**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**--------------------------------------------**


**FORM
      10-QSB**








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


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**







**For
                the Quarterly Period Ended June 30, 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  ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes  ̈ 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**
              **July
                31, 2007**Common
                Stock, $.01 Par Value
            
            4,190,998





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










**PART
        I - FINANCIAL INFORMATION**
 
 **Item
        1. Financial Statements**
 **TIMELINE,
        INC.**
 
 **CONSOLIDATED
        BALANCE SHEETS**
 
 
 As
                  of
                June
                  30,
              
              As
                  of,ASSETS
              
              2007
                (Unaudited)
              
              March
                  31,
                2007CURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              429,535
              
              $
              784,635Prepaid
                  expenses and other
              
              
              33,442
              
              
              59,469Total
                  current assets
              
              
              462,977
              
              
              844,104Property
                  and equipment, net of accumulateddepreciation
                  of $19,280 and $18,943
              
              
              2,339
              
              
              2,676Capitalized
                  patents, net of accumulatedamortization
                  of $145,885 and $138,310
              
              
              259,443
              
              
              265,118Long-term
                  notes receivable
              
              
              266,539
              
              
              505,609Other
                  assets
              
              
              2,450
              
              
              2,450Total
                    assets
              
              $
              993,748
              
              $
              1,619,957
  LIABILITIES
                  AND SHAREHOLDERS’ EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              239,670
              
              $
              346,436Accrued
                  expenses
              
              
              49,256
              
              
              83,655Total
                  current liabilities
              
              
              288,926
              
              
              430,091Total
                  liabilities
              
              
              288,926
              
              
              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
              
              
              (9,921,484
              )
              
              (9,436,440
              )Total
                  shareholders’ equity
              
              
              704,822
              
              
              1,189,866Total
                  liabilities and shareholders’ equity
              
              $
              993,748
              
              $
              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 Ended June 30, 2007 and 2006**
                **(unaudited)**
  2007
              
              2006REVENUE:Patent
                  license
              
              $
              -
              
              $
              -Consulting
                  and other
              
              
              -
              
              
              -Total
                  revenues
              
              
              -
              
              
              -COST
                  OF REVENUES:Patent
                  license
              
              
              7,575
              
              
              7,249Total
                  cost of revenues
              
              
              7,575
              
              
              7,249Gross
                  profit
              
              
              (7,575
              )
              
              (7,249
              )OPERATING
                  EXPENSES:General
                  and administrative
              
              
              26,884
              
              
              78,147Patents
              
              
              426,619
              
              
              30,686Depreciation
              
              
              338
              
              
              371Discount
                  on Note Receivable
              
              
              40,000
              
              
              -Total
                  operating expenses
              
              
              493,841
              
              
              109,204Loss
                  from operations
              
              
              (501,416
              )
              
              (116,453
              )OTHER
                  INCOMEInterest
                  income and other
              
              
              16,371
              
              
              26,492Total
                  other income
              
              
              16,371
              
              
              26,492Loss
                  from operations before income taxes
              
              
              (485,045
              )
              
              (89,961
              )Provision
                  for income tax
              
              
              -
              
              
              -Net
                  loss
              
              $
              (485,045
              )
              $
              (89,961
              )Basic
                  net loss per share from continuing operations
              
              $
              (0.12
              )
              $
              (0.02
              )Diluted
                  net loss per share
              
              $
              (0.12
              )
              $
              (0.02
              )Shares
                  used in calculation of basic net loss per share
              
              
              4,190,998
              
              
              4,190,998Shares
                  used in calculation of diluted net loss per share
              
              
              4,190,998
              
              
              4,190,998
  The
                  accompanying condensed notes are an integral part of these consolidated
                  financial statements.
 
 Page
            3
 
 **TIMELINE,
                  INC.**
                
                **CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS**
                
                **For
                  the Three Months Ended June 30, 2007 and 2006**
                **(unaudited)**
  2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (485,045
              )
              $
              (89,961
              )Adjustments
                  to reconcile net loss to net cash providedby
                  (used in) operating activities:Depreciation
                  and amortization
              
              
              7,912
              
              
              7,620Reassessment
                  of UK tax liability accrual
              
              
              (34,000
              )
              
              -Discount
                  on note receivable
              
              
              40,000
              
              
              -Stock-based
                  compensation
              
              
              -
              
              
              5,950Changes
                  in operating assets and liabilities:Prepaid
                  expenses and other
              
              
              26,027
              
              
              (12,237
              )Accounts
                  payable
              
              
              (106,765
              )
              
              3,351Accrued
                  expenses and other
              
              
              (400
              )
              
              (35,908
              )Interest
                  from note receivable
              
              
              (929
              )
              
              (14,999
              )Net
                  cash used in operating activities
              
              
              (553,200
              )
              
              (136,184
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Investment
                  in capitalized software and patents
              
              
              (1,900
              )
              
              (4,139
              )Proceeds
                  from note receivable
              
              
              200,000
              
              
              -Net
                  cash from (used in ) investing activities
              
              
              198,100
              
              
              (4,139
              )CASH
                FLOWS FROM FINANCING ACTIVITIES
              
              
              -
              
              
              -NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              (355,100
              )
              
              (140,323
              )CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              784,635
              
              
              1,158,172CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              429,535
              
              $
              1,017,849SUPPLEMENTAL
                  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**
 
 **June
        30, 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. This line of business has generated approximately $14.8
        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
        June 30, 2007, we had net working capital of approximately $174,000 and had
        an
        accumulated deficit of approximately $9,921,000 with total shareholders’ equity
        of approximately $705,000. 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. If we
        are
        not successful in our patent litigation against ProClarity Corporation, we
        believe that our current cash and cash equivalents, and any net cash provided
        by
        operations may not be sufficient to meet anticipated cash needs for working
        capital and capital expenditures through fiscal 2008. Our revenue is
        unpredictable, and a revenue shortfall could deplete our limited financial
        resources and require us to borrow against our note receivable, reduce
        operations or to raise additional funds through equity or debt financings,
        which
        may be on unfavorable terms or may not be available.
 
 **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 ended June 30, 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 June 30, 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 254,000 stock options
        and 7,500 warrants of common stock equivalents outstanding at June 30, 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 quarter 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 June 30, 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.
 
 **Guarantees**
 
 In
        November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting
        and Disclosure Requirements for Guarantees, Including Indirect Guarantees
        of
        Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and
        107
        and a rescission of FASB Interpretation No. 34” (FIN No. 45). FIN 45 provides
        expanded accounting guidance surrounding liability recognition and disclosure
        requirements related to guarantees, as defined by this Interpretation. In
        the
        ordinary course of business, we are not subject to potential obligations
        under
        guarantees that fall within the scope of FIN 45.
 
 **3.
        LITIGATION**
 
 In
        June
        2005, we filed an action in the United States District Court for the Western
        District of Washington against ProClarity Corporation alleging infringement
        of
        our patents. We are seeking monetary damages and an injunction against
        ProClarity licensing its products that we believe infringe our patents. A
        trial
        date of October 16, 2007 has been set.
 
 In
        May
        2006, Microsoft Corporation purchased all of the stock of ProClarity
        Corporation. We had gained information through discovery in the case against
        ProClarity and information garnered through various other means that led
        us to
        believe Microsoft Corporation had undertaken specific acts which constituted
        a
        material breach of the patent license between Timeline and Microsoft (the
“1999
        Agreement”). On June 28, 2007, we filed an action in King County Superior Court
        on the alleged breaches under the 1999 Agreement.  As a result, we
        currently have ongoing claims in federal court against Microsoft's subsidiary
        ProClarity for patent infringement and in Washington state court against
        Microsoft for breach of the 1999 Agreement.
 
 Page
            7
 On
        June
        1, 2007, we also filed an action in King County Superior Court on a companion
        claim against Microsoft for breach of a separate 1995 agreement between Timeline
        and Microsoft. Subsequent to the quarter ended June 30, 2007, on August 10,
        2007
        the Superior Court granted a motion on behalf of Microsoft that damages for
        breach of the 1995 agreement are barred by the statute of limitations contained
        in the Washington Uniform Commercial Code (UCC) which covers the work for
        hire
        Timeline did for Microsoft. The ruling, which may be appealed, holds that
        the
        work performed was for a good as opposed to services and, therefore, the
        UCC’s
        four year statute of limitations applies as opposed to the normal six year
        statute applicable to services. We intend to appeal this ruling.
 
 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," "predict," "intend," "may," “could,” “should,” ”would,” "will,"
        "expect," “future,” “continue,” 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.*
 
 **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 ended June 30, 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. We incurred
        a net loss of $485,045 for the quarter ending June 30, 2007. These factors
        raise
        substantial doubt about our ability to continue as a going concern.
 
 Page
            8
 If
        we are
        not successful in our patent litigation against ProClarity Corporation, we
        believe that our current cash and cash equivalents, and any net cash provided
        by
        operations may not be sufficient to meet anticipated cash needs for working
        capital and capital expenditures through fiscal 2008. Our licensing revenue
        is
        unpredictable. An adverse court decision against us in our litigation against
        ProClarity with respect to the validity and enforceability of our patents
        could
        practically prevent us entering into future patent licenses and foreclose
        any
        future licensing revenues. Such a result could require us to reduce operations
        or to raise additional funds through equity or debt financings, which may
        be on
        unfavorable terms or may not be available. See “Liquidity and Capital Resources”
below.**
 
 **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.
 
 Page
            9
 **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 June 30, 2007,
        such
        a write-off would reduce our total assets by approximately $259,000. 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.*
 
 **Impairment
        of Long-Lived Assets**
 
 We
        assess
        the impairment of our long-lived assets, including notes receivable, 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.*
        In
        the event that any of our long-term notes receivable became uncollectible,
        it
        would affect our expected cash flow as of the due date.* Our primary long-lived
        assets, other than our capitalized patents, is our note receivable from Global
        Software. As of June 30, 2007, we believe the note receivable due from Global
        Software will be collected in due course and no impairment of value has been
        recorded.*
 
 
 **RESULTS
        OF OPERATIONS**
 
 **Results
        of Operations**
 
 Revenue/Gross
        Loss
 
 Three
                  Months Ended June 30,2007
              
              2006
              
              ChangePatent
                  licenses
              
              $
              -
              
              $
              -
              
              
              N/APatent
                  amortization expense
              
              
              (7,575
              )
              
              (7,249
              )
              
              4
              %Total
                  gross loss
              
              $
              (7,575
              )
              $
              (7,249
              )
              
              4
              %
 
 We
        received no patent license revenues during the first quarter of fiscal 2008
        or
        fiscal 2007. Patent license revenue is very sporadic. We do not foresee success
        in negotiating additional licenses until the litigation we instituted against
        ProClarity Corporation is resolved. We believe the outcome of this litigation
        is
        material to our future prospects.* Microsoft Corporation acquired ProClarity
        after the suit was filed. We believe that not only are Microsoft ISVs inclined
        to await the outcome of this litigation before seeking a license; but also
        the
        industry in general. Knowing Microsoft is fighting the patents on all available
        fronts, potential licensees would logically wait to see if our patents can
        withstand such scrutiny on validity and coverage.* Assuming a successful
        outcome
        in the ProClarity lawsuit, we intend to pursue patent license agreements
        during
        the remainder of fiscal 2008 and beyond, but we cannot predict the outcome
        of
        ongoing and future negotiations and there are no assurances that we will
        be
        successful in entering into additional patent licenses, or the timing or
        amount
        of any such licenses.*
 
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            10
 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. Once a patent is
        granted, we also capitalize the expense of maintaining our registration in
        the
        various countries. 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 first quarter of fiscal 2008 increased by 4%, over the
        comparable period in fiscal 2007 due to additional patent-related fees incurred
        during the last twelve months and added to the amortizable base.
 
 Operating
        Expense
 
 Three
                  Months Ended June 30,2007
              
              2006
              
              ChangeGeneral
                  and administrative
              
              $
              26,884
              
              $
              78,147
              
              
              (66
              )%Patent
                  expense
              
              
              426,619
              
              
              30,686
              
              
              1,290
              %Depreciation
              
              
              338
              
              
              371
              
              
              9
              %Discount
                  on note receivable
              
              
              40,000
              
              
              -
              
              
              N/ATotal
                  operating expenses
              
              $
              493,841
              
              $
              109,204
              
              
              352
              %
 
 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. Due to the reduced nature of the our business, we have attempted
        to
        streamline administrative expenses, including by making changes in insurance
        coverage and using outside services for tax preparation. This process and
        activities associated with completing the transition from software licensing
        and
        maintenance caused a gradual reduction in general and administrative expenses.
        Additionally, in the first quarter of fiscal 2008, we reduced our reserve
        for a
        potential tax liability in the UK from approximately $64,000 to approximately
        $30,000, to reflect our currently anticipated potential liability. These
        savings
        reduced our operating expenses by 66% in fiscal 2008’s first quarter as compared
        to the same period last year. We expect our general and administrative expense
        in future periods to be roughly comparable to those for the quarter ended
        June 30, 2007.*
 
 Patent
        expense includes the costs of litigation, which mainly consists of expert
        witness fees, travel and reporting costs associated with depositions, and
        document production costs. In June 2005, we filed an action in the United
        States
        District Court for the Western District of Washington against ProClarity
        Corporation alleging patent infringement and seeking monetary damages against
        ProClarity. This case is set for trial in October 2007. Under the Court’s
        schedule, discovery cutoff was approximately June 20, 2007. Consequently,
        expenses during the quarter were substantial (up 1290%), particularly for
        discovery costs. We expect much lower costs in the quarter ending September
        30,
        2007. In the quarter ending December 31, 2007, these expenses are likely
        to
        increase to a substantial level for trial costs and as we utilize our experts
        as
        witnesses and advisors during the trial. Additionally, in the event we obtain
        a
        monetary recovery from ProClarity, contingent legal fees will be accrued
        as an
        expense against such recovery.*
 
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            11
 During
        the quarter ended at June 30, 2007, we also incurred a non-cash expense of
        $40,000 in discounting one of the notes receivable held from Global Software
        from the previous sale of our software operations. We negotiated this discount
        in exchange for early payment on the note in order to match our cash flow
        with
        the increase in activity during the quarter to prepare for trial of the patent
        case against ProClarity.
 
 Depreciation
        expense decreased in the quarter ended June 30, 2007 to $338 from $371 in
        the
        quarter ended June 30, 2006.
 
 **Other
        Income and Expense**
 
 Other
        income and expense generated net income of approximately $16,000 in the first
        quarter of fiscal 2008 and consisted entirely from interest income. This
        compared to a gain of approximately $26,000 in the first quarter of fiscal
        2007.
 
 **Income
        Tax**
 
 No
        income
        tax expense was recorded in the comparable three-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
        June 30, 2007, we had positive net working capital of approximately $174,000.
        Additionally, as of June 30, 2007, our cash and cash equivalents were
        approximately $430,000 compared to cash and cash equivalents of approximately
        $785,000 as of March 31, 2007. This decrease was due to losses incurred during
        the quarter from ongoing expenses primarily from our patent litigation and
        no
        patent license revenue.
 
 At
        June
        30, 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 June 30, 2007,
        Global had not made any indemnification or other set-off claims against
        us.
 
 We
        had no
        accounts receivable at June 30, 2007 or March 31, 2007.
 
 Total
        liabilities were approximately $289,000 at June 30, 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.
 
 Page
            12
 If
        we are
        not successful in our patent litigation against ProClarity Corporation, we
        believe that our current cash and cash equivalents may not be sufficient
        to meet
        anticipated cash needs for working capital and capital expenditures through
        fiscal 2008.* We may borrow against the remaining note receivable or seek
        an
        infusion of capital in order to allow us to pursue claims against other parties
        after the results are known in the current litigation if an appeal is taken
        and
        assuming that the patents in issue are held to be valid.*
 
 **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:
 
 ·
              the
                  results of our litigation against ProClarity Corporation and against
                  Microsoft Corporation,
 ·
              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 recorded, processed, summarized and reported within the time periods
        specified in the Securities and Exchange Commission’s rules and forms. Our Chief
        Executive Officer/Chief Financial Officer has evaluated our disclosure controls
        and procedures as of the end of the period covered by this Interim Report
        on
        Form 10-QSB and has determined that such disclosure controls and procedures
        are
        effective.
 
 (b)
        Changes in Internal Controls
 
 During
        the most recent fiscal quarter, there were no 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.
 
 
 **PART
        II. - OTHER INFORMATION**
 
 **Item
        1.**  **Legal
        Proceedings**
 
 In
        June
        2005, we filed an action in the United States District Court for the Western
        District of Washington against ProClarity Corporation alleging infringement
        of
        our patents. We are seeking monetary damages and an injunction against
        ProClarity licensing its products that we believe infringe our patents. A
        trial
        date of October 16, 2007 has been set.
 
 Page
            13
 In
        May
        2006, Microsoft Corporation purchased all of the stock of ProClarity
        Corporation. We had gained information through discovery in the case against
        ProClarity and information garnered through various other means that led
        us to
        believe Microsoft Corporation had undertaken specific acts which constituted
        a
        material breach of the patent license between Timeline and Microsoft (the
“1999
        Agreement”). On June 28, 2007, we filed an action in King County Superior Court
        against Microsoft Corporation alleging Microsoft’s breach of the 1999
        Agreement.  As a result, we currently have ongoing claims in federal court
        against Microsoft's subsidiary ProClarity for patent infringement and in
        Washington state court against Microsoft for breach of the 1999
        Agreement.
 
 On
        June
        1, 2007, we also filed an action in King County Superior Court on a companion
        claim against Microsoft for breach of a separate 1995 agreement between Timeline
        and Microsoft. Subsequent to the quarter ended June 30, 2007, the Superior
        Court
        entered an order on August 10, 2007 that this claim is barred by the statute
        of
        limitations under Washington’s Uniform Commercial Code. We intend to appeal this
        ruling.
 
 **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.
 
 **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: August
                13, 2007
              By:
              /s/ Charles
                R. OsenbaughCharles
                R. OsenbaughPresident/Chief
                Financial OfficerSigned on behalf of registrant and as principal
                financial
                officer.
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            14