**U.S. SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C.20549**

 

**FORM 10-QSB**

 
| **ý** |   | **Quarterly  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934**                                                                                                                                                                                                                                        |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                      |
|       |   | **For the quarterly period ended  December 31, 2003**                                                                                                                                                                                                                                                                                |
|       |   |                                                                                                                                                                                                                                                                                                                                      |
| **o**      |   | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934**                                                                                                                                                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                                                                                      |
|       |   | **For the transition period from                            to                         ** |
|       |   |                                                                                                                                                                                                                                                                                                                                      |
|       |   | **Commission File number 33-58694**                                                                                                                                                                                                                                                                                                       |

 

| **Time  America, Inc.**                                                             |
|-------------------------------------------------------------------------------------|
| (Exact name of small business  issuer as specified in its charter)                  |
|                                                                                |   |   |
| **Nevada**                                                                          |   | **13-3465289** |
| (State or other jurisdiction of  incorporation of organization)                     |   | (I.R.S. Employer  Identification No.) |
|                                                                                |   |   |
| **51 West Third Street, Suite 310, Tempe,  Arizona 85281**                          |
| (Address of principal executive offices)                                            |
|                                                                                |   |   |
| **(480) 967-5800**                                                                  |
| (Issuer’s telephone number)                                                    |
|                                                                                |   |   |
| **Vitrix, Inc.**                                                                    |
| (Former name, former address and former  fiscal year, if changed since last report) |

 

Check whether the issuer: (1) has filed all reports required to befiled 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 suchreports), and (2) has been subject to such filing requirements for the past 90days.    Yes  ý     No  o

 

State the number of shares outstanding of each of the issuer’s classesof common equity, as of the latest practicable date: At February 6, 2004,the issuer had outstanding 13,546,052 shares of Common Stock, par value $.005per share.

 

Transitional Small Business DisclosureFormat:   Yes  o   No  ý

 

 

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**PARTI – FINANCIAL INFORMATION**

** **

**Item 1 – Financial Statements.**

**TIMEAMERICA, INC. AND SUBSIDIARY**

CONSOLIDATED BALANCE SHEETS

 
|                                                                                                                   |   | **December 31,  2003** |      | **June 30,  2003** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|-----------|-------------------------|--------|
|                                                                                                                   |   | **(Unaudited)**             |      |                    |   |
| **ASSETS**                                                                                                             |   |                        |      |                    |   |
| **Current  Assets:**                                                                                                   |   |                        |      |                    |   |
| Cash and cash equivalents                                                                                              |   | $                           | 978,898   |                    | $      | 245,795 |   |
| Accounts receivable –  trade, net                                                                                 |   | 672,159                     |      | 551,576                 |   |
| Inventory                                                                                                              |   | 360,395                     |      | 232,815                 |   |
| Prepaid expenses and  other current assets                                                                             |   | 59,626                      |      | 34,451                  |   |
|                                                                                                                   |   |                        |      |                    |   |
| **Total  Current Assets**                                                                                              |   | 2,071,078                   |      | 1,064,637               |   |
|                                                                                                                   |   |                        |      |                    |   |
| **Property  and equipment, net**                                                                                       |   | 161,643                     |      | 115,633                 |   |
|                                                                                                                   |   |                        |      |                    |   |
| **Total  Assets**                                                                                                      |   | $                           | 2,232,721 |                    | $      | 1,180,270 |   |
|                                                                                                                   |   |                        |      |                    |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY (DEFICIT)**                                                               |   |                        |      |                    |   |
|                                                                                                                   |   |                        |      |                    |   |
| **Current  Liabilities:**                                                                                              |   |                        |      |                    |   |
| Current portion of  long-term debt                                                                                     |   | $                           | 430,726   |                    | $      | 283,148 |   |
| Accounts payable                                                                                                       |   | 190,083                     |      | 272,129                 |   |
| Accrued liabilities                                                                                                    |   | 249,367                     |      | 209,288                 |   |
| Deferred revenue                                                                                                       |   | 334,779                     |      | 250,012                 |   |
|                                                                                                                   |   |                        |      |                    |   |
| **Total  Current Liabilities**                                                                                         |   | 1,204,955                   |      | 1,014,577               |   |
|                                                                                                                   |   |                        |      |                    |   |
| **Long-term  debt, less current portion**                                                                              |   | 384,398                     |      | 597,505                 |   |
|                                                                                                                   |   |                        |      |                    |   |
| **Total  Liabilities**                                                                                                 |   | 1,589,353                   |      | 1,612,082               |   |
|                                                                                                                   |   |                        |      |                    |   |
| **Commitments:**                                                                                                       |   | —                      |      | —                  |   |
|                                                                                                                   |   |                        |      |                    |   |
| **Stockholders’  Equity (Deficit):**                                                                              |   |                        |      |                    |   |
| Common stock, $.005 par  value, 50,000,000 shares authorized; 13,546,052 and 10,656,057 shares issued  and outstanding |   | 67,730                      |      | 53,280                  |   |
| Contributed capital                                                                                                    |   | 7,843,346                   |      | 6,338,351               |   |
| Accumulated deficit                                                                                                    |   | (7,267,708                  | )         | (6,823,443              | )      |
|                                                                                                                   |   |                        |      |                    |   |
| **Total  Stockholders’ Equity (Deficit)**                                                                         |   | 643,368                     |      | (431,812                | )      |
|                                                                                                                   |   |                        |      |                    |   |
| **Total  Liabilities and Stockholders’ Equity (Deficit)**                                                         |   | $                           | 2,232,721 |                    | $      | 1,180,270 |   |

 

#### **See Notes to ConsolidatedFinancial Statements**

 

2

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####  

#### **TIMEAMERICA, INC. AND SUBSIDIARY**

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 
|                                               |   | **Three Months Ended  December 31,** |       | **Six Months Ended  December 31,** |       |
|----------------------------------------------------|--------|-------------------------------------------|------------|-----------------------------------------|------------|
|                                               |   | **2003**                                  |       | **2002**                                |       | **2003** |   | **2002** |   |
|                                               |   |                                      | ** ** |                                    | ** ** |   | ** ** |   | ** ** |
| **Revenues:**                                      |   |                                      |       |                                    |       |   |   |   |   |
| Product sales                                      |   | $                                         | 867,311    |                                    | $          | 810,534 |   | $ | 1,765,639 |   | $ | 1,720,217 |   |
| Services revenue                                   |   | 260,013                                   |       | 226,230                                 |       | 488,082 |   | 424,783 |   |
|                                               |   |                                      |       |                                    |       |   |   |   |   |
| **Total  Revenues**                                |   | 1,127,324                                 |       | 1,036,764                               |       | 2,253,721 |   | 2,145,000 |   |
|                                               |   |                                      |       |                                    |       |   |   |   |   |
| **Cost  of Revenues:**                             |   |                                      |       |                                    |       |   |   |   |   |
| Product                                            |   | 343,723                                   |       | 319,060                                 |       | 729,746 |   | 677,754 |   |
| Services                                           |   | 153,036                                   |       | 129,912                                 |       | 288,590 |   | 255,657 |   |
|                                               |   |                                      |       |                                    |       |   |   |   |   |
| **Total  Cost of Revenues**                        |   | 496,759                                   |       | 448,972                                 |       | 1,018,336 |   | 933,411 |   |
|                                               |   |                                      |       |                                    |       |   |   |   |   |
| **Gross  Profit**                                  |   | 630,565                                   |       | 587,792                                 |       | 1,235,385 |   | 1,211,589 |   |
|                                               |   |                                      |       |                                    |       |   |   |   |   |
| **Costs  and Expenses:**                           |   |                                      |       |                                    |       |   |   |   |   |
| Sales and marketing                                |   | 469,383                                   |       | 291,006                                 |       | 859,675 |   | 552,008 |   |
| Research and  development                          |   | 201,073                                   |       | 163,829                                 |       | 372,703 |   | 332,869 |   |
| General and administrative                         |   | 225,672                                   |       | 178,541                                 |       | 410,323 |   | 343,447 |   |
|                                               |   |                                      |       |                                    |       |   |   |   |   |
| **Total  Costs and Expenses**                      |   | 896,128                                   |       | 633,376                                 |       | 1,642,701 |   | 1,228,324 |   |
|                                               |   |                                      |       |                                    |       |   |   |   |   |
| **Net  Loss from Operations**                      |   | (265,563                                  | )          | (45,584                                 | )          | (407,316 | ) | (16,735 | ) |
|                                               |   |                                      |       |                                    |       |   |   |   |   |
| **Other  Income (Expense):**                       |   |                                      |       |                                    |       |   |   |   |   |
| Interest expense                                   |   | (18,835                                   | )          | (20,382                                 | )          | (38,646 | ) | (39,361 | ) |
| Other                                              |   | —                                    |       | 40                                      |       | (7 | ) | 40 |   |
| Interest income                                    |   | 1,704                                     |       | 364                                     |       | 1,704 |   | 1,109 |   |
|                                               |   |                                      |       |                                    |       |   |   |   |   |
|                                               |   | (17,131                                   | )          | (19,978                                 | )          | (36,949 | ) | (38,212 | ) |
|                                               |   |                                      |       |                                    |       |   |   |   |   |
| **Net  Loss**                                      |   | $                                         | (282,694   | )                                       | $          | (65,562 | ) | $ | (444,265 | ) | $ | (54,947 | ) |
|                                               |   |                                      |       |                                    |       |   |   |   |   |
| **Basic  Loss per Share**                          |   | $                                         | (0.02      | )                                       | $          | (0.01 | ) | $ | (0.04 | ) | $ | (0.01 | ) |
|                                               |   |                                      |       |                                    |       |   |   |   |   |
| **Weighted  Average Number of Shares Outstanding** |   | 12,810,393                                |       | 9,219,371                               |       | 12,143,551 |   | 9,181,729 |   |

 

See Notes to Consolidated FinancialStatements

 

3

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####  

#### **TIMEAMERCIA, INC. AND SUBSIDIARY**

CONSOLIDATED STATEMENTS OF CHANGES INSTOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEAR ENDED JUNE 30, 2003 AND

THE SIX MONTH PERIOD ENDED DECEMBER 31,2003 (Unaudited)

 
|                                  |   | **Common  Stock** |   | **Contributed** |   | **Accumulated** |   |        |   |
|---------------------------------------|--------|-------------------|--------|-----------------|--------|-----------------|--------|-------------|--------|
|                                  |   | **Shares**        |   | **Amount**      |   | **Capital**     |   | **Deficit** |   | **Total** |   |
|                                  |   |              |   |            |   |            |   |        |   |   |   |
| Balance at  June 30, 2002             |   | 9,105,828         |   | $               | 45,529 |            | $      | 6,052,120   |   | $ | (6,670,715 | ) | $ | (573,066 | ) |
|                                  |   |              |   |            |   |            |   |        |   |   |   |
| Issuance of common stock for services |   | 161,340           |   | 807             |   | 43,175          |   | —      |   | 43,982 |   |
| Sale of common stock                  |   | 1,388,889         |   | 6,944           |   | 243,056         |   | —      |   | 250,000 |   |
| Net loss                              |   | —            |   | —          |   | —          |   | (152,728    | )      | (152,728 |   |
| Balance at June 30, 2003              |   | 10,656,057        |   | 53,280          |   | 6,338,351       |   | (6,823,443  | )      | (431,812 | ) |
|                                  |   |              |   |            |   |            |   |        |   |   |   |
| Exercise of Warrants                  |   | 147,500           |   | 738             |   | 28,762          |   | —      |   | 29,500 |   |
| Exercise of stock options             |   | 5,496             |   | 27              |   | 2,071           |   |        |   | 2,098 |   |
| Sale of common stock                  |   | 2,736,999         |   | 13,685          |   | 1,474,162       |   | —      |   | 1,487,847 |   |
| Net loss                              |   | —            |   | —          |   | —          |   | (444,265    | )      | (444,265 | ) |
| Balance at December 31, 2003          |   | 13,546,052        |   | 67,730          |   | 7,843,346       |   | (7,267,708  | )      | 643,368 |   |
|                                       |        |                   |        |                 |        |                 |        |             |        |  |  |  |  |  |  |

 

See Notes to Consolidated FinancialStatements

 

4

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####  

#### **TIMEAMERICA, INC. AND SUBSIDIARY**

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 
|                                                                                  |   | **Six Months Ended  December 31,** |       |
|---------------------------------------------------------------------------------------|--------|-----------------------------------------|------------|
|                                                                                  |   | **2003**                                |       | **2002** |   |
| **Increase  (Decrease) in Cash and Cash Equivalents:**                                |   |                                    | ** ** |   | ** ** |
| **Cash  flows from operating activities:**                                            |   |                                    |       |   |   |
| Net income (loss)                                                                     |   | $                                       | (444,265   | ) | $ | (54,947 | ) |
| Adjustments to  reconcile net income (loss) to net cash used by operating activities: |   |                                    |       |   |   |
| Depreciation                                                                          |   | 28,454                                  |       | 34,044 |   |
| Common stock issued for  services                                                     |   | —                                  |       | 36,334 |   |
| Changes in Assets and  Liabilities:                                                   |   |                                    |       |   |   |
| Accounts  receivable-trade                                                            |   | (120,583                                | )          | 49,020 |   |
| Inventory                                                                             |   | (127,580                                | )          | (4,144 | ) |
| Prepaid expenses and  other current assets                                            |   | (25,175                                 | )          | 3,206 |   |
| Accounts payable                                                                      |   | (82,046                                 | )          | (31,847 | ) |
| Accrued liabilities                                                                   |   | 40,079                                  |       | (29,208 | ) |
| Deferred revenue                                                                      |   | 84,767                                  |       | (37,215 | ) |
| **Net  cash used by operating activities**                                            |   | (646,349                                | )          | (34,757 | ) |
|                                                                                  |   |                                    |       |   |   |
| **Cash  flows from investing activities:**                                            |   |                                    |       |   |   |
| Purchase of property  and equipment                                                   |   | (74,464                                 | )          | (2,867 | ) |
| **Net  cash used by investing activities**                                            |   | (74,464                                 | )          | (2,867 | ) |
|                                                                                  |   |                                    |       |   |   |
| **Cash  flows from financing activities:**                                            |   |                                    |       |   |   |
| Repayment of capital  leases                                                          |   | (4,500                                  | )          | (13,705 | ) |
| Repayment of debt                                                                     |   | (61,029                                 | )          | (59,299 | ) |
| Proceeds from debt                                                                    |   | —                                  |       | 50,000 |   |
| Proceeds from exercise  of options and warrants                                       |   | 31,598                                  |       | — |   |
| Proceeds from issuance  of stock                                                      |   | 1,487,847                               |       | — |   |
| **Net  cash provided (used) by financing activities**                                 |   | 1,453,916                               |       | (23,004 | ) |
|                                                                                  |   |                                    |       |   |   |
| Net change in cash and  cash equivalents                                              |   | 733,103                                 |       | (60,628 | ) |
|                                                                                  |   |                                    |       |   |   |
| Cash and cash  equivalents at beginning of period                                     |   | 245,795                                 |       | 195,249 |   |
|                                                                                  |   |                                    |       |   |   |
| Cash and cash  equivalents at end of period                                           |   | $                                       | 978,898    |   | $ | 134,621 |   |
|                                                                                  |   |                                    |       |   |   |
| **Supplemental  disclosure of cash flow information:**                                |   |                                    |       |   |   |
| Interest paid                                                                         |   | $                                       | 38,646     |   | $ | 43,335 |   |
| Income taxes paid                                                                     |   | $                                       | —     |   | $ | — |   |

 

See Notes to Consolidated FinancialStatements

 

5

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##  

## **SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

## ** **

**Basis of Presentationand Interim Consolidated Financial Statements**

 

Theaccompanying unaudited consolidated financial statements of Time America, Inc.and subsidiary (“Time America” or the “Company”) have been prepared inaccordance with generally accepted accounting principles (“GAAP”), pursuant tothe rules and regulations of the Securities and Exchange Commission, and areunaudited.  Accordingly, they do notinclude all the information and footnotes required by GAAP for completefinancial statements.  In the opinion ofmanagement, all adjustments (which include only normal recurring adjustments)necessary for a fair presentation of the results for the interim periodspresented have been made.  The resultsfor the six month period ended December 31, 2003, may not be indicative ofthe results for the entire year.  Thesefinancial statements should be read in conjunction with the Company’s AnnualReport on Form 10-KSB for the fiscal year ended June 30, 2003.

 

The preparation of financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from these estimates.

 

**Income(Loss) Per Share:**

 

Basic income (loss) per share of common stock wascomputed by dividing the net income (loss) by the weighted average number ofshares of common stock outstanding.

 

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.

 

**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 as 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 valuemethodology. Had compensation cost for stock-based compensation been determinedbased on the fair value of the options at the grant dates consistent with themethod of SFAS 123, the Company’s net loss and loss per share would have beenreduced to the pro forma amounts presented below:

 

6

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|                                                                                                                                               |   | **Three Months Ended  December 31,** |     | **Six Months Ended  December 31,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|----------|-----------------------------------------|--------|
|                                                                                                                                               |   | **2003**                                  |     | **2002**                                |   | **2003** |   | **2002** |   |
|                                                                                                                                               |   |                                      |     |                                    |   |   |   |   |   |
| **Net  loss:**                                                                                                                                     |   |                                      |     |                                    |   |   |   |   |   |
| As reported                                                                                                                                        |   | $                                         | (282,694 | )                                       | $      | (65,562 | ) | $ | (444,265 | ) | $ | (54,947 | ) |
|                                                                                                                                               |   |                                      |     |                                    |   |   |   |   |   |
| Deduct: Total  stock-based employee compensation expsense determined under the fair value  based method for all awards, net of related tax effects |   | (2,195                                    | )        | (3,330                                  | )      | (25,038 | ) | (25,683 | ) |
|                                                                                                                                               |   |                                      |     |                                    |   |   |   |   |   |
| Pro forma                                                                                                                                          |   | $                                         | (284,889 | )                                       | $      | (68,892 | ) | $ | (469,303 | ) | $ | (80,630 | ) |
|                                                                                                                                               |   |                                      |     |                                    |   |   |   |   |   |
| **Loss  per share:**                                                                                                                               |   |                                      |     |                                    |   |   |   |   |   |
| As reported                                                                                                                                        |   | $                                         | (0.02    | )                                       | $      | (0.01 | ) | $ | (0.04 | ) | $ | (0.01 | ) |
| Pro forma                                                                                                                                          |   | $                                         | (0.02    | )                                       | $      | (0.01 | ) | $ | (0.04 | ) | $ | (0.01 | ) |

 

The fair value ofoption grants is estimated as of the date of grant utilizing the Black-Scholesoption-pricing model with the following weighted average assumptions for allgrants, expected life of options of three (3) years, risk-free interest ratesof seven percent (7%), volatility at twenty five percent (25%), and a zeropercent (0%) dividend yield.

 

**Long-term Debt:**

 

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

 

**Stockholders’ Equity:**

 

InAugust 2003, the Company completed a private placement of 1,303,000 sharesof common stock at $0.42 per share. The Company received net proceeds of$519,897 and intends to use those funds primarily for additional sales andengineering resources.

 

InNovember 2003, the Company completed a private placement of 1,433,999shares of common stock at $0.75 per share. The Company received net proceeds of$967,950 and intends to use those funds primarily for additional sales andengineering resources.

 

7

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**Item 2. Management’sDiscussion And Analysis Or Plan Of Operation.**

** **

### **CriticalAccounting Policies**

### ** **

Our significant accounting policies aredescribed in the audited consolidated financial statements and notes theretoincluded in the Company’s Annual Report on Form 10-KSB for the year endedJune 30, 2003.  We believe our mostcritical accounting policies are revenue recognition, software developmentcosts and the allowance for potentially uncollectible accounts receivable.

 

The Company derives its revenues from thesale of frontline labor management systems as well as sales of applicationsoftware, parts and components.  TheCompany’s systems consist of fully integrated software and intelligent datacollection terminals.  The Company alsoderives revenues by providing maintenance, professional and educationalservices to its customers.   The Companyrecognizes revenues from sales of its systems, application software, parts andcomponents at the time of shipment, unless the Company has significantobligations remaining.  When significantobligations remain, revenue is not recognized until such obligations have beencompleted or are no longer significant. The Company recognizes revenues from its sales-type leases of systems attime of shipment.  Service revenues arerecognized ratably over the contractual period or as the services areperformed.

 

The Company provides installation servicesand certain warranties to its customers. It also provides, without additionalcharge, certain software product enhancements for customers covered undersoftware maintenance contracts.  Theprovision for these expenses are made at the time revenues are recognized.

 

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

 

The Company provides for potentiallyuncollectible accounts receivable by use of the allowance method. The allowanceis provided based upon a review of the individual accounts outstanding, and theCompany’s prior history of uncollectible accounts receivable. It is theCompany’s practice to record an estimated allowance for sales returns andadjustments based on historical experience and to record individual charges forsales returns and adjustments directly to revenue as incurred.

 

### **Comparisonof the Three Months Ended December 31, 2003 and December 31, 2002**

### ** **

*Revenues*. Revenue for the three month period ended December 31, 2003 (the“reporting period”), rose 9% to $1,127,324, compared to revenue of $1,036,764for the three month period ended December 31, 2002

 

8

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(the “comparable period”).  The Company’s product sales increased by 7%and services revenue increased by 15% over the comparable period.  The Company believes that the increases areprimarily due to increased investments in sales personnel and marketing programs.

 

*Gross Profit*. Gross profit as a percentage of revenues decreased to 56% in thereporting period, compared to 57% in the comparable period.  The gross profit percentage on product salesdecreased by 1% over the comparable period and the gross profit percentage onservices revenue decreased by 2% over the comparable period.

 

The change in the gross profit percentage on products is within theCompany’s normal range of gross profit percentages.  The Company’s gross profit percentage on products is typicallybetween 55% to 60% depending upon the mix of software versus hardware sales andthe makeup of hardware sales.  TheCompany’s 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.  Our gross profitis greater 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 $896,128, or 80% of revenues, in thereporting period, compared to $633,376, or 61% of revenues, in the comparableperiod.  The increase in the costs andexpenses as a percentage of revenue in the reporting period is primarily due toa 61% increase in sales and marketing expenses in the current period. Sales andmarketing expenses were $469,383, or 41% of revenues, in the reporting period,compared to $291,006, or 28% of revenues, in the comparable period.  In August and November 2003, weclosed private placement offerings that yielded net proceeds of$1,487,847.  The primary use of proceedsof those funds was to finance key marketing initiatives and add sales personnel.  We do not expect returns in the short termon these investments.  Research anddevelopment expenses were $201,073, or 18% of revenues, in the reportingperiod, compared to $163,829, or 16% of revenues, in the comparableperiod.  The increase in research anddevelopment expenses is due to the Company hiring additional technologypersonnel to assist the Company in generating new technologies. General andadministrative expenses were $225,672, or 20% of revenues, in the reportingperiod, compared to $178,541, or 17% of revenues, in the comparableperiod.  The increase is primarilyattributable to expenses associated with the Company’s Annual Shareholder’sMeeting held in December 2003.

 

### **Comparisonof the Six Months Ended December 31, 2003 and December 31, 2002**

### ** **

*Revenues*. Revenue for the six month period ended December 31, 2003 (the“reporting period”), rose 5% to $2,253,721, compared to revenue of $2,145,000for the six month period ended December 31, 2002 (the “comparable period”).  The Company’s product sales increased by 3%and services revenue increased by 15% over the comparable period.  The Company believes that the increases areprimarily due to increased investments in sales personnel and marketing programs.

 

*Gross Profit*. Gross profit as a percentage of revenues decreased to 55% in thereporting period, compared to 57% in the comparable period.  The gross profit percentage on product salesdecreased by 2% over the comparable period and the gross profit percentage onservices revenue increased by 1% over the comparable period.

 

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

 

# ***Expenses***.  Total costs and expenses were $1,642,701, or73% of revenues, in the reporting period, compared to $1,228,324, or 57% ofrevenues, in the comparable period.  Theincrease in the costs and expenses as a percentage of revenue in the reportingperiod is primarily due to a 56% increase in sales and marketing expenses inthe current period. Sales and marketing expenses were $859,675, or 38% ofrevenues, in the reporting period, compared to $552,008, or 26% of revenues, inthe comparable period.  InAugust and November 2003, we closed private placement offerings thatyielded net proceeds of $1,487,847.  Theprimary use of proceeds of those funds was to finance key marketing initiativesand add sales personnel in which we do not expect returns on in the shortterm.  Research and development expenseswere $372,703, or 17% of revenues, in the reporting period, compared to$332,869, or 16% of revenues, in the comparable period.  The increase in research and developmentexpenses is due to the Company hiring additional technology personnel to assistthe Company in generating new technologies. General and administrative expenseswere $410,323, or 18% of revenues, in the reporting period, compared to $343,447,or 16% of revenues, in the comparable period. The increase is primarily attributable to expenses associated with theCompany’s Annual Shareholder’s Meeting held in December 2003.

# ** **

# **Liquidity and Capital Resources**

# ** **

At December 31, 2003, the Company had working capital of $866,123,compared to $38,093 at December 31, 2002. Cash and cash equivalents at those dates amounted to $978,898 and$134,621, respectively.  The Company hasfunded its operations for the past six years through sales of equity securities,debt financing and cash flows from operations.

 

*Operations*. Net cash used by operations increased to $646,349 in the reportingperiod, compared to net cash used by operations of $34,757 in the comparableperiod.  The net cash used in thecurrent period was primarily attributable to the net loss along with increasesin accounts receivable and inventory, which was partially offset by a decreasein deferred revenue.

 

*Investment Activities*.  For the reporting period, the Company used$74,464 to purchase property and equipment, compared to $2,867 of property andequipment purchases in the comparable period. Major purchases in the period included a new trade show booth.

 

*Financing Activities.*  For the reporting period the Companygenerated $1,453,916 in financing activities primarily due to proceeds for theissuance of common stock in private placement offerings and warrantexercises.  In the comparable period,the Company used $23,004 in financing activities primarily due to repayment ofdebt.

 

The Company’s liquidity is affected by many factors,some based on the normal ongoing operations of the business and others relatedto the uncertainties of the industry and global economies.  Although the 

 

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Company’s cashrequirements will fluctuate based on the timing and extent of these factors,management believes that cash generated from operations, together with theCompany’s borrowing capacity under its two credit facilities, will besufficient to satisfy commitments for capital expenditures and other cashrequirements for the next 12 months. The Company may, however, seek to obtain additional capital through aline of credit at a financial institution or through additional debt or equityofferings during this time period.  Theraising of additional capital in public or private markets will primarily bedependent upon prevailing market conditions and the demand for the Company’sproducts and services.  No assurance canbe given that the Company will be able to raise additional capital, when neededor at all, or that such capital, if available, will be on acceptable terms.

 

**Item3. Controls and Procedures**

 

As of the end of the period covered by this report,the Company carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including the Company’s Presidentand Chief Executive Officer along with the Company’s Chief Financial Officer,of the effectiveness of the design and operation of the Company’s disclosurecontrols and procedures pursuant to Exchange Act Rule 13a-14.  Based upon that evaluation, the Company’sPresident and Chief Executive Officer, along with the Company’s Chief FinancialOfficer, concluded that the Company’s disclosure controls and procedures areeffective in timely alerting them to material information relating to theCompany (including its consolidated subsidiary) required to be included in theCompany’s periodic SEC filings.  Therehave been no significant changes in the Company’s internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate the Company carried out its evaluation.

 

# **FORWARD-LOOKING INFORMATION**

# ** **

The statements contained in this Quarterly Report onForm 10-QSB that are not historical fact are forward-looking statements (assuch term is defined in the Private Securities Litigation Reform Act of 1995),which the Company believes are 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 use of forward-lookingterminology 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-lookingstatements are based on current expectations and the Company assumes noobligation to update this information. Therefore, the actual experience of the Company and the results achievedduring the period covered by any particular projections or forward-lookingstatements may differ substantially from those projected.  Consequently, the inclusion of projectionsand other forward-looking statements should not be regarded as

 

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a representation by theCompany or any other person that these estimates and projections will berealized, and actual results may vary materially.  There can be no assurance that any of these expectations will berealized or that any of the forward-looking statements contained herein willprove to be accurate.

 

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#####  

##### **PART II – OTHERINFORMATION**

##### ** **

**Item 1. LegalProceedings.**

** **

The Company is from timeto time involved in legal proceedings arising from the normal course ofbusiness.   As of the date of thisreport, the Company is not currently involved in any legal proceedings.

 

### **Item2. Changes in Securities.**

### ** **

In November 2003, the Company completed a private placement of1,433,999 shares of common stock at $0.75 per share.  The Company received net proceeds of $967,950 and intends to usethose funds primarily for additional sales and engineering resources.  The common stock was issued in reliance onthe exemption provided under Section 4(2) of the Securities Act of 1933,as amended, and Regulation D thereunder.

 

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

 

The Company’s Annual Meeting was held on December 9, 2003.  Shareholders voted on the election of theCompany’s Board of Directors and proposals to amend the Company’s Articles ofIncorporation to change the corporate name of the Company to Time America, Inc.and ratify the appointment of Semple and Cooper L.L.P.  as the independent certified publicaccountants of the Company for the fiscal year ending June 30, 2004.  The voting results of each of theseproposals are set forth below.

 
|   |   |                      |   | **Eligible** |   | **Voted For** |   | **Voted  Against** |   | **Abstentions** |   |
|--------|--------|---------------------------|--------|--------------|--------|---------------|--------|--------------------|--------|-----------------|--------|
| 1 -    |   | Election of Directors:    |   |         |   |          |   |               |   |            |   |
|   |   |                      |   |         |   |          |   |               |   |            |   |
|   |   | Todd P. Belfer            |   | 12,108,173   |   | 8,191,590     |   | 340                |   | —          |   |
|   |   | Thomas S. Bednarik        |   | 12,108,173   |   | 8,191,590     |   | 340                |   | —          |   |
|   |   | Lise L. Lambert           |   | 12,108,173   |   | 8,191,590     |   | 340                |   | —          |   |
|   |   | Robert J. Novak           |   | 12,108,173   |   | 8,191,590     |   | 340                |   | —          |   |
|   |   | Robert W. Zimmerman       |   | 12,108,173   |   | 8,191,590     |   | 340                |   | —          |   |
|   |   |                      |   |         |   |          |   |               |   |            |   |
| 2 -    |   | Change the Corporate Name |   | 12,108,173   |   | 8,188,757     |   | 283                |   | 2,890           |   |
|   |   |                      |   |         |   |          |   |               |   |            |   |
| 3 -    |   | Appointment of Auditors   |   | 12,108,173   |   | 8,190,537     |   | 1,383              |   | 10              |   |

 

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**Item 6. ExhibitsAnd Reports On Form 8-K**

** **

(a)   The following exhibits arefiled 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                            |

 

(b)   Reports on Form 8-K

 

No reports were filed on Form 8-K during the quarter endedDecember 31, 2003.

 

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**SIGNATURES**

 

In accordance with the requirements of theSecurities Exchange Act of 1934, the registrant caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
|                                | TIME AMERICA, INC.             |
|-------------------------------------|--------------------------------|
|                                |                           |
| Dated:  February 12, 2004 |                           |
|                                |                           |
|                                | By                        |  /s/  Craig J. Smith |   |
|                                | Craig J. Smith                 |
|                                | Chief Financial Officer        |
|                                | (Principal Accounting Officer) |

 

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**EXHIBITINDEX**

 
| **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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