**U.S. SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-QSB**

 

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

 

**For the quarterly period ended March 31,2005**

 

**o****                                ****TRANSITION REPORT UNDER SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition periodfrom             to               **

 

**Commission File number 001-10320**

 

**Time America, Inc.**

(Exact name of small businessissuer as specified in its charter)

 
| **Nevada**                                                                          | ** ** | **13-3465289**                         |
|-------------------------------------------------------------------------------------|------------|----------------------------------------|
| (State or  other jurisdiction of  incorporation of organization)                    |       | (I.R.S.  Employer  Identification No.) |
|                                                                                |       |                                   |
| **8840  East Chaparral Road, Suite 100, Scottsdale, AZ 85250**                      |
| (Address of  principal executive offices)                                           |
|                                                                                |       |                                   |
| **(480)  296-0400**                                                                 |
| (Issuer’s  telephone number)                                                   |
|                                                                                |       |                                   |
| **51 W.  Third Street, Suite 310, Tempe, AZ 85281**                                 |
| (Former  name, former address and former fiscal year, if changed since last report) |

 

Check whether the issuer: (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or forsuch 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 ý     No o

 

State the number of shares outstanding of each of the issuer’s classes ofcommon equity, as of the latest practicable date: At May 9, 2005, the issuerhad outstanding 13,601,052 shares of Common Stock, par value $.005 per share.

 

Transitional Small Business Disclosure Format:  Yes o   No ý

 

 

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**PART I —FINANCIAL INFORMATION**

 

**Item 1 — Financial Statements**

**TIME AMERICA, INC. ANDSUBSIDIARY**

CONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                             | ** ** | **March 31,  2005** | ** ** | **June 30,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|
| ** **                                                                                                             | ** ** | **(Unaudited)**          | ** ** | ** **              | ** ** |
| **ASSETS**                                                                                                             |       |                     |       |                    |       |
| **Current  Assets:**                                                                                                   |       |                     |       |                    |       |
| Cash and  cash equivalents                                                                                             |       | $                        | 625,639    |                    | $          | 2,058,929 |   |
| Accounts  receivable – trade, net                                                                                 |       | 1,300,294                |       | 1,028,850               |       |
| Inventory                                                                                                              |       | 454,285                  |       | 370,784                 |       |
| Prepaid  expenses and other current assets                                                                             |       | 218,094                  |       | 290,546                 |       |
|                                                                                                                   |       |                     |       |                    |       |
| **Total  Current Assets**                                                                                              |       | 2,598,312                |       | 3,749,109               |       |
|                                                                                                                   |       |                     |       |                    |       |
| **Property  and equipment, net**                                                                                       |       | 379,612                  |       | 203,309                 |       |
| **Other  Assets**                                                                                                      |       | 150,562                  |       | 234,641                 |       |
|                                                                                                                   |       |                     |       |                    |       |
| **Total  Assets**                                                                                                      |       | $                        | 3,128,486  |                    | $          | 4,187,059 |   |
|                                                                                                                   |       |                     |       |                    |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**                                                               |       |                     |       |                    |       |
|                                                                                                                   |       |                     |       |                    |       |
| **Current  Liabilities:**                                                                                              |       |                     |       |                    |       |
| Current  portion of long-term debt                                                                                     |       | $                        | 1,028,289  |                    | $          | 756,353 |   |
| Accounts  payable                                                                                                      |       | 315,371                  |       | 368,230                 |       |
| Accrued  liabilities                                                                                                   |       | 337,829                  |       | 187,385                 |       |
| Deferred  revenue                                                                                                      |       | 880,129                  |       | 416,513                 |       |
|                                                                                                                   |       |                     |       |                    |       |
| **Total  Current Liabilities**                                                                                         |       | 2,561,618                |       | 1,728,481               |       |
|                                                                                                                   |       |                     |       |                    |       |
| **Long-term  debt, less current portion**                                                                              |       | 1,224,033                |       | 2,337,345               |       |
|                                                                                                                   |       |                     |       |                    |       |
| **Total  Liabilities**                                                                                                 |       | 3,785,651                |       | 4,065,826               |       |
|                                                                                                                   |       |                     |       |                    |       |
| **Commitments:**                                                                                                       |       | —                   |       | —                  |       |
|                                                                                                                   |       |                     |       |                    |       |
| **Stockholders’  Equity (Deficit):**                                                                              |       |                     |       |                    |       |
| Common  stock, $.005 par value, 50,000,000 shares authorized; 13,601,052 and  13,599,552 shares issued and outstanding |       | 68,006                   |       | 67,998                  |       |
| Contributed  capital                                                                                                   |       | 8,042,974                |       | 8,027,121               |       |
| Accumulated  deficit                                                                                                   |       | (8,768,145               | )          | (7,973,886              | )          |
|                                                                                                                   |       |                     |       |                    |       |
| **Total  Stockholders’ Equity (Deficit)**                                                                         |       | (657,165                 | )          | 121,233                 |       |
|                                                                                                                   |       |                     |       |                    |       |
| **Total  Liabilities and Stockholders’ Equity (Deficit)**                                                         |       | $                        | 3,128,486  |                    | $          | 4,187,059 |   |

 

See Notes to ConsolidatedFinancial Statements

 

2

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#### **TIME AMERICA, INC. ANDSUBSIDIARY**

CONSOLIDATED STATEMENTS OFOPERATIONS

(UNAUDITED)

 
| ** **                                         | ** ** | **Three  Months Ended  March 31,** | ** ** | **Nine  Months Ended  March 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                                         | ** ** | **2005**                                | ** ** | **2004**                               | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                         | ** ** | **(unaudited)**                         | ** ** | **(unaudited)**                        | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| **Revenues:**                                      |       |                                    |       |                                   |       |   |   |   |   |
| Product  sales                                     |       | $                                       | 1,222,964  |                                   | $          | 1,009,733 |   | $ | 3,304,102 |   | $ | 2,775,372 |   |
| Services  revenue                                  |       | 405,993                                 |       | 296,374                                |       | 1,218,993 |   | 784,456 |   |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
| **Total Revenues**                                 |       | 1,628,957                               |       | 1,306,107                              |       | 4,523,095 |   | 3,559,828 |   |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
| **Cost of Revenues:**                              |       |                                    |       |                                   |       |   |   |   |   |
| Product                                            |       | 502,018                                 |       | 435,860                                |       | 1,334,322 |   | 1,165,606 |   |
| Services                                           |       | 200,169                                 |       | 158,553                                |       | 552,668 |   | 447,143 |   |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
| **Total Cost of Revenues**                         |       | 702,187                                 |       | 594,413                                |       | 1,886,990 |   | 1,612,749 |   |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
| **Gross Profit**                                   |       | 926,770                                 |       | 711,694                                |       | 2,636,105 |   | 1,947,079 |   |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
| **Costs and Expenses:**                            |       |                                    |       |                                   |       |   |   |   |   |
| Sales and  marketing                               |       | 505,682                                 |       | 522,195                                |       | 1,431,227 |   | 1,381,869 |   |
| Research and  development                          |       | 369,660                                 |       | 250,879                                |       | 995,378 |   | 623,583 |   |
| General and  administrative                        |       | 274,526                                 |       | 228,875                                |       | 769,654 |   | 639,198 |   |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
| **Total Costs and Expenses**                       |       | 1,149,868                               |       | 1,001,949                              |       | 3,196,259 |   | 2,644,650 |   |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
| **Net Loss from Operations**                       |       | (223,098                                | )          | (290,255                               | )          | (560,154 | ) | (697,571 | ) |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
| **Other Income (Expense):**                        |       |                                    |       |                                   |       |   |   |   |   |
| Interest  expense                                  |       | (83,029                                 | )          | (21,021                                | )          | (272,926 | ) | (59,666 | ) |
| Other                                              |       | —                                  |       | —                                 |       | 25,774 |   | (7 | ) |
| Interest  income                                   |       | 2,867                                   |       | 1,561                                  |       | 13,047 |   | 3,264 |   |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
|                                               |       | (80,162                                 | )          | (19,460                                | )          | (234,105 | ) | (56,409 | ) |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
| **Net Loss**                                       |       | $                                       | (303,260   | )                                      | $          | (309,715 | ) | $ | (794,259 | ) | $ | (753,980 | ) |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
| **Basic Loss per Share**                           |       | $                                       | (0.02      | )                                      | $          | (0.02 | ) | $ | (0.06 | ) | $ | (0.06 | ) |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
| **Weighted Average Number of Shares  Outstanding** |       | 13,601,052                              |       | 13,548,799                             |       | 13,600,762 |   | 12,608,561 |   |

 

See Notes to ConsolidatedFinancial Statements

 

3

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#### **TIME AMERCIA, INC. ANDSUBSIDIARY**

CONSOLIDATED STATEMENTS OFCHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEAR ENDED JUNE 30,2004 AND

THE NINE MONTH PERIOD ENDED MARCH 31,2005 (Unaudited)

 
| ** **                              | ** ** | **Common  Stock** | ** ** | **Contributed** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
|-----------------------------------------|------------|-------------------|------------|-----------------|------------|-----------------|------------|-------------|------------|
| ** **                              | ** ** | **Shares**        | ** ** | **Amount**      | ** ** | **Capital**     | ** ** | **Deficit** | ** ** | **Total** | ** ** |
|                                    |       |              |       |            |       |            |       |        |       |   |   |
| Balance at June 30,  2003          |       | 10,656,057        |       | $               | 53,280     |            | $          | 6,338,351   |       | $ | (6,823,443 | ) | $ | (431,812 | ) |
|                                    |       |              |       |            |       |            |       |        |       |   |   |
| Exercise of  Warrants                   |       | 147,500           |       | 738             |       | 28,762          |       | —      |       | 29,500 |   |
| Exercise of  stock options              |       | 8,996             |       | 45              |       | 3,328           |       | —      |       | 3,373 |   |
| Issuance of  common stock warrants      |       | —            |       | —          |       | 156,200         |       | —      |       | 156,200 |   |
| Issuance of  common stock for services  |       | 50,000            |       | 250             |       | 54,750          |       | —      |       | 55,000 |   |
| Sale of  common stock, net of costs     |       | 2,736,999         |       | 13,685          |       | 1,445,730       |       | —      |       | 1,459,415 |   |
| Net loss                                |       | —            |       | —          |       | —          |       | (1,150,443  | )          | (1,150,443 | ) |
| Balance at June 30,  2004          |       | 13,599,552        |       | 67,998          |       | 8,027,121       |       | (7,973,886  | )          | 121,233 |   |
|                                    |       |              |       |            |       |            |       |        |       |   |   |
| Exercise of  stock options              |       | 1,500             |       | 8               |       | 353             |       | —      |       | 361 |   |
| Issuance of  stock options for services |       | —            |       | —          |       | 15,500          |       | —      |       | 15,500 |   |
| Net loss                                |       | —            |       | —          |       | —          |       | (794,259    | )          | (794,259 | ) |
| Balance at March 31,  2005         |       | 13,601,052        |       | $               | 68,006     |            | $          | 8,042,974   |       | $ | (8,768,145 | ) | $ | (657,165 | ) |

 

See Notes to ConsolidatedFinancial Statements

 

4

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#### **TIME AMERICA, INC. ANDSUBSIDIARY**

CONSOLIDATED STATEMENTS OF CASHFLOWS (UNAUDITED)

 
| ** **                                                                   | ** ** | **Nine Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                   | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| **Increase  (Decrease) in Cash and Cash Equivalents:**                       |       |                                  |       |   |   |
| **Cash  flows from operating activities:**                                   |       |                                  |       |   |   |
| Net loss                                                                     |       | $                                     | (794,259   | ) | $ | (753,980 | ) |
| Adjustments  to reconcile net loss to net cash used by operating activities: |       |                                  |       |   |   |
| Depreciation                                                                 |       | 64,347                                |       | 43,912 |   |
| Stock  options issued for services                                           |       | 15,500                                |       | 27,500 |   |
| Changes in  Assets and Liabilities:                                          |       |                                  |       |   |   |
| Accounts  receivable-trade                                                   |       | (271,444                              | )          | (318,537 | ) |
| Inventory                                                                    |       | (83,501                               | )          | (112,271 | ) |
| Prepaid  expenses and other current assets                                   |       | 72,452                                |       | (117,246 | ) |
| Other assets                                                                 |       | 84,079                                |       | (199,800 | ) |
| Accounts  payable                                                            |       | (52,859                               | )          | 40,430 |   |
| Accrued  liabilities                                                         |       | 150,444                               |       | 55,516 |   |
| Deferred  revenue                                                            |       | 463,615                               |       | 87,817 |   |
| **Net cash  used by operating activities**                                   |       | (351,626                              | )          | (1,246,659 | ) |
|                                                                         |       |                                  |       |   |   |
| **Cash  flows from investing activities:**                                   |       |                                  |       |   |   |
| Purchase of  property and equipment                                          |       | (240,649                              | )          | (88,296 | ) |
| **Net cash  used by investing activities**                                   |       | (240,649                              | )          | (88,296 | ) |
|                                                                         |       |                                  |       |   |   |
| **Cash  flows from financing activities:**                                   |       |                                  |       |   |   |
| Repayment of  capital leases                                                 |       | —                                |       | (12,142 | ) |
| Repayment of  debt                                                           |       | (841,376                              | )          | (97,401 | ) |
| Proceeds  from debt                                                          |       | —                                |       | 2,000,000 |   |
| Proceeds  from exercise of options and warrants                              |       | 361                                   |       | 31,598 |   |
| Proceeds  from issuance of stock                                             |       | —                                |       | 1,487,847 |   |
| **Net cash  provided (used) by financing activities**                        |       | (841,015                              | )          | 3,409,902 |   |
|                                                                         |       |                                  |       |   |   |
| Net change  in cash and cash equivalents                                     |       | (1,433,290                            | )          | 2,074,947 |   |
|                                                                         |       |                                  |       |   |   |
| Cash and  cash equivalents at beginning of period                            |       | 2,058,929                             |       | 245,795 |   |
|                                                                         |       |                                  |       |   |   |
| Cash and  cash equivalents at end of period                                  |       | $                                     | 625,639    |   | $ | 2,320,742 |   |
|                                                                         |       |                                  |       |   |   |
| **Supplemental  disclosure of cash flow information:**                       |       |                                  |       |   |   |
| Interest  paid                                                               |       | $                                     | 272,926    |   | $ | 59,666 |   |
| Income taxes  paid                                                           |       | $                                     | —     |   | $ | — |   |

 

See Notes to ConsolidatedFinancial Statements

 

5

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**SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**Note A - Basis of Presentation and InterimConsolidated Financial Statements**

 

The accompanying unaudited consolidated financialstatements of Time America, Inc. and subsidiary (“Time America” or the “Company”)have been prepared in accordance with generally accepted accounting principles(“GAAP”), pursuant to the rules and regulations of the Securities and ExchangeCommission, and are unaudited. Accordingly, they do not include all the information and footnotesrequired by GAAP for complete financial statements.  In the opinion of management, all adjustments(which include only normal recurring adjustments) necessary for a fairpresentation of the results for the interim periods presented have been made.  The results for the nine month period ended March 31,2005, may not be indicative of the results for the entire year.  These financial statements should be read inconjunction with the Company’s Annual Report on Form 10-KSB for the fiscal yearended June 30, 2004.

 

The preparation of financial statements in conformity withgenerally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from these estimates.

 

**Note B - Income (Loss) Per Share:**

 

Basic income (loss) per share of common stock was computedby dividing the net income (loss) by the weighted average number of shares ofcommon stock outstanding during the period.

 

Diluted earnings per share are computed based on theweighted average number of shares of common stock and dilutive securitiesoutstanding during the period.  Dilutivesecurities are options and warrants that are freely exercisable into commonstock at less than the prevailing market price. Dilutive securities are notincluded in the weighted average number of shares when inclusion would increasethe earnings per share or decrease the loss per share.

 

**Note C- Stock Based Compensation:**

 

The Companyaccounts for stock-based compensation arrangements in accordance with theprovisions of Accounting Principles Board Opinion No. 25, “Accounting for StockIssued to Employees,” (“APB 25”).  UnderAPB 25, no compensation expense is recognized because the exercise price of theCompany’s employee stock options equals the market price of the underlyingstock on the date of grant.

 

The Company hasadopted the disclosure-only provisions, as permitted by Statement of FinancialAccounting Standards No. 123 (“SFAS 123”). Under SFAS 123, companies can, but are not required to, elect torecognize compensation expense for all stock-based awards using a fair value methodology.Had compensation expense for stock-based compensation been determined based onthe fair value of the options at the grant dates consistent with thecalculation methodology of SFAS 123, the Company’s net loss and loss per sharewould have been adjusted to the pro forma amounts presented below:

 

6

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| ** **                                                                                                                                        | ** ** | **Three Months  Ended March 31,** | ** ** | **Nine Months  Ended March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                                                        | ** ** | **2005**                               | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Net  loss:**                                                                                                                                    |       |                                   |       |                                  |       |   |   |   |   |
| As reported                                                                                                                                       |       | $                                      | (303,260   | )                                     | $          | (309,715 | ) | $ | (794,259 | ) | $ | (753,980 | ) |
|                                                                                                                                              |       |                                   |       |                                  |       |   |   |   |   |
| Deduct:  Total stock-based employee compensation expense determined under the fair  value based method for all awards, net of related tax effects |       | (1,690                                 | )          | (67,205                               | )          | (50,773 | ) | (92,243 | ) |
|                                                                                                                                              |       |                                   |       |                                  |       |   |   |   |   |
| Pro forma                                                                                                                                         |       | $                                      | (304,950   | )                                     | $          | (376,920 | ) | $ | (845,032 | ) | $ | (846,223 | ) |
|                                                                                                                                              |       |                                   |       |                                  |       |   |   |   |   |
| **Loss per  share:**                                                                                                                              |       |                                   |       |                                  |       |   |   |   |   |
| As reported                                                                                                                                       |       | $                                      | (0.02      | )                                     | $          | (0.02 | ) | $ | (0.06 | ) | $ | (0.06 | ) |
| Pro forma                                                                                                                                         |       | $                                      | (0.02      | )                                     | $          | (0.03 | ) | $ | (0.06 | ) | $ | (0.07 | ) |

 

The fair value of option grants is estimated as of the date of grantutilizing the Black-Scholes option-pricing model.

 

**Note D- Long-term Debt:**

 

In September 2004,the Company and a shareholder agreed to extend the balloon payment on apromissory note from October 1, 2004 to October 1, 2005.  All other terms of the agreement remainedunchanged.

 

In November 2004,the Company paid $456,100 to retire the remaining balance on a term note with ashareholder.  The Company and theshareholder then entered into a $456,100 revolving credit note agreement.  The revolving credit note agreement expiresin November 2007.  Borrowings underthe note bear interest at 10% per annum with interest payments duemonthly.  Unused borrowings are subjectto a 2% commitment fee paid quarterly.

 

**Note E- Commitments:**

 

In October 2004,the Company entered into a five year non-cancelable lease agreement forfacilities that commenced in January 1, 2005.  Annual expense under the agreement isapproximately $275,000 per year.

 

**Note F- New Accounting Pronouncements:**

 

On December 16, 2004, the FinancialAccounting Standards Board (“FASB”) issued FASB Statement No. 123 (revised2004), “Share-Based Payment,” which is a revision of FASB Statement No. 123, “Accountingfor Stock-Based Compensation.” Statement 123(R) supersedes APB Opinion No. 25, “Accountingfor Stock Issued to Employees,” and amends FASB Statement No. 95, “Statement ofCash Flows.” Generally, the approach in Statement 123(R) is similar to theapproach described in Statement 123. However, Statement 123(R) requires allshare-based payments to employees, including the grants of 

 

7

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employee stock options, to be recognized in the income statement basedon their fair values. Pro forma disclosure is no longer an alternative.

 

Statement 123(R) must be adopted by smallbusiness issuers no later than the first fiscal year beginning after December 15,2005. Early adoption will be permitted in periods in which financial statementshave not been issued. The Company expects to adopt Statement 123(R) on July 1,2006, the beginning of its first fiscal quarter of the fiscal year ending on June 30,2007.

 

As permitted by Statement 123, the Companycurrently accounts for share-based payments to employees using Opinion 25’sintrinsic value method and, as such, generally recognizes no compensation costfor employee stock options. Accordingly, the adoption of Statement 123(R)’sfair value method will have a significant impact on the Company’s results ofoperations, although it will have no impact on its overall financial position.The impact of adoption of Statement 123(R) cannot be predicted at this timebecause it will depend on levels of share-based payments granted in the future.However, had the Company adopted Statement 123(R) in prior periods, the impactof that standard would have approximated the impact of Statement 123 asdescribed in the disclosure of pro forma net income and earnings per share inNote C to the consolidated financial statements.

 

The Company currently uses the Black-Scholesoption pricing model for the valuation of options under Statement 123. TheCompany is currently assessing valuation model options to be used underStatement 123(R) and has not yet determined which valuation model to adopt.Statement 123(R) also requires the benefits of tax deductions in excess ofrecognized compensation cost to be reported as a financing cash flow, ratherthan as an operating cash flow as required under current literature. Thisrequirement will have the affect of reducing net operating cash flows andincreasing net financing cash flows in periods after adoption. The Companycannot estimate what those amounts will be in the future because they dependon, among other things, when employees exercise stock options.

 

8

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**Item 2. Management’s Discussion And AnalysisOr Plan Of Operation.**

 

### **Critical AccountingPolicies**

### ** **

Our significant accounting policies aredescribed in the audited consolidated financial statements and notes theretoincluded in our Annual Report on Form 10-KSB for the year ended June 30,2004.  We believe our most criticalaccounting policies are revenue recognition, software development costs and theallowance for potentially uncollectible accounts receivable.

 

We derive our revenues from the sale offrontline labor management systems as well as sales of application software,parts and components.  Our systemsconsist of fully integrated software and intelligent data collection terminals.  We also derive revenues by providingmaintenance, professional and educational services to our customers.   We recognize revenues from sales of oursystems, application software, parts and components at the time of shipment,unless we have significant obligations remaining.  When significant obligations remain, revenueis not recognized until such obligations have been completed or are no longersignificant.  We recognize revenues fromour sales-type leases of systems at the time of shipment.  Service and maintenance revenues arerecognized ratably over the contractual period or as the services areperformed.

 

We provide installation services and certainwarranties to our customers. We also provide, without additional charge,certain software product enhancements for customers covered under softwaremaintenance contracts.  The provisionsfor these expenses are made at the time revenues are recognized.

 

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

 

We provide for potentially uncollectibleaccounts receivable by use of the allowance method. The allowance is providedbased upon a review of the individual accounts outstanding, and our priorhistory of uncollectible accounts receivable. It is our practice to record anestimated allowance for sales returns and adjustments based on historicalexperience and to record individual charges for sales returns and adjustmentsdirectly to revenue as incurred.

 

9

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### **Comparison of the ThreeMonths Ended March 31, 2005 and March 31, 2004**

 

*Revenues*.  Revenue for the three month period ended March 31,2005 (the “reporting period”) rose 25% to $1,628,957, compared to revenue of$1,306,107 for the three month period ended March 31, 2004 (the “comparableperiod”).  Our product sales increased by21% and services revenue increased by 37% over the comparable period.  The increase in revenue is primarily due toincreased investments in sales personnel and marketing programs which increasedour revenue volume.

 

*Gross Profit*.  Gross profit as a percentage of revenuesincreased to 57% in the reporting period, compared to 55% in the comparableperiod.  The gross profit percentage onproduct sales increased by 2% over the comparable period and the gross profitpercentage on services revenue increased by 4% over the comparable period.

 

The change in the gross profit percentage onproducts is within our normal range of gross profit percentages.  Our gross profit percentage on products istypically between 55% to 60% depending upon the mix of software versus hardwaresales and the makeup of hardware sales. Our product revenue is comprised of software and hardware sales, withhardware sales yielding a significantly lower gross profit than softwaresales.   Hardware revenue is principallycomprised of two versions of general data collection terminals, badge terminalsand biometric units.  The gross profit isgreater on badge terminals than biometric units because we add value to ourbadge terminals by installing software on the terminals.

 

*Expenses*.  Total costs and expenses were $1,149,868, or71% of revenues, in the reporting period, compared to $1,001,949, or 77% ofrevenues, in the comparable period.  The15% increase in costs and expenses in the reporting period is primarily due toa 47% increase in research and development expenses in the current period.Sales and marketing expenses were $505,682, or 31% of revenues, in thereporting period, compared to $522,195, or 40% of revenues, in the comparableperiod. Research and development expenses were $369,660, or 23% of revenues, inthe reporting period, compared to $250,879, or 19% of revenues, in thecomparable period.  The increase inresearch and development expenses is primarily attributable to costs associatedwith the development of our new data collection terminal and enhancement of oursoftware offerings. General and administrative expenses were $274,526, or 17%of revenues, in the reporting period, compared to $228,875, or 18% of revenues,in the comparable period.

 

### **Comparison of the NineMonths Ended March 31, 2005 and March 31, 2004**

 

*Revenues*.  Revenue for the nine month period ended March 31,2005 (the “reporting period”) rose 27% to $4,523,095, compared to revenue of$3,599,828 for the nine month period ended March 31, 2004 (the “comparableperiod”).  Our product sales increased by19% and services revenue increased by 55% over the comparable period.  The increase in revenue is primarily due toincreased investments in sales personnel and marketing programs which increasedour revenue volume.  The increase inservices revenue was driven in part by a large service order in the firstquarter.

 

*Gross Profit*.  Gross profit as a percentage of revenuesincreased to 58% in the reporting period, compared to 55% in the comparableperiod.  The gross profit percentage onproduct sales increased by 2% over the comparable period and the gross profitpercentage on services revenue increased by 12% over the comparableperiod.  The increase in the gross profitpercentage on services revenue is due to the 55% increase in services revenuewhile limiting the cost of services increase to only 24%.

 

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The change in the gross profit percentage onproducts is within our normal range of gross profit percentages.  See the discussion above regarding the gross profitof our products.

 

*Expenses*.  Total costs and expenses were $3,196,259, or71% of revenues, in the reporting period, compared to $2,644,650, or 74% ofrevenues, in the comparable period.  The21% increase in costs and expenses in the reporting period is primarily due toa 60% increase in research and development expenses in the current period.Sales and marketing expenses were 1,431,227, or 32% of revenues, in thereporting period, compared to $1,381,869, or 39% of revenues, in the comparableperiod. Research and development expenses were $995,378, or 22% of revenues, inthe reporting period, compared to $623,583, or 18% of revenues, in thecomparable period. The increase in research and development expenses isprimarily attributable to costs associated with the development of our new datacollection terminal and enhancement of our software offerings. General andadministrative expenses were $769,654, or 17% of revenues, in the reportingperiod, compared to $639,198, or 18% of revenues, in the comparable period.

 

**Liquidity and Capital Resources**

 

At March 31, 2005, we had workingcapital of $36,694, compared to $2,062,223 at March 31, 2004.  Cash and cash equivalents at those datesamounted to $625,639 and $2,320,742, respectively.  We have funded our operations for the pastsix years primarily through a combination of sales of equity securities anddebt financing.

 

*Operations*.  Net cash used by operations improved to$351,626 in the reporting period, compared to net cash used by operations of$1,246,659 in the comparable period.  Thenet cash used in the current period was primarily attributable to the net lossand an increases in accounts receivable and was offset by the increases inaccrued liabilities and deferred revenue.

 

*Investment Activities*.  For the reporting period, we used $240,649 topurchase property and equipment, compared to $88,296 of property and equipmentpurchases in the comparable period.

 

*Financing Activities.*  For the reporting period, we used $841,015 infinancing activities primarily due to repayment of debt.  In the comparable period, we generated$3,409,902 in financing activities primarily due to proceeds from theincurrence of debt and from the issuance of shares of our common stock.

 

Our liquidity is affected by manyfactors, some based on the normal ongoing operations of the business and othersrelated to the uncertainties of the time and attendance industry and globaleconomies.  Although our cashrequirements will continue to fluctuate based on the timing and extent of thesefactors, we believe that our current cash reserves, cash generated fromoperations, and our borrowing capacity under our two credit facilities, will besufficient to satisfy commitments for capital expenditures and other cashrequirements for the next 6 months. We are currently in negotiations with anexisting debt holder to restructure our current convertible debt agreement aswell as obtaining additional debt financing from them. We believe that we willbe successful in the completing the restructuring as well as obtaining theadditional financing.  With therestructuring and additional financing completed we believe that we will havesufficient cash to satisfy commitments for capital expenditures and other cashrequirements for the next 12 months. We may, however, seek to obtain additionalcapital through a line of credit at a financial institution or throughadditional debt or equity offerings during this time period.  The raising of additional capital in publicor private markets will primarily be dependent upon prevailing marketconditions and the 

 

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demand for our products and services.  No assurance can be given that we will beable to raise additional capital, when needed or at all, or that such capital,if available, will be on acceptable terms.

 

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**Item 3. Controls and Procedures.**

 

As ofthe end of the period covered by this report, the Company carried out anevaluation, under the supervision and with the participation of its ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of theCompany’s disclosure controls and procedures. Disclosure controls andprocedures are designed to ensure that information required to be disclosed inthe periodic reports filed or submitted under the Securities Exchange Act of1934, as amended, is recorded, processed, summarized and reported within thetime periods specified in the Securities and Exchange Commission’s rules andforms. Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures were effective as of the end of the quarterly period covered by thisreport.  No change in the internalcontrol over financial reporting occurred during the last fiscal quarter thathas materially affected, or is reasonably likely to materially affect, theinternal control over financial reporting.

 

**FORWARD-LOOKING INFORMATION**

 

The statements contained in thisQuarterly Report on Form 10-QSB that are not historical fact areforward-looking statements (as such term is defined in the Private SecuritiesLitigation Reform Act of 1995), within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended.  Theforward-looking statements contained herein are based on current expectationsthat involve a number of risks and uncertainties.  These statements can be identified by the useof forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,”or “anticipates,” or the negative thereof or other variations thereon orcomparable terminology, or by discussions of strategy that involve risks anduncertainties.  The Company wishes tocaution the reader that these forward-looking statements that are nothistorical facts are only predictions. No assurances can be given that the future results indicated, whetherexpressed or implied, will be achieved. While sometimes presented with numerical specificity, these projectionsand other forward-looking statements are based upon a variety of assumptionsrelating to the business of the Company, which, although considered reasonableby the Company, may not be realized.  Becauseof the number and range of assumptions underlying the Company’s projections andforward-looking statements, many of which are subject to significantuncertainties and contingencies that are beyond the reasonable control of theCompany, some of the assumptions inevitably will not materialize, andunanticipated events and circumstances may occur subsequent to the date of thisreport.  These forward-looking statementsare based on current expectations and the Company assumes no obligation toupdate this information.  Therefore, theactual experience of the Company and the results achieved during the periodcovered by any particular projections or forward-looking statements may differsubstantially from those projected. Consequently, the inclusion of projections and other forward-lookingstatements should not be regarded as a representation by the Company or anyother person that these estimates and projections will be realized, and actualresults may vary materially.  There canbe no assurance that any of these expectations will be realized or that any ofthe forward-looking statements contained herein will prove to be accurate.

 

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##### **PART II – OTHERINFORMATION**

 

**Item 1. Legal Proceedings.**

 

The Company isfrom time to time involved in legal proceedings arising from the normal courseof business.   As of the date of thisreport, the Company is not currently involved in any legal proceedings.

 

**Item 4. Submission of Matters to a Vote ofSecurity Holders.**

 

The Company’s Annual Meeting was held on February 17,2005.  Shareholders voted on the electionof the Company’s Board of Directors and ratification of the appointment ofSemple and Cooper L.L.P.  as theindependent certified public accountants of the Company for the fiscal yearending June 30, 2005.  The votingresults of each of these proposals are set forth below.

 
| ** ** | ** ** | ** **              | ** ** | **Eligible** | ** ** | **Voted For** | ** ** | **Voted Against** | ** ** | **Abstentions** | ** ** |
|------------|------------|-------------------------|------------|--------------|------------|---------------|------------|-------------------|------------|-----------------|------------|
| 1 -        |       | Election of Directors:  |       |         |       |          |       |              |       |            |       |
|       |       |                    |       |         |       |          |       |              |       |            |       |
|       |       | Todd P.  Belfer         |       | 13,601,052   |       | 9,921,881     |       | —            |       | 172             |       |
|       |       | Thomas S.  Bednarik     |       | 13,601,052   |       | 9,921,881     |       | —            |       | 172             |       |
|       |       | Lise L.  Lambert        |       | 13,601,052   |       | 9,921,982     |       | —            |       | 71              |       |
|       |       | Robert J.  Novak        |       | 13,601,052   |       | 9,919,982     |       | —            |       | 2,071           |       |
|       |       | Robert W.  Zimmerman    |       | 13,601,052   |       | 9,921,982     |       | —            |       | 71              |       |
|       |       |                    |       |         |       |          |       |              |       |            |       |
| 2 -        |       | Appointment of Auditors |       | 16,601,052   |       | 9,908,675     |       | 2,712             |       | —          |       |

 

**Item 6. Exhibits**

 

(a)                                  The followingexhibits are filed herewith pursuant to Regulation S-B.

 
| **No.** | ** ** | **Description**                                            |
|---------|------------|------------------------------------------------------------|
|    |       |                                                       |
| 31.1    |       | Section 302 Certification of Chief  Executive Officer |
|    |       |                                                       |
| 31.2    |       | Section 302 Certification of Chief Financial  Officer |
|    |       |                                                       |
| 32      |       | Section 906 Certifications                            |

 

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**SIGNATURES**

 

In accordancewith the requirements of the Securities Exchange Act of 1934, the registrantcaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                | TIME AMERICA, INC.             |
|---------------------|--------------------------------|
|                |                           |
| Dated: May 16, 2005 |                           |
|                | By                             | /s/ Craig J. Smith |   |
|                | Craig J. Smith                 |
|                | Chief Financial Officer        |
|                | (Principal Accounting Officer) |

 

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