential  Realized Value  at Assumed Rates of  Annual Stock Price  Appreciation For  Option Term (2)** |   |
| **Principal Position**                |   | **Granted  (#)(1)**                            |   | **Fiscal  Year** |   | **($/Sh)** |   | **Date** |   | **5% ($)** |   | **10% ($)** |   |
|                                  |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Thomas S. Bednarik,                   |   | 25,000                                         |   | 3 | % | $ | 1.17 |   | 12/2013 |   | $ | 18,395 |   | $ | 46,617 |   |
| President and Chief Executive Officer |   | 75,000                                         |   | 9 | % | $ | 1.00 |   | 6/2014 |   | $ | 47,167 |   | $ | 119,531 |   |

 

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(1)                                  Pursuant to the terms of a Nonstatutory StockOption Agreement dated December 9, 2003, Mr. Bednarik was granted options topurchase 25,000 shares of the Company’s common stock at a per share exerciseprice of $1.17.  The options vestedimmediately and have a term of ten years. Pursuant to the terms of a Nonstatutory Stock Option Agreement datedJune 15, 2004, Mr. Bednarik was granted options to purchase 75,000 shares ofthe Company’s common stock at a per share exercise price of $1.00.  The options vest in three increments overnine months and have a term of ten years.

 

(2)                                  Amounts represent hypothetical gains thatcould be achieved for the options if exercised at the end of the optionterm.  These gains are based on assumedrates of stock appreciation of 5% or 10% compounded annually from the date theoptions were granted to their expiration date and are not presented to forecastpossible future appreciation, if any, in the price of the common stock.  Actual gains, if any, on stock optionexercises are dependent on the future performance of the common stock, overallstock market conditions, as well as the option holder’s continued employmentthrough the vesting period.  The amountsreflected in this table may not necessarily be achieved.

 

**OptionExercise**

 

There were nooption exercises by the Named Officers during the fiscal year ended June 30,2004.

 

**EmploymentAgreements**

 

As of February15, 2000, the Board of Directors approved the terms of Mr. Bednarik’s at-willemployment with the Company for services as its President and Chief ExecutiveOfficer.  Under the terms of a letteragreement, dated as of February 17, 2000, the Company agreed to pay Mr.Bednarik a base salary of $115,000, which was increased to $130,000 effectiveApril 2001 and to $140,000 on January 1, 2004.

 

26

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Mr. Bednarikis also entitled to participate in the Company’s medical and dental plans, withthe Company paying 80% of the cost of Mr. Bednarik’s coverage and 50% of thecost of the medical coverage for Mr. Bednarik’s family.  Under the terms of the letter agreement, aportion of Mr. Bednarik’s unvested options become immediately vested in theevent he is terminated without cause (as such term is defined in his OptionAgreements with the Company).  In theevent the Company is acquired or merged into another company, any unvestedoptions will become automatically vested.

 

**Item11.  Security Ownership Of CertainBeneficial Owners And Management.**

 

The following table setsforth certain information, as of September 15, 2004, concerning the beneficialownership of shares of Common Stock of the Company by (i) each person known bythe Company to beneficially own more than 5% of the Company’s Common Stock;(ii) each Director; (iii) each of the Named Officers; and (iv) all directorsand executive officers of the Company as a group.  To the knowledge of the Company, all persons listed in the tablehave sole voting and investment power with respect to their shares, except tothe extent that authority is shared with their respective spouse underapplicable law.

 
|                                             |   | **Shares  Beneficially Owned (1)** |   |
|--------------------------------------------------|--------|------------------------------------|--------|
| **Name and Address  of Beneficial Owner (2)**    |   | **Number**                         |   | **Percent** |   |
| Thomas S. Bednarik                               |   | 827,500                            | (3)    | 5.8 | % |
| Todd P. Belfer                                   |   | 1,324,877                          | (4)    | 9.7 |   |
| Lise M. Lambert                                  |   | 198,913                            | (5)    | 1.5 |   |
| Robert W.  Zimmerman                             |   | 271,425                            | (6)    | 2.0 |   |
| Robert J. Novak                                  |   | 254,520                            | (7)    | 1.9 |   |
| Craig J. Smith                                   |   | 117,751                            | (8)    |   | * |
| All directors and executive officers as a  group |   | 2,994,986                          |   | 20.9 |   |
| Joseph L. Simek                                  |   | 3,888,585                          | (9)    | 28.4 |   |
| Circle F. Ventures LLC                           |   | 981,111                            |   | 7.2 |   |

 

----

* Less than 1.0%

 

(1)                                  A person is deemed to be the beneficial ownerof securities that can be acquired within 60 days from the date set forth abovethrough the exercise of any option, warrant or right.  Shares of common stock subject to options, warrants or rightsthat are currently exercisable or exercisable within 60 days are deemedoutstanding for computing the percentage of the person holding such options,warrants or rights, but are not deemed outstanding for computing the percentageof any other person.  The amounts andpercentages are based upon 13,599,552 shares of common stock outstanding as ofSeptember 15, 2004.

 

(2)                                  The address of each of the beneficial ownersis c/o Time America, Inc., 51 West Third Street, Suite 310, Tempe, Arizona85281, except for Circle F. Ventures LLC whose address is 17797 North PerimeterDrive, Suite 105, Scottsdale, Arizona 85255 and Joseph L. Simek whose addressis 611 North Road, Medford, Wisconsin 54461.

 

27

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(3)                                  Includes 693,750 shares of common stockunderlying unexercised options that were exercisable on September 15, 2004, orwithin 60 days thereafter.

 

(4)                                  Includes 148,750 shares of common stockunderlying unexercised options that were exercisable on September 15, 2004 orwithin 60 days thereafter.

 

(5)                                  Includes 164,719 shares of common stockunderlying unexercised options that were exercisable on September 15, 2004, orwithin 60 days thereafter.

 

(6)                                  Includes 131,250 shares of common stockunderlying unexercised options that were exercisable on September 15, 2004, orwithin 60 days thereafter.

 

(7)                                  Includes 74,520 shares of common stockunderlying unexercised options that were exercisable on September 15, 2004, orwithin 60 days thereafter.

 

(8)                                  Includes 90,751 shares of common stockunderlying unexercised options that were exercisable September 15, 2004, orwithin 60 days thereafter.

 

(9)                                  Includes 87,958 shares of common stockissuable upon exercise of warrants issued in consideration for entering intodebt agreements during the fiscal year ended June 30, 2002.

 

**Item12.  Certain Relationships And RelatedTransactions.**

 

Except as setforth below, the Company did not have any transactions during fiscal years 2004and 2003 with any director, director nominee, executive officer, securityholder known to the Company to own of record or beneficially more than 5% ofthe Company’s common stock, or any member of the immediate family of any of theforegoing persons, in which the amount involved exceeded $60,000.

 

On March 31,2001, the Company borrowed $400,000 from Joseph L. Simek, a significantstockholder of the Company.  The loanbears interest at an annual rate of prime plus one percent (1%) and is securedby all of the Company’s assets. Principal and interest payments of approximately $8,500 are due monthly,with the outstanding principal balance due on October 1, 2004.  On November 2, 2001, Mr. Simek agreed toprovide the Company with a $200,000 line of credit, which is also secured byall of the Company’s assets.  OnSeptember 24, 2002, Mr. Simek agreed to provide the Company with an additional$200,000 revolving line of credit, which is also secured by all of theCompany’s assets.  Borrowings under thelines of credit bear interest at an annual rate of 10%.  In January 2004, Mr. Simek and the Companyagreed to extend the maturity date of the line of credit facility to December31, 2005.  At June 30, 2004, $190,345was outstanding under the $400,000 loan and $150,000 was outstanding under theline of credit.

 

On September4, 2001, the Company borrowed $500,000 from Francis Simek, the spouse of Mr.Simek.  On March 22, 2004, the Companyand Mrs. Simek entered into a subordinated note agreement.  Under the terms of the agreement, theexisting term note was refinanced as a five year term note with monthlyprincipal and interest payments at 15%. [What term note are we referring to?] The Company issued 25,000 shares of restricted common stock to Mrs.Simek in consideration for her agreement to subordinate the note.  The loan is secured by a junior lien all ofthe Company’s

 

28

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assets.  Principal and interest payments of $9,831are due and payable monthly over a 60-month period.  At June 30, 2004, $394,219 was outstanding under this loan.

 

In May 2003, Todd P. Belfer,director, purchased 450,000 shares of common stock of the Company in a privateplacement transaction.

 

In May 2003, Circle F.Ventures LLC, a 5% security holder, purchased 111,111 shares of common stock ofthe Company in private placement transaction.

 

In October 2003, the Company entered into a consulting servicesagreement with Mr. Belfer for a four year period.  In exchange for the consulting services, Mr. Belfer was granted anon-statutory option to purchase 200,000 shares of the Company’s common stockat $0.75 per share.  The options vestover four years and have a term of four years

 

On April 16,2004, the Company borrowed $500,000 from Mrs. Simek.  The note is a five year term note with monthly principal andinterest payments at 15%.  Inconsideration for agreeing to subordinate the note, the Company issued 25,000shares of restricted common stock to Mrs. Simek.  The loan is secured by all of the Company’s assets.  Principal and interest payments of $11,821are due and payable monthly over a 60-month period.  At June 30, 2004, $479,831 was outstanding under this loan.

 

**Item13. Exhibits And Reports on Form 8-K.**

 

(a)           Exhibits. The exhibits as indexed immediately followingthe signature page of this Report are included as part of this Form 10-KSB.

 

(b)           Reports on Form 8-K.

 

On May 10, 2004,the Company furnished a Current Report on Form 8-K under Item 12 thereof,containing a copy of its earnings release, dated April 29, 2004, for the periodended March 31, 2004.

 

29

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**Item14. Principal Accountant Fees and Services.**

 

The following tablesets forth fees billed to us by our auditors during the fiscal years ended June30, 2004 and June 30, 2003 for: (i) services rendered for the audit of ourannual financial statements and the review of our quarterly financialstatements, (ii) services by our auditors that are reasonably related to theperformance of the audit or review of our financial statements and that are notreported as Audit Fees, (iii) services rendered in connection with taxcompliance, tax advice and tax planning, and (iv) all other fees for servicesrendered.

 
|   |   |                |   | **June 30,  2004** |   | **June 30,  2003** |   |
|--------|--------|---------------------|--------|--------------------|--------|--------------------|--------|
| (i)    |   | Audit Fees          |   | $                  | 30,500 |               | $      | 17,000 |   |
| (ii)   |   | Audit  Related Fees |   | —             |   | $                  | 650    |   |
| (iii)  |   | Tax Fees            |   | $                  | 4,500  |               | $      | 3,000 |   |
| (iv)   |   | All Other  Fees     |   | $                  | 10,000 |               | $      | 825 |   |

 

30

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SIGNATURES

 

In accordancewith Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantcaused this Report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                       | TIME  AMERICA, INC.                                                                       |
|----------------------------|-------------------------------------------------------------------------------------------|
|                       |                                                                                      |
|                       | /s/ Thomas  S. Bednarik                                                                   |   |
|                       | Thomas S.  Bednarik, President and Chief Executive  Officer (Principal Executive Officer) |
|                       |                                                                                      |
| Dated:  September 28, 2004 |                                                                                      |

 

31

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In accordancewith the Securities Exchange Act of 1934, this Report has been signed below bythe following persons on behalf of the Registrant and in the capacities and onthe dates indicated.

 

POWER OF ATTORNEY

 

KNOWN ALL MENBY THESE PRESENTS, that each person whose signature appears below constitutesand appoints Thomas S. Bednarik and Craig J. Smith, and each of them, his trueand lawful attorneys-in-fact and agents, with full power of substitution andresubstititon for him or her and in his or her name, place and stead, in anyand all capacities, to sign any and all amendments to this Annual Report onForm 10-KSB, and to file the same, with all exhibits thereto, and otherdocuments in connection therewith with the Securities and Exchange Commission,granting unto said attorneys-in-fact and agents, and each of them, full powerand authority to do and perform each and every act and thing requisite andnecessary to be done in and about the premises, as fully and to all intents andpurposes as he might or could do in person hereby ratifying and confirming allthat said attorneys-in-fact and agents, or his substitute or substitutes, maylawfully do or cause to be done by virtue hereof.

 
| **Signatures**           |   | **Title**                      |                         | **Date** |
|--------------------------|--------|--------------------------------|------------------------------|----------|
|                     |   |                           |                         |     |
| /s/ Thomas  S. Bednarik  |   |                           | President,  CEO and Director |     | September  28, 2004 |
| Thomas S.  Bednarik      |   | (Principal  Executive Officer) |                         |     |
|                     |   |                           |                         |     |
| /s/ Craig J.  Smith      |   |                           | Chief  Financial Officer     |     | September  28, 2004 |
| Craig J.  Smith          |   | (Principal  Financial Officer) |                         |     |
|                     |   |                           |                         |     |
| /s/ Todd P.  Belfer      |   |                           | Chairman of  the Board       |     | September  28, 2004 |
| Todd P.  Belfer          |   |                           |                         |     |
|                     |   |                           |                         |     |
| /s/ Lise M.  Lambert     |   |                           | Director                     |     | September  28, 2004 |
| Lise M.  Lambert         |   |                           |                         |     |
|                     |   |                           |                         |     |
| /s/ Robert  W. Zimmerman |   |                           | Director                     |     | September  28, 2004 |
| Robert W.  Zimmerman     |   |                           |                         |     |
|                     |   |                           |                         |     |
| /s/ Robert  J. Novak     |   |                           | Director                     |     | September  28, 2004 |
| Robert J.  Novak         |   |                           |                         |     |
|                          |        |                                |                              |          |  |  |  |  |  |  |

 

32

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**EXHIBITINDEX**

** **
| **Exhibit  Number** |   | **Description**                                                                                                                         |   | **By Reference  from  Document** |   | **No. in  Document** |
|---------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|----------------------|
|                |   |                                                                                                                                    |   |                             |   |                 |
| 3.1                 |   | Registrant’s  Articles of Incorporation                                                                                            |   | A                                |   | 3.1                  |
|                |   |                                                                                                                                    |   |                             |   |                 |
| 3.1.1               |   | Registrant’s  Amendment to its Articles of Incorporation, dated November 7, 1988                                                   |   | A                                |   | 3.1.1                |
|                |   |                                                                                                                                    |   |                             |   |                 |
| 3.1.2               |   | Registrant’s  Amendment to its Articles of Incorporation, dated June 25, 1991                                                      |   | B                                |   | 3.1.2                |
|                |   |                                                                                                                                    |   |                             |   |                 |
| 3.1.3               |   | Registrant’s  Certificate of Reverse Stock Split, dated February 15, 1994                                                          |   | C                                |   | 3.1.3                |
|                |   |                                                                                                                                    |   |                             |   |                 |
| 3.1.4               |   | Registrant’s  Certificate of Designation of Series A Preferred Stock, dated June 27, 1996                                          |   | D                                |   | 3.1.4                |
|                |   |                                                                                                                                    |   |                             |   |                 |
| 3.1.5               |   | Registrant’s  Amendment to Articles of Incorporation, dated June 25, 1996                                                          |   | D                                |   | 3.15                 |
|                |   |                                                                                                                                    |   |                             |   |                 |
| 3.1.6               |   | Registrant’s  Certificate of Designation of Series B Preferred Stock, dated March 31, 1999                                         |   | E                                |   | 3.1.6                |
|                |   |                                                                                                                                    |   |                             |   |                 |
| 3.1.7               |   | Registrant’s  Amendment to Articles of Incorporation, dated October 7, 1999.                                                       |   | F                                |   | 3.1                  |
|                |   |                                                                                                                                    |   |                             |   |                 |
| 3.2                 |   | Amended  Bylaws of the Registrant                                                                                                       |   | C                                |   | 3.2                  |
|                |   |                                                                                                                                    |   |                             |   |                 |
| 4.1                 |   | Registrant’s  Form of Common Stock Certificate                                                                                     |   | A                                |   | 4.1                  |
|                |   |                                                                                                                                    |   |                             |   |                 |
| 10.6                |   | 1999 Equity  Compensation Plan                                                                                                          |   | E                                |   | 10.7                 |
|                |   |                                                                                                                                    |   |                             |   |                 |
| 10.7.1              |   | Lease  Agreement, dated September 3, 1999, between LAFP Phoenix, Inc., as lessor,  and the Registrant, as lessee.                       |   | F                                |   | 10.1                 |
|                |   |                                                                                                                                    |   |                             |   |                 |
| 10.7.2              |   | First  Amendment to Office Lease Agreement, dated March 28, 2000, between LAFP  Phoenix, Inc., as lessor and the Registrant, as lessee. |   | G                                |   | 10.1                 |

 

33

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| **Exhibit  Number** |   | **Description**                                                                                                                                                                                                                                         |   | **By Reference  from  Document** |   | **No. in  Document** |
|---------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|----------------------|
| 10.8                |   | Securities  Purchase Agreement, dated September 21, 1999, between Circle F Ventures, LLC  and the Registrant.                                                                                                                                           |   | F                                |   | 10.2                 |
|                |   |                                                                                                                                                                                                                                                    |   |                             |   |                 |
| 10.10               |   | Merger  Agreement, dated March 28, 2001 by and among Vitrix, Inc., Vitrix  Incorporated, and Time America, Inc.                                                                                                                                         |   | H                                |   | 2.1                  |
|                |   |                                                                                                                                                                                                                                                    |   |                             |   |                 |
| 10.12               |   | Letter from  BDO Seidman, LLP, dated June 4, 2001, regarding its concurrence or  disagreement with the statements made by the registrant in the current report  concerning the resignation or dismissal as the registrants’ principal  accountant. |   | I                                |   | 16                   |
|                |   |                                                                                                                                                                                                                                                    |   |                             |   |                 |
| 10.13               |   | Promissory  Note Agreement dated September 4, 2001 between Vitrix, Inc. and Frances L.  Simek                                                                                                                                                           |   | J                                |   | —               |
|                |   |                                                                                                                                                                                                                                                    |   |                             |   |                 |
| 10.14               |   | Security  Agreement dated September 4, 2001 between Vitrix, Inc. and Frances L. Simek                                                                                                                                                                   |   | J                                |   | —               |
|                |   |                                                                                                                                                                                                                                                    |   |                             |   |                 |
| 10.15               |   | Warrant to  purchase common stock agreement dated September 4, 2001 between Vitrix, Inc.  and Frances L. Simek                                                                                                                                          |   | J                                |   | —               |
|                |   |                                                                                                                                                                                                                                                    |   |                             |   |                 |
| 10.16               |   | Promissory  Note Agreement dated March 31, 2001 between Time America, Inc and Joseph L.  Simek                                                                                                                                                          |   | K                                |   | —               |
|                |   |                                                                                                                                                                                                                                                    |   |                             |   |                 |
| 10.17               |   | Revolving  Credit Agreement dated November 2, 2001 between Vitrix, Inc and Joseph L.  Simek                                                                                                                                                             |   | K                                |   | —               |
|                |   |                                                                                                                                                                                                                                                    |   |                             |   |                 |
| 10.18               |   | Securities  Purchase Agreement, dated March 22, 2004, among Time America, Inc. and Laurus  Master Fund, Ltd.                                                                                                                                            |   | L                                |   | —               |
|                |   |                                                                                                                                                                                                                                                    |   |                             |   |                 |
| 10.19               |   | Secured  Convertible Term Note, dated March 22, 2004, among Time America, Inc. and  Laurus Master Fund, Ltd.                                                                                                                                            |   | L                                |   | —               |
|                |   |                                                                                                                                                                                                                                                    |   |                             |   |                 |
| 10.20               |   | Common Stock  Purchase Warrant, dated March 22, 2004, issued to Laurus Master Fund, Ltd.                                                                                                                                                                |   | L                                |   | —               |

 

34

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| **Exhibit  Number** |   | **Description**                                                                                                                 |   | **By Reference  from  Document** |   | **No. in  Document** |
|---------------------|--------|---------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|----------------------|
| 10.21               |   | Security  Agreement, dated March 22, 2004, among Time America, Inc. and Laurus Master  Fund, Ltd.                               |   | L                                |   | —               |
|                |   |                                                                                                                            |   |                             |   |                 |
| 10.22               |   | Subordination  Agreement, dated March 22, 2004, among Time America, Inc., Laurus Master  Fund, Ltd and Joseph and Frances Simek |   | L                                |   | —               |
|                |   |                                                                                                                            |   |                             |   |                 |
| 10.23               |   | Registration  Rights Agreement, dated March 22, 2004, among Time America, Inc. and Laurus  Master Fund, Ltd.                    |   | L                                |   | —               |
|                |   |                                                                                                                            |   |                             |   |                 |
| 10.24               |   | Guarantee,  dated March 22, 2004, issued by Time America, Inc. in favor of Laurus Master  Fund, Ltd.                            |   | L                                |   | —               |
|                |   |                                                                                                                            |   |                             |   |                 |
| 10.25               |   | Stock Pledge  Agreement, dated March 22, 2004, among Time America, Inc. and Laurus Master  Fund, Ltd.                           |   | L                                |   | —               |
|                |   |                                                                                                                            |   |                             |   |                 |
| 10.26               |   | Note  Purchase Agreement dated April 16, 2004 between Time America, Inc. and  Frances L. Simek                                  |   | Filed herewith                   |   | —               |
|                |   |                                                                                                                            |   |                             |   |                 |
| 10.27               |   | Promissory  Note Agreement dated April 16, 2004 between Time America, Inc. and Frances L.  Simek                                |   | Filed herewith                   |   | —               |
|                |   |                                                                                                                            |   |                             |   |                 |
| 10.28               |   | Security  Agreement dated April 16, 2004 between Time America, Inc. and Frances L. Simek                                        |   | Filed herewith                   |   | —               |
|                |   |                                                                                                                            |   |                             |   |                 |
| 31.1                |   | Certification  pursuant to Rules 13a-14(a) and 15d-14(a)(5) of the Securities Exchange Act  of 1934                             |   | Filed herewith                   |   | —               |
|                |   |                                                                                                                            |   |                             |   |                 |
| 31.2                |   | Certification  pursuant to Rules 13a-14(a) and 15d-14(a)(5) of the Securities Exchange Act  of 1934                             |   | Filed herewith                   |   | —               |
|                |   |                                                                                                                            |   |                             |   |                 |
| 32                  |   | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002        |   | Filed herewith                   |   | —               |

 

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A.           FormS-18 Registration Statement No. 33-25704-NY.

B.             Form10-K Annual Report of the Registrant for the fiscal year ended June 30, 1991.

C.             Form10-KSB Annual Report of the Registrant for the fiscal year ended June 30, 1994.

D.            Form8-K Current Report reporting event on June 28, 1996.

 

35

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E.              Form10-KSB Annual Report of the Registrant for the fiscal year ended June 30, 1999.

F.              Form10-QSB Quarterly Report of the Registrant for the fiscal quarter endedSeptember 30, 1999.

G.             Form10-QSB Quarterly Report of the Registrant for the fiscal quarter ended March31, 2000.

H.            Form8-K Current Report reporting event on April 13, 2001.

I.                 Form8-K Current Report reporting event on June 6, 2001.

J.                Form10-KSB Annual Report of the Registrant for the fiscal year ended June 30, 2001

K.            Form10-KSB Annual Report of the Registrant for the fiscal year ended June 30, 2002

L.              Form8-K Current Report reporting event on March 22, 2004

 

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