**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**








**FORM
      10-QSB**




**QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**




**For
                the Quarterly Period Ended December 31, 2007**
            **Commission
                File Number 1-13524**




**TIMELINE,
      INC.**


(Exact
      name of small business issuer as specified in its charter)




**Washington**
            
            **91-1590734**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (IRS
                Employer
              Identification
                No.)




**1700
      Seventh Avenue, Ste. 2100**


**Seattle,
      WA 98101**


(Address
      of principal executive offices)





**(206)
      357-8422**


(Issuer’s
      telephone number)




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





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x





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





**Class**
            
            
            **Outstanding at**
              **January 30, 2008**Common
                Stock, $.01 Par Value
            
            
            4,190,798





Transitional
      Small Business Disclosure Format (check one):  Yes o No x












**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**


**TIMELINE,
      INC.**





**CONSOLIDATED
      BALANCE SHEETS**


As of
                December 31,
              
              As of,2007
                (Unaudited)
              
              March 31,
                2007ASSETSCURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              2,558,184
              
              $
              784,635Note
                  receivable
              
              
              274,403
              
              
              -Prepaid
                  expenses and other
              
              
              2,876
              
              
              59,469Total
                  current assets
              
              
              2,835,463
              
              
              844,104Property
                  and equipment, net of accumulated depreciation of $19,956 and $18,943
              
              
              1,663
              
              
              2,676Capitalized
                  patents, net of accumulated amortization of $161,328 and
                  $138,310
              
              
              255,541
              
              
              265,118Long-term
                  notes receivable
              
              
              -
              
              
              505,609Other
                  assets
              
              
              2,621
              
              
              2,450Total
                  assets
              
              $
              3,095,288
              
              $
              1,619,957LIABILITIES
                  AND SHAREHOLDERS’ EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              22,101
              
              $
              346,436Accrued
                  expenses
              
              
              118,943
              
              
              83,655Total
                  current liabilities
              
              
              141,044
              
              
              430,091Total
                  liabilities
              
              
              141,044
              
              
              430,091SHAREHOLDERS’
                  EQUITY:Common
                  stock, $0.01 par value, 20,000,000 sharesauthorized,
                  4,190,998 shares issued and outstanding
              
              
              41,910
              
              
              41,910Additional
                  paid-in capital
              
              
              10,584,396
              
              
              10,584,396Accumulated
                  deficit
              
              
              (7,672,062
              )
              
              (9,436,440
              )Total
                  shareholders’ equity
              
              
              2,954,244
              
              
              1,189,866Total
                  liabilities and shareholders’ equity
              
              $
              3,095,288
              
              $
              1,619,957


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




Page
          2





**TIMELINE,
      INC.**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**For
      the Three Months and Nine Months Ended December 31, 2007 and
      2006**


**(unaudited)**




Three Months Ended
              December 31,
            
            Nine Months Ended
              December 31,2007
            
            2006
            
            2007
            
            2006REVENUE:Patent
                license
            
            $
            5,000,000
            
            $
            -
            
            $
            5,000,000
            
            $
            -Consulting
                and other
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                revenues
            
            
            5,000,000
            
            
            -
            
            
            5,000,000
            
            
            -COST
                OF REVENUES:Patent
                license
            
            
            7,813
            
            
            7,386
            
            
            23,018
            
            
            21,993Total
                cost of revenues
            
            
            7,813
            
            
            7,386
            
            
            23,018
            
            
            21,993Gross
                income (loss)
            
            
            4,992,187
            
            
            (7,386
            )
            
            4,976,982
            
            
            (21,993
            )OPERATING
                EXPENSES:General
                and administrative
            
            
            132,731
            
            
            144,768
            
            
            202,303
            
            
            303,442Patents
            
            
            2,401,636
            
            
            103,838
            
            
            3,017,312
            
            
            183,246Depreciation
            
            
            338
            
            
            338
            
            
            1,013
            
            
            1,047Discount
                on note receivable
            
            
            -
            
            
            -
            
            
            40,000
            
            
            -Total
                operating expenses
            
            
            2,534,705
            
            
            248,944
            
            
            3,260,628
            
            
            487,735Income
                (loss) from operations
            
            
            2,457,482
            
            
            (256,330
            )
            
            1,716,354
            
            
            (509,728
            )OTHER
                INCOME:Interest
                income and other
            
            
            23,688
            
            
            24,975
            
            
            48,024
            
            
            77,972Total
                other income
            
            
            23,688
            
            
            24,975
            
            
            48,024
            
            
            77,972Income
                (loss) from operations beforeincome
                taxes
            
            
            2,481,170
            
            
            (231,355
            )
            
            1,764,378
            
            
            (431,756
            )Provision
                for income tax
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                income (loss)
            
            $
            2,481,170
            
            $
            (231,355
            )
            $
            1,764,378
            
            $
            (431,756
            )Basic
                net income (loss) per share fromoperations
            
            $
            0.59
            
            $
            (0.06
            )
            $
            0.42
            
            $
            (0.10
            )Diluted
                net income (loss) per share
            
            $
            0.59
            
            $
            (0.06
            )
            $
            0.42
            
            $
            (0.10
            )Shares
                used in calculation of basic anddiluted
                net income (loss) per share
            
            
            4,190,998
            
            
            4,190,998
            
            
            4,190,998
            
            
            4,190,998





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




Page
          3





**TIMELINE,
      INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**





**For
      the Nine Months Ended December 31, 2007 and 2006**


**(unaudited)**




2007
            
            2006CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income (loss)
            
            $
            1,764,378
            
            $
            (431,756
            )Adjustments
                to reconcile net income (loss) to net cashprovided
                by (used in) operating activities:Depreciation
                and amortization
            
            
            24,032
            
            
            23,040Discount
                on note receivable
            
            
            40,000
            
            
            -Stock-based
                compensation
            
            
            -
            
            
            5,950Changes
                in operating assets and liabilities:Prepaid
                expenses and other
            
            
            56,593
            
            
            44,429Accounts
                payable
            
            
            (324,335
            )
            
            39,134Accrued
                expenses and other
            
            
            35,288
            
            
            37,745Interest
                from note receivable
            
            
            (8,795
            )
            
            (45,000
            )Other
                assets
            
            
            (171
            )
            
            -Net
                cash used in operating activities
            
            
            1,586,990
            
            
            326,458CASH
                FLOWS FROM INVESTING ACTIVITIES:Investment
                in capitalized software and patents
            
            
            (13,441
            )
            
            (10,207
            )Proceeds
                from note receivable
            
            
            200,000
            
            
            -Net
                cash from (used in) investing activities
            
            
            186,559
            
            
            (10,207
            )CASH
                FLOWS FROM FINANCING ACTIVITIES
            
            
            -
            
            
            -NET
                CHANGE IN CASH AND CASH EQUIVALENTS
            
            
            1,773,549
            
            
            (336,665
            )CASH
                AND CASH EQUIVALENTS, beginning of period
            
            
            784,635
            
            
            1,158,172CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            2,558,184
            
            $
            821,507SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                paid for interest
            
            $
            -
            
            $
            -




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




Page
          4




**TIMELINE,
      INC.**





**CONDENSED
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**





**December
      31, 2007**





**1.
      THE COMPANY**





Organization





The
      accompanying consolidated financial statements are of Timeline, Inc. and
      subsidiaries. Timeline, which is headquartered in Seattle, Washington, licenses
      intellectual property protected by patents granted by the U.S. Patent and
      Trademark Office and eight other countries.





Operations





We
      are in
      the business of licensing our intellectual property which consists of a
      portfolio of patents granted in nine different countries consisting of the
      United States of America, Australia, Canada, China, Hong Kong, Israel, Korea,
      Mexico and Singapore. At December 31, 2007, this line of business had generated
      approximately $19.8 million in total patent license fees since March 1998.
      However, patent licensing tends to be very litigious in nature and, as such,
      revenue generation has been and is expected to continue to be sporadic.





As
      of
      December 31, 2007, we had net working capital of approximately $2,694,000 and
      had an accumulated deficit of approximately $7,672,000 with total shareholders’
equity of approximately $ 2,954,000 .
      These
      consolidated financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America,
      assuming we will continue as a going concern. Our auditors for fiscal year
      ended
      March 31, 2007, added an explanatory paragraph to their opinion on our fiscal
      2007 financial statements stating that there was substantial doubt about our
      ability to continue as a going concern. In October 2007, we settled our patent
      litigation against ProClarity Corporation and we believe that our current cash
      and cash equivalents, and any net cash provided by operations are sufficient
      to
      meet anticipated cash needs for working capital and capital expenditures into
      fiscal 2009.





**2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Interim
      Financial Statements**





The
      accompanying consolidated financial statements are unaudited, but in our opinion
      the financial statements include all adjustments necessary to state fairly
      the
      financial information set forth in this report in conformity with accounting
      principles generally accepted in the United States of America. Operating results
      for the three months and nine months ended December 31, 2007 are not necessarily
      indicative of the results that may be expected for the year ending March 31,
      2008.





Certain
      notes and other information have been condensed or omitted from the interim
      financial statements presented in this Quarterly Report on Form 10-QSB.
      Accordingly, these financial statements should be read in conjunction with
      our
      annual financial statements for the year ended March 31, 2007, as
      previously reported in our Form 10-KSB.




Page
          5





**Use
      of Estimates**





The
      preparation of financial statements in accordance with generally accepted
      accounting principles requires the use of estimates and assumptions that affect
      the reported amounts of assets and liabilities, disclosure of contingent assets
      and liabilities known to exist as of the date the financial statements are
      published, and the reported amounts of revenues and expenses during the
      reporting period. Uncertainties with respect to such estimates and assumptions
      are inherent in the preparation of our financial statements. Accordingly, it
      is
      possible that the actual results could differ from these estimates and
      assumptions that could have a material effect on the reported amounts of our
      financial position and results of operations.





**Basis
      of Presentation**





Our
      subsidiaries, all wholly-owned, did not generate any revenue or expense for
      the
      quarter ended December 31, 2007.





**Revenue
      Recognition**





Revenue
      generated from the licensing of patents is recognized when a patent license
      agreement is signed, collectibility is probable and the amount of payment is
      fixed and determinable, consistent with SOP 97-2 and Staff Accounting Bulletin
      (SAB) No.101, “Revenue Recognition” (SAB 101).





For
      all
      licenses, we use a signed agreement as evidence of an arrangement. At the time
      of each transaction, we assess whether the fee associated with our revenue
      transactions is fixed and determinable and whether or not collection is
      reasonably assured. We assess whether the fee is fixed and determinable based
      on
      the payment terms associated with the transaction. If a significant portion
      of a
      fee is due after our normal payment terms, we account for the fee as not being
      fixed and determinable. In these cases, we defer revenue and recognize it when
      it becomes due and payable.





We
      assess
      the probability of collection based on a number of factors including the current
      financial condition of the customer. We do not request collateral from our
      customers. If it is determined that collection of a fee is not reasonably
      assured, revenue is deferred until the time collection becomes reasonably
      assured.





**Net
      Income (Loss) per Common Share**





We
      have
      adopted Statement of Financial Accounting Standards No. 128, which provides
      for
      calculation of “basic” and “diluted” earnings per share. Basic earnings per
      share includes no dilution and is computed by dividing net income available
      to
      common shareholders by the weighted average common shares outstanding for the
      period. Diluted earnings per share reflect the potential dilution of securities
      that could share in the earnings of an entity. There were 250,000 stock options
      and 7,500 warrants of common stock equivalents outstanding at December 31,
      2007.
      Basic earnings per share and diluted earnings per share are the same because
      under the treasury stock method of calculating diluted earnings per share,
      the
      options and warrants would be antidilutive.





**Stock-Based
      Compensation**





Effective
      April 1, 2006, we adopted the fair value method of accounting for stock-based
      compensation as required under SFAS No. 123R and also elected to use the
      modified prospective method of transition. As a result, an expense of $5,950
      was
      recorded to reflect the unvested portion of previously granted stock options
      which vested over the first seven months of fiscal 2007. No new options were
      granted during fiscal 2007 or the first nine months of fiscal 2008 and, while
      the expense noted above is fully reflected in the statements, no current
      deferred tax benefit associated with the subject stock options was recorded
      as
      we maintain a valuation allowance that fully offsets our deferred tax assets.




Page
          6





**Fair
      Value of Financial Instruments**





Our
      financial instruments as defined by Statement of Financial Accounting Standard
      No. 107, “Disclosures about Fair Value of Financial Instruments,” include cash,
      accounts payable and accrued expenses. All instruments are accounted for on
      a
      historical cost basis, which, due to the short maturity of these financial
      instruments, approximates fair value at December 31, 2007 and March 31,
      2007.





**Impairment
      of Long-lived Assets**





In
      accordance with Statement of Financial Accounting Standards No. 144, “Accounting
      for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144), we evaluate
      long-lived assets, including intangible assets other than goodwill, for
      impairment whenever events or changes in circumstances indicate that the
      carrying value of an asset may not be recoverable based on estimated
      undiscounted cash flows attributable to that asset. The amount of any impairment
      is measured as the difference between the carrying value and the fair value
      of
      the impaired asset. We do not currently believe that any of our long-lived
      assets are impaired.





**3.
      LITIGATION**





On
      October 15, 2007, we entered into a Confidential Settlement Agreement with
      Microsoft Corporation and ProClarity Corporation in settlement of our patent
      infringement lawsuit filed against Microsoft and ProClarity and our breach
      of
      contract lawsuit filed against Microsoft. Also on October 15, 2007, in
      connection with the Settlement Agreement, we entered into a Confidential Patent
      License Agreement with Microsoft. Under the Settlement Agreement, Microsoft
      paid
      us a one-time payment of $5,000,000 as consideration for entering into the
      Settlement Agreement and the Patent License Agreement. The net proceeds to
      us
      from this amount were reduced by payment of our 45% contingent attorneys’ fees
      and other expenses of the litigation.





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




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





*This
      Quarterly Report on Form 10-QSB includes a number of forward-looking statements
      that reflect our current views with respect to business strategies, future
      events and financial performance. These forward-looking statements are subject
      to certain risks and uncertainties, including those discussed below, that could
      cause actual results to differ materially from historical results or those
      anticipated, including the risks and uncertainties described below, as well
      as
      in our annual report on Form 10-KSB for the year ended March 31, 2007, under
      the
      caption “Risk Factors.” When used in this Report, the words "anticipate,"
      "believe," "may," “could,” “should,” ”would,” "will," "expect," “future,” and
      variations of such words and similar expressions as they relate to our business
      are intended to identify such forward-looking statements, but are not the
      exclusive means of identifying such statements. Our actual results, performance
      or achievements could differ materially from the results expressed in, or
      implied by, these forward-looking statements. We do not undertake any obligation
      to revise these forward-looking statements to reflect any future events or
      circumstances. In addition, the disclosures under the caption "Risk Factors”
consist principally of a brief discussion of risks which may affect future
      results and are thus, in their entirety, forward-looking in nature.* ***To
      facilitate readers in identifying forward-looking statements in this Report,
      we
      have attempted to mark sentences containing such statements with a single
      asterisk and paragraphs containing only forward-looking statements with double
      asterisks. However, no assurance can be made all such statements have been
      identified and marked.*** *Therefore,
      readers are urged to carefully review and consider the various disclosures
      made
      in this report and in our other reports previously filed with the Securities
      and
      Exchange Commission (the "SEC"), including our periodic reports on Forms 10-KSB
      and 10-QSB, and those described from time to time in our press releases and
      other communications, which attempt to advise interested parties of the risks
      and factors that may affect our business.*




Page
          7





**OVERVIEW**





Timeline,
      Inc., headquartered in Seattle, Washington, licenses intellectual property
      protected by patents granted by the U.S. Patent and Trademark Office and eight
      other countries. We currently hold seven patents issued by the U.S. Patent
      and
      Trademark Office on our technology, for a total of 148 issued claims. We have
      also been issued patents in Australia, Canada, China, Hong Kong, Israel, Korea,
      Mexico and Singapore.





Our
      consolidated financial statements for the quarter and nine months ended December
      31, 2007 have been prepared on a going-concern basis, which contemplates the
      realization of assets and the settlement of liabilities in the normal course
      of
      business. Our auditors for fiscal year ended March 31, 2007, added an
      explanatory paragraph to their opinion on our fiscal 2007 financial statements
      stating that there was substantial doubt about our ability to continue as a
      going concern. In October 2007, we settled our lawsuits against ProClarity
      Corporation and Microsoft Corporation. Under the settlement agreement, Microsoft
      paid us a one-time license fee of $5,000,000 and we entered into a patent
      license agreement with Microsoft. The net proceeds to us from this amount were
      reduced by payment of our 45% contingent attorneys’ fees and other expenses of
      the litigation. With the net proceeds from this settlement, we believe that
      our
      current cash and cash equivalents, and any net cash provided by operations
      are
      sufficient to meet anticipated cash needs for working capital and capital
      expenditures into fiscal 2009.*





With
      the
      settlement of our lawsuits against ProClarity Corporation and Microsoft
      Corporation, we have recently, under the direction of our Board of Directors,
      undertaken a review of our options for the future, including whether to continue
      licensing our patents either directly or in conjunction with a joint venture
      partner, or whether we can reasonably sell the patents outright; most likely
      to
      an entity with the finances and wherewithal to aggressively pursue litigation,
      if necessary, to maximize the commercial value of the patents. Finally, we
      are
      also soliciting potential merger partners who may value the public entity and
      patents. Of course, the benchmarks against which we must compare these
      alternative strategies, assuming we have options, is simple liquidation or
      continuing to license the patents directly. All of these efforts at identifying
      possible options are intended to allow our Board to decide the best approach
      going forward to maximize return to our shareholders. No definitive decision
      has
      been made in this regard as additional research and completion of various
      discussions with third parties is needed for our Board of Directors’
consideration.




Page
          8





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





*The
      discussion and analysis of our financial condition and results of operations
      is
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these financial statements requires us to make estimates
      and
      judgments that affect the reported amounts of assets, liabilities, revenues
      and
      expenses, and related disclosure of contingent assets and liabilities. On an
      on-going basis, we evaluate our estimates including, among others, those
      affecting revenues and the useful lives of tangible and intangible assets.
      The
      discussion below is intended as a brief discussion of some of the judgments
      and
      uncertainties that can impact the application of these policies and the specific
      dollar amounts reported on our financial statements. We base our estimates
      on
      historical experience and on various other assumptions that we believe to be
      reasonable under the circumstances, the results of which form our basis for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions, or if we made different
      judgments or utilized different estimates. Our estimates or judgments are based
      in part on anticipated future events or performance, and as such are
      forward-looking in nature, and are subject to many risks and uncertainties,
      including those discussed below and elsewhere in this Report. We do not
      undertake any obligation to update or revise this discussion to reflect any
      future events or circumstances.*





We
      have
      identified the policies below as critical to our business operations and the
      understanding of our results of operations. The impact and any associated risks
      related to these policies on our business operations is discussed throughout
      Management’s Discussion and Analysis or Plan of Operations where such policies
      affect our reported and expected financial results. For a detailed discussion
      on
      the application of these and our other accounting policies, see the Notes to
      Consolidated Financial Statements.





**Revenue
      Recognition**





We
      recognize revenue when persuasive evidence of an arrangement exists and delivery
      has occurred, provided the fee is fixed or determinable, and collectibility
      is
      probable. For all patent licenses, we use a signed agreement, as evidence of
      an
      arrangement. We assess whether the fee is fixed and determinable based on the
      payment terms associated with the transaction. If a fee is based upon a variable
      such as a royalty based on units sold, we account for the fee as not being
      fixed
      and determinable. In these cases, we defer revenue and recognize it when it
      becomes due and payable. We assess the probability of collection based on a
      number of factors, including past transaction history with the licensee and
      the
      current financial condition of the licensee. We do not request collateral from
      our licensees. If we determine that collection of a fee is not reasonably
      assured, we defer revenue until the time collection becomes reasonably
      assured.





**Capitalized
      Patents**





We
      capitalize the direct out-of-pocket costs to obtain patents on our technology.
      Such costs are amortized over the then remaining life of the respective patents,
      which had an initial life of 20 years. In the case of maintenance fees to renew
      our registration of a patent in a particular jurisdiction, the fee would then
      be
      amortized over the remaining portion of the original 20 year grant.* Should
      we
      determine that we will not be able to generate future revenues as a result
      of a
      patent, we would need to write off the remaining capitalized value of the patent
      in the period we determine that the patent is impaired.* At December 31, 2007,
      such a write-off would reduce our total assets by approximately $256,000. It
      would have no effect on cash. Costs of defending our patents are expensed as
      incurred, which, depending on the nature and complexity of the legal defense
      strategy, could materially impact our results of operations in any given
      period.*




Page
          9





**Impairment
      of Long-Lived Assets**





We
      assess
      the impairment of our long-lived assets, including property and equipment and
      capitalized patents, whenever events or changes in circumstances indicate that
      the carrying value may not be recoverable based on estimated undiscounted cash
      flows attributable to that asset. The amount of any impairment is measured
      as
      the difference between the carrying value and the fair value of the impaired
      asset. Our judgments regarding the existence of impairment indicators are based
      on legal factors and market conditions. Future events could cause us to conclude
      that impairment indicators exist and that certain assets are impaired.* Such
      an
      adjustment would have no effect on our current cash.*





**RESULTS
      OF OPERATIONS**





**Results
      of Operations**





Revenue/Gross
      Loss




Three
                Months Ended
              December
                  31,
            
            
            
            Nine
                Months Ended
              December
                  31,2007
            
            2006
            
            Change
            
            2007
            
            2006
            
            ChangePatent
                license revenue
            
            $
            5,000,000
            
            $
            -
            
            
            N/A
            
            $
            5,000,000
            
            $
            -
            
            
            N/APatent
                amortization expense
            
            
            (7,813
            )
            
            (7,386
            )
            
            6
            %
            
            (23,018
            )
            
            (21,993
            )
            
            5
            %Gross
                income (loss)
            
            $
            4,992,187
            
            $
            (7,386
            )
            
            N/A
            
            $
            4,976,982
            
            $
            (21,993
            )
            
            N/A





Our
      sole
      source of revenue, other than interest, is from patent license revenue. We
      received no revenues during the first three quarters of fiscal 2007 and the
      first two quarters of fiscal 2008. Revenue received in the fiscal quarter ended
      December 31, 2007 (third quarter of fiscal 2008) was a one-time payment of
      $5,000,000 from our patent license agreement with Microsoft
      Corporation.





Patent
      amortization expenses consist of amortization of capitalized costs of patent
      acquisition, filing and maintenance. We capitalize the cost of procuring
      patents, which mainly consists of attorneys’ and filing fees. We also capitalize
      the expense of maintaining our registration in the various countries in which
      the patent has been granted. These costs are amortized over the remaining life
      of the various patents on a straight line basis. The costs associated with
      litigation or negotiation of patent licenses with third parties is separately
      accounted for as “patent expenses” under “Operating Expense” below. Patent
      amortization expenses for the third quarter and nine-month period of fiscal
      2008
      increased slightly over the comparable periods in fiscal 2007 due to additional
      patent-related fees incurred during the last twelve months which added to the
      amortizable base.




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          10




Operating
      Expense





Three
                Months Ended
              December
                  31,
            
            
            
            Nine
                Months Ended
              December
                  31,2007
            
            2006
            
            Change
            
            2007
            
            2006
            
            ChangeGeneral
                & administrative
            
            $
            132,731
            
            $
            144,768
            
            
            (8
            )%
            $
            202,303
            
            $
            303,442
            
            
            (33
            )%Patent
                expense
            
            
            2,401,636
            
            
            103,838
            
            
            N/A
            
            
            3,017,312
            
            
            183,246
            
            
            N/ADepreciation
            
            
            338
            
            
            338
            
            
            (0
            )%
            
            1,013
            
            
            1,047
            
            
            (3
            )%Discount
                on notereceivable
            
            
            -
            
            
            -
            
            
            N/A
            
            
            40,000
            
            
            -
            
            
            N/ATotal
                operating expense
            
            $
            2,534,705
            
            $
            248,944
            
            
            918
            %
            $
            3,260,628
            
            $
            487,735
            
            
            568
            %


Expenses
        of operations in all periods reflect costs associated with patent litigation,
        pursuing licenses of the patents and the costs of maintaining the public
        entity.





General
      and administrative expense consists of salaries, legal and accounting fees,
      rent, insurance and other expenses associated with maintaining the corporate
      entity. We have attempted to streamline administrative expenses in all
      categories of general and administrative expense and achieved savings in this
      regard are reflected in lower costs in the third quarter and nine months of
      fiscal 2008. We expect our general and administrative expense in future periods
      to remain relatively constant. *





Patent
      expense includes the costs of litigation, which in the third quarter of fiscal
      2008 mainly consist of attorneys’ fees. We settled our lawsuits with Microsoft
      and ProClarity after the opening day of trial, on October 15, 2007, and the
      costs for the third quarter of fiscal 2008 include payment of our 45% contingent
      attorneys’ fees from our settlement. Additional costs reflected in patent
      expense include expert witness fees, travel and reporting costs associated
      with
      depositions, and document production costs. Due to the fact litigation activity
      increased during fiscal 2008 as we approached trial in October, expenses related
      to the patents increased dramatically over those experienced in fiscal 2007.





Patent
      expense in future quarters will depend in large part on whether we institute
      additional litigation.* While that is not our preferred approach, recent
      decisions in the U.S. Supreme Court and the Federal Circuit Courts make it
      very
      difficult to even discuss patent licensing with potential infringers prior
      to
      filing a lawsuit. These decisions likely mean the cost of licensing patents
      will
      increase dramatically industry wide and the federal court system will become
      increasingly jammed with such litigation.*





Depreciation
      expense decreased slightly in the nine months ended December 31, 2007 as
      compared to 2006.





**Other
      Income and Expense**





Other
      income and expense generated net income of approximately $24,000 in the third
      quarter and $48,000 in the first nine months of fiscal 2008 and consisted
      entirely of interest income. This compared to income of approximately $25,000
      in
      the third quarter and $78,000 in the first nine months of fiscal 2007. The
      decrease was due to lower cash balances in our interest-bearing accounts through
      the majority of the nine months of fiscal 2008.




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          11





**Income
      Tax**





No
      income
      tax expense was recorded in the comparable three-month and nine-month periods
      of
      either fiscal 2008 or fiscal 2007. All income or loss is offset by appropriate
      adjustments to the valuation allowance of our net operating loss carry-forwards.





**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      of
      December 31, 2007, we had net working capital of approximately $2,694,000.
      Additionally, as of December 31, 2007, our cash and cash equivalents were
      approximately $2,558,000 compared to cash and cash equivalents of approximately
      $785,000 as of March 31, 2007. This increase was due to patent license revenue
      generated during the quarter.





At
      December 31, 2007, we held one note receivable from Global Software, Inc. in
      principal amount totaling $260,000 from the sale of our software operations
      to
      them during fiscal 2006. This note receivable plus accrued and unpaid interest
      is payable on August 31, 2008. The promissory note bears interest
      at a rate
      of
      6% per annum, and is a general unsecured obligation of Global. The note is
      subject to set off in the event of indemnification claims or other claims by
      Global against us under the Asset Purchase Agreement. As of December 31, 2007,
      Global had not made any indemnification or other set-off claims against
      us.





We
      had no
      accounts receivable at December 31, 2007 or March 31, 2007.





Total
      liabilities were approximately $141,000 at December 31, 2007 compared to
      approximately $430,000 at March 31, 2007. The decrease in total liabilities
      is
      attributable to decreases in accounts payable and accrued expenses.





**Risk
      Factors**





Please
      see the discussion under “Risk Factors” contained in our Annual Report on Form
      10-KSB for the fiscal year ended March 31, 2007. In addition, our operating
      results may fluctuate due to a number of factors, including, but not limited
      to,
      the following factors:





·
            our
                patent licensing strategies regarding when and the number of potential
                infringers we approach,


·
            our
                ability to pursue and successfully negotiate further patent licenses
                and
                generate patent revenues,


·
            challenges
                to the validity of our patents,


·
            costs
                of litigation associated with our patent enforcement,
                and


·
            the
                cost of maintaining our public
                status.





These
      factors are difficult for us to forecast, and can materially adversely affect
      our business and operating results for one quarter or a series of quarters.**





**Item
      3**  **Controls
      and Procedure**





(a)
      Evaluation of Disclosure Controls and Procedures





We
      maintain disclosure controls and procedures designed to ensure that information
      required to be disclosed in our filings under the Securities Exchange Act of
      1934 is (a) recorded, processed, summarized and reported within the time
      periods specified in the Securities and Exchange Commission’s rules and forms
      and (b) accumulated and communicated to management, including our Chief
      Executive Officer/Chief Financial Officer, as appropriate to allow timely
      decisions regarding required disclosure. Our Chief Executive Officer/Chief
      Financial Officer has evaluated our disclosure controls and procedures as of
      the
      end of the period covered by this Quarterly Report on Form 10-QSB and has
      determined that such disclosure controls and procedures are effective.




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          12





(b)
      Changes in Internal Controls





During
      the most recent fiscal quarter, there have been no material changes in our
      internal controls over financial reporting or in other factors  that
      have
      materially affected, or are reasonably likely to materially affect our internal
      controls over financial reporting.




**PART
      II. – OTHER INFORMATION**




**Item
              6.**
            
            **Exhibits**Exhibits:31.1
            
            Certification
                of Charles R. Osenbaugh, President, Chief Executive Officer and Chief
                Financial Officer of Timeline, Inc. pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of Charles R. Osenbaugh, President, Chief Executive Officer and Chief
                Financial Officer of Timeline, Inc. pursuant to 18 U.S.C. Section
                1350, as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




Page
          13





**SIGNATURE**




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




Timeline,
                Inc.(Registrant)Date:
                February 8, 2008
            By:
            /s/
                Charles R.
                OsenbaughCharles
                R. OsenbaughPresident/Chief Executive Officer/Chief Financial OfficerSigned
                on behalf of registrant and as principal
              financial
                officer.




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          14