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

**Washington,D.C. 20549**

**FORM 10-QSB**

**x**                              QUARTERLYREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe quarterly period ended December 31, 2006**

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

**Forthe transition period from                     to                     **

**CommissionFile number 001-10320**

**Time America, Inc.**

(Exact name of small business issuer as specified inits charter)

| **Nevada**                       |   | **13-3465289**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation of  organization)  |   | Identification  No.) |

 

**8840 EastChaparral Road, Suite 100, Scottsdale, AZ 85250**

(Address ofprincipal executive offices)

**(480)296-0400**

(Issuer’s telephone number)

**N/A**

(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 by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.    Yes  x      No  o

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

State the number ofshares outstanding of each of the issuer’s classes of common equity, as of thelatest practicable date: At February 12, 2007, the issuer had outstanding15,162,404 shares of Common Stock, par value $.005 per share.

Transitional SmallBusiness Disclosure Format:  Yes  o      No  x

 

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**PART I — FINANCIAL INFORMATION**

**Item 1 — Financial Statements.**

**TIME AMERICA, INC. ANDSUBSIDIARIES**CONSOLIDATED BALANCE SHEETS
| ** **                                                                                                             | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                                                                             | ** ** | **2006**              | ** ** | **2006**          | ** ** |
| ** **                                                                                                             | ** ** | **(Unaudited)**       | ** ** | ** **        | ** ** |
| **ASSETS**                                                                                                             | ** ** | ** **            | ** ** | ** **        | ** ** |
| **Current Assets:**                                                                                                    |       |                  |       |              |       |
| Cash and cash  equivalents                                                                                             |       | $                     | 180,815    |              | $          | 615,204 |   |
| Accounts  receivable — trade, net                                                                                 |       | 1,699,312             |       | 2,289,678         |       |
| Inventory                                                                                                              |       | 635,413               |       | 653,159           |       |
| Deferred loan  costs and other current assets                                                                          |       | 275,954               |       | 315,226           |       |
|                                                                                                                   |       |                  |       |              |       |
| **Total  Current Assets**                                                                                              |       | 2,791,494             |       | 3,873,267         |       |
|                                                                                                                   |       |                  |       |              |       |
| **Property and equipment, net**                                                                                        |       | 444,199               |       | 502,309           |       |
| **Other Assets**                                                                                                       |       | 74,023                |       | 202,952           |       |
|                                                                                                                   |       |                  |       |              |       |
| **Total  Assets**                                                                                                      |       | $                     | 3,309,716  |              | $          | 4,578,528 |   |
|                                                                                                                   |       |                  |       |              |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**                                                               | ** ** | ** **            | ** ** | ** **        | ** ** |
|                                                                                                                   |       |                  |       |              |       |
| **Current Liabilities:**                                                                                               |       |                  |       |              |       |
| Current portion  of long-term debt                                                                                     |       | $                     | 2,105,503  |              | $          | 2,081,122 |   |
| Accounts payable                                                                                                       |       | 901,293               |       | 688,623           |       |
| Accrued  liabilities                                                                                                   |       | 678,474               |       | 739,958           |       |
| Deferred revenue                                                                                                       |       | 644,428               |       | 944,372           |       |
|                                                                                                                   |       |                  |       |              |       |
| **Total  Current Liabilities**                                                                                         |       | 4,329,698             |       | 4,454,075         |       |
|                                                                                                                   |       |                  |       |              |       |
| **Long-term debt, less current  portion**                                                                              |       | 1,646,368             |       | 2,192,472         |       |
|                                                                                                                   |       |                  |       |              |       |
| **Total  Liabilities**                                                                                                 |       | 5,976,066             |       | 6,646,547         |       |
|                                                                                                                   |       |                  |       |              |       |
| **Common stock subject to  registration rights (351,923 shares)**                                                      |       | 207,635               |       | 207,635           |       |
|                                                                                                                   |       |                  |       |              |       |
| **Commitments:**                                                                                                       |       | —                |       | —            |       |
|                                                                                                                   |       |                  |       |              |       |
| **Stockholders’ Equity (Deficit):**                                                                               |       |                  |       |              |       |
| Common stock,  $.005 par value, 50,000,000 shares authorized; 14,707,481 and 14,652,481  shares issued and outstanding |       | 73,538                |       | 73,263            |       |
| Contributed  capital                                                                                                   |       | 9,681,125             |       | 9,591,098         |       |
| Accumulated  deficit                                                                                                   |       | (12,628,648           | )          | (11,940,015       | )          |
|                                                                                                                   |       |                  |       |              |       |
| **Total  Stockholders’ Equity (Deficit)**                                                                         |       | (2,873,985            | )          | (2,275,654        | )          |
|                                                                                                                   |       |                  |       |              |       |
| **Total Liabilities  and Stockholders’ Equity (Deficit)**                                                         |       | $                     | 3,309,716  |              | $          | 4,578,528 |   |

 

See Notes toConsolidated Financial Statements

2

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#### **TIME AMERICA, INC.AND SUBSIDIARIES**CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)

| ** **                                                 | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                 | ** ** | **December 31,**            | ** ** | **December 31,**          | ** ** |
| ** **                                                 | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                 | ** ** | **(unaudited)**                  | ** ** | **(unaudited)**                | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| **Revenues:**                                              | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Product sales                                              |       | $                                | 1,513,678  |                           | $          | 1,049,357 |   | $ | 2,569,713 |   | $ | 2,066,921 |   |
| Services revenue                                           |       | 568,662                          |       | 489,998                        |       | 963,219 |   | 943,247 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Total Revenues**                                         |       | 2,082,340                        |       | 1,539,355                      |       | 3,532,932 |   | 3,010,168 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Cost of  Revenues:**                                     | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Product                                                    |       | 706,682                          |       | 481,913                        |       | 1,228,097 |   | 1,016,344 |   |
| Services                                                   |       | 189,266                          |       | 216,219                        |       | 367,907 |   | 428,978 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Total Cost of Revenues**                                 |       | 895,948                          |       | 698,132                        |       | 1,596,004 |   | 1,445,322 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Gross  Profit**                                          |       | 1,186,392                        |       | 841,223                        |       | 1,936,928 |   | 1,564,846 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Costs  and Expenses:**                                   | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sales and marketing                                        |       | 394,672                          |       | 537,336                        |       | 743,717 |   | 1,131,692 |   |
| Research and development                                   |       | 464,530                          |       | 382,534                        |       | 929,832 |   | 747,150 |   |
| General and administrative                                 |       | 377,476                          |       | 382,920                        |       | 753,630 |   | 720,801 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Total Costs and Expenses**                               |       | 1,236,678                        |       | 1,302,790                      |       | 2,427,179 |   | 2,599,643 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Net  Loss from Operations**                              |       | (50,286                          | )          | (461,567                       | )          | (490,251 | ) | (1,034,797 | ) |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Other  Income (Expense):**                               | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense                                           |       | (188,270                         | )          | (142,081                       | )          | (385,802 | ) | (318,497 | ) |
| Other                                                      |       | 74,444                           |       | 6,915                          |       | 184,116 |   | 38,420 |   |
| Interest income                                            |       | 623                              |       | 2,965                          |       | 3,304 |   | 8,831 |   |
|                                                       |       |                             |       |                           |       |   |   |   |   |
|                                                       |       | (113,203                         | )          | (132,201                       | )          | (198,382 | ) | (271,246 | ) |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Net  Loss**                                              |       | $                                | (163,489   | )                              | $          | (593,768 | ) | $ | (688,633 | ) | $ | (1,306,043 | ) |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Basic  and Diluted Loss per Share**                      |       | $                                | (0.01      | )                              | $          | (0.04 | ) | $ | (0.05 | ) | $ | (0.09 | ) |
|                                                       |       |                             |       |                           |       |   |   |   |   |
| **Basic  and Diluted Weighted Average Shares Outstanding** | ** ** | 14,677,535                       | ** ** | 14,651,981                     | ** ** | 14,665,008 | ** ** | 14,455,975 | ** ** |

 

See Notes toConsolidated Financial Statements

3

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#### **TIME AMERICA, INC.AND SUBSIDIARIES**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’EQUITY (DEFICIT)FOR THE YEAR ENDED JUNE 30, 2006 ANDTHE SIX MONTH PERIOD ENDED DECEMBER 31, 2006 (Unaudited)

| ** **                              | ** ** | **Common Stock** | ** ** | **Contributed** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
|-----------------------------------------|------------|-----------------------|------------|-----------------|------------|-----------------|------------|-------------|------------|
| ** **                              | ** ** | **Shares**            | ** ** | **Amount**      | ** ** | **Capital**     | ** ** | **Deficit** | ** ** | **Total** | ** ** |
| Balance at June  30, 2005               |       | 14,251,552            |       | $               | 71,258     |            | $          | 9,269,497   |       | $ | (9,994,280 | ) | $ | (653,525 | ) |
|                                    |       |                  |       |            |       |            |       |        |       |   |   |
| Exercise of  stock options              |       | 4,500                 |       | 22              |       | 1,653           |       | —      |       | 1,675 |   |
| Conversion of  debt to common stock     |       | 446,429               |       | 2,233           |       | 247,767         |       | —      |       | 250,000 |   |
| Induced  conversion of debt             |       | —                |       | —          |       | 40,179          |       | —      |       | 40,179 |   |
| Transfer of  warrants to liability      |       | —                |       | —          |       | (102,900        | )          | —      |       | (102,900 | ) |
| Share-based  awards compensation        |       | —                |       | —          |       | 129,183         |       | —      |       | 129,183 |   |
| Recission of  common stock for services |       | (50,000               | )          | (250            | )          | (31,250         | )          | —      |       | (31,500 | ) |
| Issuance of  common stock warrants      |       | —                |       | —          |       | 36,969          |       | —      |       | 36,969 |   |
| Net loss                                |       | —                |       | —          |       | —          |       | (1,945,735  | )          | (1,945,735 | ) |
| Balance at June  30, 2006               |       | 14,652,481            |       | 73,263          |       | 9,591,098       |       | (11,940,015 | )          | (2,275,654 | ) |
|                                    |       |                  |       |            |       |            |       |        |       |   |   |
| Exercise of  stock warrants             |       | 25,000                |       | 125             |       | 3,625           |       | —      |       | 3,750 |   |
| Share-based  awards compensation        |       | —                |       | —          |       | 74,552          |       | —      |       | 74,552 |   |
| Issuance of  common stock for financing |       | 30,000                |       | 150             |       | 11,850          |       | —      |       | 12,000 |   |
| Net loss                                |       | —                |       | —          |       | —          |       | (688,633    | )          | (688,633 | ) |
| Balance at December 31,  2006           |       | 14,707,481            |       | $               | 73,538     |            | $          | 9,681,125   |       | $ | (12,628,648 | ) | $ | (2,873,985 | ) |

 

See Notes to Consolidated Financial Statements

4

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#### **TIME AMERICA, INC.AND SUBSIDIARIES**CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

| ** **                                                                   | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | **December 31,**          | ** ** |
| ** **                                                                   | ** ** | **2006**                       | ** ** | **2005** | ** ** |
| **Increase  (Decrease) in Cash and Cash Equivalents:**                       | ** ** | ** **                     | ** ** | ** ** | ** ** |
| **Cash flows from operating activities:**                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Net loss                                                                     |       | $                              | (688,633   | ) | $ | (1,306,043 | ) |
| Adjustments to reconcile net loss to net cash used  by operating activities: |       |                           |       |   |   |
| Depreciation                                                                 |       | 81,936                         |       | 54,520 |   |
| Amortization of discounts and deferred financing  costs                      |       | 157,046                        |       | 144,973 |   |
| Share based compensation expense                                             |       | 74,552                         |       | 72,067 |   |
| Induced conversion of debt charge                                            |       | —                         |       | 40,179 |   |
| Issuance of common stock for financing                                       |       | 12,000                         |       | — |   |
| Changes in Assets and Liabilities:                                           |       |                           |       |   |   |
| Accounts receivable-trade                                                    |       | 590,366                        |       | (148,291 | ) |
| Inventory                                                                    |       | 17,746                         |       | (246,225 | ) |
| Deferred loan costs and other current assets                                 |       | 39,272                         |       | 19,956 |   |
| Accounts payable                                                             |       | 212,670                        |       | 170,372 |   |
| Accrued liabilities                                                          |       | (61,484                        | )          | 106,782 |   |
| Deferred revenue                                                             |       | (299,944                       | )          | 68,127 |   |
| **Net cash provided (used) by operating activities**                         |       | 135,527                        |       | (1,023,583 | ) |
|                                                                         |       |                           |       |   |   |
| **Cash flows from investing activities:**                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Purchase of property and equipment                                           |       | (23,826                        | )          | (131,023 | ) |
| **Net cash used by investing activities**                                    |       | (23,826                        | )          | (131,023 | ) |
|                                                                         |       |                           |       |   |   |
| **Cash flows from financing activities:**                                    | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Repayment of debt                                                            |       | (868,181                       | )          | (138,892 | ) |
| Proceeds from exercise of options and warrants                               |       | 3,750                          |       | 1,600 |   |
| Proceeds from debt                                                           |       | 318,341                        |       | 500,000 |   |
| **Net cash provided (used) by financing activities**                         |       | (546,090                       | )          | 362,708 |   |
|                                                                         |       |                           |       |   |   |
| Net change in cash and cash equivalents                                      |       | (434,389                       | )          | (791,898 | ) |
|                                                                         |       |                           |       |   |   |
| Cash and cash equivalents at beginning of period                             |       | 615,204                        |       | 1,361,717 |   |
|                                                                         |       |                           |       |   |   |
| Cash and cash equivalents at end of period                                   |       | $                              | 180,815    |   | $ | 569,819 |   |
|                                                                         |       |                           |       |   |   |
| **Supplemental disclosure of cash flow  information:**                       | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Interest paid                                                                |       | $                              | 229,904    |   | $ | 168,826 |   |
| Income taxes  paid                                                           |       | $                              | —     |   | $ | — |   |

 

See Notes toConsolidated Financial Statements

5

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**SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

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

Time America, Inc.is a holding corporation.  Our operationsare conducted through our wholly-owned subsidiaries, one of which is also namedTime America, Inc.  Our other subsidiaryis NetEdge Devices, LLC.  Unless thecontext indicates otherwise, references to the Company in this report shallinclude both Time America (the parent company organized in Nevada), TimeAmerica (our wholly-owned subsidiary organized in Arizona) and NetEdge Devices,LLC, an Arizona limited liability company.

The accompanying unaudited consolidated financialstatements of Time America, Inc. and subsidiaries 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, 2006, may not be indicative of theresults 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, 2006.

The preparation of financial statements in conformity withGAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from theseestimates.

**Note B —Income (Loss) Per Share:**

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

Dilutedearnings per share are computed based on the weighted average number of sharesof common stock and dilutive securities outstanding during the period.  Dilutive securities are options and warrantsthat are freely exercisable into common stock at less than the prevailingmarket price. Dilutive securities are not included in the weighted averagenumber of shares when inclusion would increase the earnings per share ordecrease the loss per share.  At December31, 2006 and 2005, no outstanding options or warrants were included in thedetermination of diluted loss per share as their effect would have beenanti-dilutive.

**Note C — Stock BasedCompensation:**

Prior to July 1, 2005,the Company accounted for stock-based compensation arrangements in accordancewith the provisions of Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees,” (“APB 25”). Accordingly, compensation expense, if any, was measured as the excess ofthe underlying stock price over the exercise price on the date of grant.  The Company complied with the disclosureprovisions of Statement of Financial Accounting Standards Board No. 123 (“SFAS123”) “Accounting for Stock Based Compensation” as amended by SFAS 148 “Accountingfor Stock-Based Compensation-Transition and Disclosure,” which requiredpro-forma disclosure of compensation expense associated with stock optionsunder the fair value method.

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Effective July 1, 2005,the Company adopted the fair value recognition provisions of Statement ofFinancial Accounting Standards Board No. 123(R), “Share—Based Payment,” usingthe modified prospective-transition method. Under this transition method, compensation expense recognized for thethree months ended and six months ended of fiscal year 2007 includes:  (a) compensation expense for all share-basedpayments granted prior to, but not yet vested as of June 30, 2005 based on thegrant date fair value estimated and (b) compensation expense for allshare-based payments granted subsequent to June 30, 2005, based on the grantdate fair value estimated in accordance with the provisions of SFAS 123(R).  Results for prior periods have notbeen restated.  The fair value of option grants is estimatedas of the date of grant utilizing the Black-Scholes option-pricing model andamortized to expense over the options’ vesting period.

Asa result of the adoption of SFAS 123(R), the Company’s net loss for the sixmonth periods ended December 31, 2006 and 2005 is $74,552 and $72,067, respectively,greater than if it had continued to account for share-based compensation underAPB 25.

**Note D — Long-term Debt:**

In August 2006, the Company amended the terms ofits term note with Laurus Master Funds, Ltd. (“Laurus”) to change the monthlyprincipal payment for the period of September 2006 through February 2007 from$66,667 to $30,000.  The deferredprincipal amount has been added as a balloon payment at the end of theterm.  In January 2007, the term note waspaid in full (see Note H — Subsequent Events).

In July 2006,the Company amended the terms of its note agreements with Frances Simek todefer the monthly principal payments for the period of July 2006 throughDecember 2006.  The amortization periodof the note was increased by six months to compensate for the deferredprincipal payments.

In December2006, the Company entered into a subordinated note agreement with a shareholderand existing debt holder.  The note is a 90-day note with the principaldue in 90 days and monthly interest payments at 10%.  In consideration foragreeing to subordinate repayment of the note, the Company issued 30,000 sharesof restricted common stock to the holder of the subordinated note.  Thefair value of the stock has been recorded as a deferred loan issue charge andis reported in deferred loan costs and other current assets on the balancesheet at December 31, 2006.

**Note E — New Accounting Pronouncements:**

InSeptember 2006, the Financial Accounting Standard Board issued a Statementof Financial Accounting Standards SFAS No. 157 (“SFAS 157”). TheStatement defines fair value, establishes a framework for measuring fair valuein accordance with GAAP, and expands disclosures about fair valuemeasurements.  This Statement iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007, and interim periods within those fiscal years. Theadoption of SFAS 157 is not expected to have a material affect on our financialposition or results of operations.

**Note F — Asset Sale**

Effective March 31, 2006, the Company closed on the sale of certain ofthe Company’s direct sales assets pursuant to the terms of an Asset PurchaseAgreement (the “Purchase Agreement”). Under the terms of the PurchaseAgreement, certain assets associated with the Company’s direct sales businesswere sold, 

7

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including a copy of the source code and other intellectual propertyrelating to the Company’s NETtime, HourTrack and GENESIS time and attendancesoftware products, related ASP and maintenance contracts, and certain specifieddirect channel sales opportunities.

The sale generated cash to the Company at closing of approximately$530,000. The purchase price under the Purchase Agreement included cash payableto the Company at the closing in consideration for a copy of the source codeand related intellectual property. The consideration for the ASP andmaintenance contracts was determined based on multiples of the projectedannualized revenues under such contracts. At closing, the Company received incash 100% of the total consideration for the existing customer ASP contractsand 40% of the total consideration for the existing maintenance contracts.  The remaining consideration for themaintenance contracts is payable quarterly over the 14-month period followingthe closing. The Company was also required to transition additional ASPcustomers over the next six months following the closing, which the Companywill be paid for at the time of such transfers. Additionally, for the 12-month period following the closing, the Companywill receive monthly royalty payments equal to 27.5% of the revenues inconnection with direct channel sales opportunities specified at closing.

**Note G — Basis of Presentation and Going Concern:**

ThroughDecember 31, 2006, the Company had sustained recurring losses from operations,and as of February 8, 2007, the Company estimates that its working capital andfunds generated from operations are sufficient to fund the Company’s operationsfor the next six months.  This estimatetakes into account the asset sale as discussed in Note H below.  These conditions raise substantial doubtabout the ability of the Company to continue as a going concern.  During fiscal 2007, the Company expects to meetits working capital and other cash requirements with its current cash reserves,cash generated from operations, its borrowing capacity under its two creditfacilities, the asset sale as discussed in Note H below, and other financing asrequired.  While the Company believesthat it will succeed in attracting additional capital, there can be noassurance that the Company’s efforts will be successful.  The Company’s continued existence isdependent upon its ability to achieve and maintain profitable operations bycontrolling expenses.  However, there canbe no assurance that the Company’s efforts to achieve and maintain profitableoperations will be successful.  Thefinancial statements do not include any adjustments that might result from theoutcome of these uncertainties.

**Note H — Subsequent Events:**

OnJanuary 16, 2007, the Company entered into an Asset Purchase Agreement withSynel Industries, Inc., an Israeli registered corporation (“Synel”). Under theagreement, Synel purchased the Company’s reseller sales channel, source codeand related intellectual property for the Company’s GENESIS, HourTrack, andTA7000 product series, certain use rights associated with the Company’s NETtimesource code, and all of the Company’s rights associated with the “Time America”name. The Company intends to change its name to NETtime Solutions. The saleclosed on January 22, 2007.

Underthe agreement, the purchase price for the acquired assets is $2.5 million,$250,000 of which is being held in escrow pending fulfillment of certainpost-closing obligations. The remaining consideration under the agreement forthe acquired assets consists of royalty payments, payable to the Companyquarterly over the next four years, equal to 5% of the revenue derived fromSynel’s U.S. sales of TA7000 units outside of Synel’s established U.S. customerbase. Additionally, Synel purchased certain of the Company’s TA7000 inventoryfor $140,000 cash. Part of the proceeds from the sale was used to repay in fullall of the 

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Company’s existing indebtedness owing toLaurus Master Fund Ltd. under its Secured Convertible Term Note, dated January 3,2006.

Forthe three months and six months ended December 31, 2006, the reseller saleschannel accounted for approximately 58% and 66%, respectively, of the Company’sgross product sales.  For years endedJune 30, 2005 and 2006, the reseller sales channel accounted for approximately69% and 66%, respectively, of the Company’s gross product sales.  The Company does not distinguishoperationally or financially its activities other than gross product salesbetween its sales channels and as such the Company has not accounted for thesale as discontinued operations under SFAS No. 144 “Accounting for theImpairment or Disposal of Long-Lived Assets”.

Subsequentto the sale to Synel, the Company will derive its sales from direct salesgenerated through its business alliance program, and other select direct salesopportunities.

**Item 2.Management’s Discussion And Analysis of Financial Condition and Results ofOperations.**

### **Critical Accounting Policies**

Our significantaccounting policies are described in the audited consolidated financialstatements and notes thereto includedin our Annual Report on Form 10-KSB for the year ended June 30, 2006.  We believe our most critical accountingpolicies are revenue recognition, software development costs, allowance forpotentially uncollectible accounts receivable and valuation of stock-basedcompensation.

We license software and sell data collectionhardware and related ancillary products to end-user customers through ourdirect sales force as well as reseller channel customers through independentresellers. Our software license revenue is earned from perpetual licenses ofoff-the-shelf software requiring no or minor modification or customization. Thesoftware license, data collection hardware and related ancillary productrevenues from our end-user customers and reseller channel customers aregenerally recognized when:

·                  Persuasiveevidence of an arrangement exists, which is typically when a non-cancelablesales and software license agreement or purchase order has been signed;

·                  Delivery,which is typically FOB shipping point, is complete for the software (eitherphysically or electronically), data collection hardware and related ancillaryproducts;

·                  Thecustomer’s fee is deemed to be fixed or determinable and free of contingenciesor significant uncertainties;

·                  Collectibilityis probable; and

·                  Objectiveevidence of fair value exists for all undelivered elements, typicallymaintenance and professional services.

Thefair value of the undelivered elements is deferred and the remaining portion ofthe arrangement fee is allocated to the delivered elements and is recognized asrevenue, assuming all other conditions for revenue recognition have beensatisfied. Substantially all of our sales agreements contain allocations of thepurchase price among the various elements of the arrangement.  If we cannot determine the fair value of anyundelivered element included in an arrangement, we will defer revenue until allelements are delivered, services are performed or until fair value can beobjectively determined.

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Aspart of an arrangement, end-user customers typically purchase maintenancecontracts as well as professional services from us.  Maintenance services include telephone andweb-based support as well as rights to unspecified upgrades and enhancements,when and if we make them generally available. Professional services aretypically for implementation, installation of the software and data collectionhardware, training, building interfaces and custom features, and running testdata.

Revenuesfrom maintenance services are recognized ratably over the term of themaintenance contract period, which is usually one year.  Maintenance services are typically statedseparately in an arrangement. We have classified the value of revenuespertaining to the contractual maintenance obligations that exist for the12-month period subsequent to the balance sheet date as a current liability,and the contractual obligations with a term beyond 12 months, if present, as anon-current liability.

Revenuesfrom customer support services are recognized as the services aredelivered.  Revenues from professionalservices are generally recognized based on vendor-specific objective evidenceof fair value when:

·                  Anon-cancelable agreement for the services has been signed or a customer’spurchase order has been received;

·                  Theprofessional services have been delivered;

·                  Thecustomer’s fee is deemed to be fixed or determinable and free of contingenciesor significant uncertainties; and

·                  Collectibilityis probable.

Vendor-specificobjective evidence of fair value is based upon the price charged when theseservices are sold separately and are typically an hourly rate for professionalservices and a per-class rate for training. Based upon our experience in completingprofessional services, we have determined that these services are typicallydelivered within a 12-month period subsequent to the contract signing andtherefore we classify deferred professional services as a current liability.

Ourarrangements with end-user customers and reseller channel customers do notinclude any rights of return or price protection, nor do arrangements withreseller channel customers include any acceptance provisions. Our arrangementswith end-user customers generally include our standard acceptance provision.Our standard acceptance provision states that the customer’s acceptance of theproducts shall be deemed to occur upon completion of running our standarddiagnostic tests.

Atthe time we enter into an arrangement, we assess the probability of collectionof the fee and the terms granted to the customer.  For end-user customers, the typical paymentterms include a deposit and subsequent payments, based on specific due dates,such that all payments for the software license, data collection hardware andrelated ancillary products, as well as services included in the originalarrangement, are ordinarily due within one year of contract signing. Ourpayment terms for reseller channel customers are typically due within 30 daysof the invoice date.

Ifthe arrangement includes a substantive acceptance provision, we defer revenuenot meeting the criterion for recognition under Statement of Position 97-2, “SoftwareRevenue Recognition,” and classify this revenue as deferred revenue, includingdeferred product revenue. This revenue is recognized, assuming all otherconditions for revenue recognition have been satisfied, when the uncertaintyregarding acceptance is resolved as generally evidenced by written acceptanceor payment of the arrangement fee. If the payment terms for the arrangement areconsidered extended, we defer revenue on the arrangement until the payment 

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of the arrangement feebecomes due. The deferred amounts related to arrangements with extended paymentterms are removed from deferred revenue and accounts receivable, as we havedetermined that these amounts do not represent either receivables or deferredrevenue until the payment becomes due. We report the allocated fair value ofrevenues related to the product element of arrangements as a current liabilitybecause of the expectation that these revenues will be recognized within 12months of the balance sheet date.

Wecapitalize software development costs in accordance with Statement of FinancialAccounting Standards No. 86, “Accounting for the Costs of Computer Software tobe Sold, Leased, or Otherwise Marketed.” Capitalization of software developmentcosts begins upon the establishment of technological feasibility of theproduct.  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, andchanges in software and hardware technology.  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 tointernal software development that could be capitalized under this statementwere deemed immaterial for the periods presented.

We provide forpotentially uncollectible accounts receivable by use of the allowancemethod.  The allowance is provided basedupon a review of the individual accounts outstanding, and our prior history ofuncollectible 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.

Determining theappropriate fair value model and calculating the fair value of share-basedpayment awards requires the input of highly subjective assumptions, includingthe expected life of the share-based payment awards and stock price volatility.The assumptions used in calculating the fair value of share-based paymentawards represent management’s best estimates, but these estimates involveinherent uncertainties and the application of management judgment. As a result,if factors change and we use different assumptions, our stock-basedcompensation expense could be materially different in the future. In addition,we are required to estimate the expected forfeiture rate and only recognizeexpense for those shares expected to vest. If our actual forfeiture rate ismaterially different from our estimate, the stock-based compensation expensecould be significantly different from what we have recorded in the currentperiod.

**Results ofOperations for the Three and Six Months Ended December 31, 2006 and 2005**

This analysis does not take into account the sale of the Company’s reselleractivity as discussed in Note H in the financial statements.  The company expects to experience asignificant decrease in both revenue and operating expenses as a result of thesale.

*Revenues:*
| ** ** | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** ** | ** ** | **December 31,  2006**      | ** ** | **December 31,  2005**    | ** ** | **Percent  Change** | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** | **Percent  Change** | ** ** |
| Revenues   |       | $                                | 2,082,340  |                           | $          | 1,539,355 |   | 35 | % | $ | 3,532,932 |   | $ | 3,010,168 |   | 17 | % |
|            |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

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See “ProductSales” and “Service Revenue” below for a discussion regarding the change.

*ProductSales:*
| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **December 31,  2006**      | ** ** | **December 31,  2005**    | ** ** | **Percent  Change** | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** | **Percent  Change** | ** ** |
| Product sales                                 |       | $                                | 1,513,678  |                           | $          | 1,049,357 |   | 44 | % | $ | 2,569,713 |   | $ | 2,066,921 |   | 24 | % |
| Product sales as a  percent of total revenues |       | 73                               | %          | 68                             | %          | — |   | 73 | % | 69 | % | — |   |
|                                               |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Productsales revenue was approximately $1,514,000 and $1,049,000 for the three monthsended December 31, 2006 and 2005, respectively, an increase of $465,000 or44%.  The increase in product sales forthe three months ended December 31, 2006, as compared to the same period in theprior year, was primarily attributable to increased sales to a Fortune 100company.

Productsales revenue was approximately $2,570,000 and $2,067,000 for the six monthsended December 31, 2006 and 2005, respectively, an increase of $503,000 or24%.  The increase in product sales forthe six months ended December 31, 2006, as compared to the same period in theprior year, was primarily attributable to increased sales to a Fortune 100company.

*ServiceRevenue:*
| ** **                                      | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                      | ** ** | **December 31,  2006**      | ** ** | **December 31,  2005**    | ** ** | **Percent  Change** | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** | **Percent  Change** | ** ** |
| Service revenue                                 |       | $                                | 568,662    |                           | $          | 489,998 |   | 16 | % | $ | 963,219 |   | $ | 943,247 |   | 2 | % |
| Service revenue as a  percent of total revenues |       | 27                               | %          | 32                             | %          | — |   | 27 | % | 31 | % | — |   |
|                                                 |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Theincrease in our service revenue in the current quarter was primarilyattributable to approximately a $116,000 increase in our implementation andtraining revenue and a $55,000 increase in our NETtime software service revenueover the prior year period.  The increasein implementation and training revenue correlates with the 44% increase inproduct sales.  The increase in NETtimesoftware service revenue is due to adding additional customers to the existingrecurring revenue base.  This increasewas partially offset by a decrease of approximately $92,000 in maintenancerevenue as a result of the sale of certain maintenance contracts on March 31,2006.

Theincrease in our service revenue in the six month period was primarilyattributable to approximately a $79,000 increase in our implementation andtraining revenue and a $105,000 increase in our NETtime software servicerevenue over the prior year period.  Thisincrease was partially offset by a decrease of approximately $164,000 inmaintenance revenue as a result of the sale of certain maintenance contracts onMarch 31, 2006.

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*Gross Profit:*
| ** **            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **            | ** ** | **December 31,  2006**      | ** ** | **December 31,  2005**    | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
| Product gross  margin |       | 53                               | %          | 54                             | %          | 52 | % | 51 | % |
| Service gross  margin |       | 67                               | %          | 56                             | %          | 62 | % | 55 | % |
| Total gross margin    |       | 57                               | %          | 55                             | %          | 55 | % | 52 | % |

 

Ourgross profit percentage on products is typically between 50% to 60% dependingupon the mix of software versus hardware sales and the makeup of hardwaresales.  Our product revenue is comprisedof software and hardware sales, with hardware sales yielding a significantlylower gross profit than software sales.  Hardware revenue is primarily derived from the sale of two versions ofgeneral data collection terminals, badge terminals and biometric units.  The gross profit is greater on badgeterminals than biometric units because we add value to our badge terminals byinstalling software on the terminals.

Ourgross profit percentage on services revenue increased as we were able toincrease our implementation and training revenue while also reducing our laborcosts.  In addition, we also increasedour NETtime software service revenue which does not require substantialadditional costs to increase the volume of users on the service.

*OperatingExpenses:*
| ** **                                               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                               | ** ** | **December 31,  2006**      | ** ** | **December 31,  2005**    | ** ** | **Percent  Change** | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** | **Percent  Change** | ** ** |
| Total costs and  expenses                                |       | $                                | 1,236,678  |                           | $          | 1,302,790 |   | (5 | )% | $ | 2,427,179 |   | $ | 2,599,643 |   | (7 | )% |
| Total costs and  expenses as a percent of total revenues |       | 59                               | %          | 85                             | %          | — |   | 69 | % | 86 | % | — |   |
|                                                          |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

*Sales and Marketing Expense:*
| ** **                                                  | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                  | ** ** | **December 31,  2006**      | ** ** | **December 31,  2005**    | ** ** | **Percent  Change** | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** | **Percent  Change** | ** ** |
| Sales and  marketing expense                                |       | $                                | 394,672    |                           | $          | 537,336 |   | (27 | )% | $ | 743,717 |   | $ | 1,131,692 |   | (34 | )% |
| Sales and marketing  expense as a percent of total revenues |       | 19                               | %          | 35                             | %          | — |   | 21 | % | 38 | % | — |   |
|                                                             |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Thedecrease in sales and marketing expenses in the current quarter is primarilyattributable to lower costs as the result of the sale of the majority of ourdirect sales operations on March 31, 2006. As a result of this sale, our sales and marketing labor expensedecreased by approximately $49,000, advertising and promotion expensesdecreased by approximately $61,000, and travel expense decreased byapproximately $28,000.

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Thedecrease in sales and marketing expenses in the six month period is alsoprimarily attributable to lower costs as the result of the sale of the majorityof our direct sales operations on March 31, 2006.  As a result of this sale, our sales andmarketing labor expense decreased by approximately $151,000, advertising andpromotion expenses decreased by approximately $133,000, and travel expensedecreased by approximately $61,000.

*Research and Development Expense:*
| ** **                                                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                       | ** ** | **December 31,  2006**      | ** ** | **December 31,  2005**    | ** ** | **Percent  Change** | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** | **Percent  Change** | ** ** |
| Research and  development expense                                |       | $                                | 464,530    |                           | $          | 382,534 |   | 21 | % | $ | 929,832 |   | $ | 747,150 |   | 24 | % |
| Research and  development expense as a percent of total revenues |       | 22                               | %          | 25                             | %          | — |   | 26 | % | 25 | % | — |   |
|                                                                  |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Theincrease in research and development expenses is primarily attributable tolabor and other costs associated with the development of our custom solutionfor a Fortune 100 company, development in our data collection terminal andenhancement of our software offerings.

*Generaland Administrative Expense:*
| ** **                                                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                         | ** ** | **December 31,  2006**      | ** ** | **December 31,  2005**    | ** ** | **Percent  Change** | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** | **Percent  Change** | ** ** |
| General and  administrative expense                                |       | $                                | 377,476    |                           | $          | 382,920 |   | (1 | )% | $ | 753,630 |   | $ | 720,801 |   | 5 | % |
| General and  administrative expense as a percent of total revenues |       | 18                               | %          | 25                             | %          | — |   | 21 | % | 24 | % | — |   |
|                                                                    |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

General andadministrative expenses have remained relatively flat over the three monthsended December 31, 2006.

The increase ingeneral and administrative expenses for the six month period was primarily dueto increased accounting fees and expenses associated with the preparation andfiling of a registration statement with the Securities and Exchange Commission.

Other Expense:
| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **December 31,  2006**      | ** ** | **December 31,  2005**    | ** ** | **Percent  Change** | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** | **Percent  Change** | ** ** |
| Other expense                                 |       | $                                | 113,203    |                           | $          | 132,201 |   | (14 | )% | $ | 198,382 |   | $ | 271,246 |   | (27 | )% |
| Other expense as a  percent of total revenues |       | 5                                | %          | 9                              | %          | — |   | 6 | % | 9 | % | — |   |
|                                               |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Otherincome (expense) consists primarily of interest expense and other income on thegainon sale of assets.  The decrease in other expense isprimarily due to an increase in other income from the gain on sale of assetsthat occurred on March 31, 2006.  We arerecognizing the gain on the sale of certain of those 

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assets over a12-month period and are also recording a gain based on maintenance contractrenewals during the period.  The decreasewas partially offset by an increase of approximately $46,000 and $67,000,respectively, in interest expense for the current quarter and six month period.

**Liquidity andCapital Resources**

Cash FlowHighlights:
| ** **                          | ** ** | **Six Months Ended December 31,** | ** ** | **Percentage** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------|------------|----------------|------------|
| ** **                          | ** ** | **2006**                                              | ** ** | **2005**       | ** ** | **Change** | ** ** |
| Net cash from  operations           |       | $                                                     | 135,527    |           | $          | (1,023,583 | ) | 113 | % |
| Purchase of  property and equipment |       | $                                                     | (23,826    | )              | $          | (131,023 | ) | 82 | % |
| Repayment of  debt                  |       | $                                                     | (868,181   | )              | $          | (138,892 | ) | (525 | )% |
| Proceeds from  debt                 |       | $                                                     | 318,341    |           | $          | 500,000 |   | (36 | )% |
| Net change is  cash                 |       | $                                                     | (434,389   | )              | $          | (791,898 | ) | 45 | % |
| Cash at end of  period              |       | $                                                     | 180,815    |           | $          | 569,819 |   | (68 | )% |

 

AtDecember 31, 2006, we had a working capital deficit of $1,538,204, compared toworking capital deficit of $580,808 at June 30, 2006.  Cash and cash equivalents at those datesamounted to $180,815 and $615,204, respectively.  We have funded our operations for the pastsix years primarily through a combination of sales of equity securities anddebt financing.

*Operating Activities*. Although wehad a net loss of $688,633 in the current period, we were able to generate$135,527 in net cash from operations in the current period. This was primarilyattributable to a decrease in accounts receivable of $590,366, an increase inaccounts payable of $212,760 and the fact that included in the net loss was atotal of $325,534 of non-cash charges. Deferred revenue decreased by $299,944in the current period decreasing our cash flow from operations.

*Investment Activities*. Our use ofcash for property and equipment includes investments in information systems andinfrastructure to support operations.

*Financing Activities*.   Cash flows used by financing activities was$546,090 for the current period primarily as the result of $868,181 in debtpayments. The cash flows used by financing activities was partially offset bydebt proceeds of  $318,841 of which$300,000 was from a financing transaction completed during the second quarterof fiscal year 2007.

Ourliquidity is affected by many factors, some based on the normal ongoingoperations of our business and others related to the uncertainties of the timeand attendance industry and global economies. Although our cash requirements will continue to fluctuate based on thetiming and extent of these factors, we believe that our current cash reserves,cash generated from operations, cash received from recent asset sales, recentfinancings, and our borrowing capacity under our two credit facilities, will besufficient to satisfy commitments for capital expenditures and other cashrequirements for the next six months. At December 31, 2006, we hadapproximately $580,000 outstanding under our $1,500,000 revolving note.  Wecan borrow up to the $1,500,000 limit assuming we have sufficient eligibleaccounts receivable and inventory balances. We also have $250,000 in unused capacity under a line of credit with ashareholder of the Company.

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The ability toraise additional capital in public or private markets will primarily bedependent upon prevailing market conditions and the demand for our products andservices.  No assurance can be given thatwe will be able to raise additional capital, when needed or at all, or thatsuch capital, if available, will be on acceptable terms. In the absence ofobtaining additional financing, the Company may be unable to fund itsoperations and may experience defaults under certain of its contractualagreements, including our credit facilities and lease agreements for ourcorporate headquarters.  Our leaseagreements are subject to termination in the event of a default.  Certain of the parties to these agreementscould take legal action against the Company to collect amounts owed tothem.  Accordingly, the Company’sfinancial condition could require that the Company seek the protection ofapplicable reorganization laws in order to avoid or delay actions by thirdparties, which could materially adversely affect, interrupt or cause thecessation of the Company’s operations. As a result, the Company’s independentcertified public accountants have issued a going concern opinion on theconsolidated financial statements of the Company for the fiscal year ended June30, 2006.

# **Subsequent Events**

On January 16, 2007, the Company entered into an Asset PurchaseAgreement with Synel Industries, Inc., an Israeli registered corporation (“Synel”).Under the agreement, Synel purchased the Company’s reseller sales channel,source code and related intellectual property for the Company’s GENESIS,HourTrack, and TA7000 product series, certain use rights associated with theCompany’s NETtime source code, and all of the Company’s rights associated withthe “Time America” name. The Company intends to change its name to NETtimeSolutions. The sale closed on January 22, 2007.

Under the agreement, the purchase price for the acquired assets was $2.5million, $250,000 of which is being held in escrow pending fulfillment ofcertain post-closing obligations. The remaining consideration under theagreement for the acquired assets consists of royalty payments, payable to theCompany quarterly over the next four years, equal to 5% of the revenue derivedfrom Synel’s U.S. sales of TA7000 units outside of Synel’s established U.S.customer base. Additionally, Synel purchased certain of the Company’s TA7000inventory for $140,000 cash. Part of the proceeds from the sale was used torepay in full all of the Company’s existing indebtedness owing to Laurus MasterFund Ltd. under its Secured Convertible Term Note, dated January 3, 2006.

For the three months and six months ended December 31, 2006, thereseller sales channel accounted for approximately 58% and 66%, respectively,of the Company’s gross product sales. For fiscal years ended June 30, 2005 and 2006, the reseller saleschannel accounted for approximately 69% and 66%, respectively, of the Company’sgross product sales.  The Company doesnot distinguish operationally or financially its activities other than grossproduct sales between its sales channels andas such the Company has not accounted for the sale as discontinued operationsunder SFAS No. 144 (“Accounting for the Impairment or Disposal of Long-LivedAssets”).

Subsequent to the sale to Synel, the Company will derive its sales fromdirect sales generated through its business alliance program, and other selectdirect sales opportunities.  The Companyalso intends to consider other business opportunities as appropriate, includingopportunities that may not be related to the Company’s current operations.

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**Item3. Controls and Procedures.**

As of the end of the period covered by this report, the Company carriedout an evaluation, under the supervision and with the participation of itsChief Executive Officer and Chief Financial Officer, of the effectiveness ofthe Company’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 statementscontained in this Quarterly Report on Form 10-QSB that are not historical factare forward-looking statements (as such term is defined in the PrivateSecurities Litigation Reform Act of 1995), within the meaning of Section 27A ofthe Securities 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. Because of the number and range of assumptions underlying the Company’sprojections and forward-looking statements, many of which are subject tosignificant uncertainties and contingencies that are beyond the reasonablecontrol of the Company, some of the assumptions inevitably will notmaterialize, and unanticipated events and circumstances may occur subsequent tothe date of this report.  Theseforward-looking statements are based on current expectations and the Companyassumes no obligation to update this information.  Therefore, the actual experience of theCompany and the results achieved during the period covered by any particularprojections or forward-looking statements may differ substantially from thoseprojected.  Consequently, the inclusionof projections and other forward-looking statements should not be regarded as arepresentation by the Company or any other person that these estimates andprojections will be realized, and actual results may vary materially.  There can be no assurance that any of theseexpectations will be realized or that any of the forward-looking statementscontained herein will prove to be accurate.

##### **PART II — OTHER INFORMATION**

**Item 1.Legal Proceedings.**

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.

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**Item 6.Exhibits and Reports.**
| (a)    | The following exhibits are filed herewith pursuant  to Regulation S-B. |
|--------|------------------------------------------------------------------------|
|   |
|   | 10.1                                                                   | Asset Purchase Agreement, dated January 16, 2007, by  and among Time America, Inc., a Nevada corporation, Time America, Inc., an  Arizona corporation, and NetEdge Devices, LLC, an Arizona limited liability  company and Synel Industries  Ltd., an Israeli registered corporation, and Time America, Inc., a Delaware  corporation |
|   |                                                                   |   |
|   | 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 accordance with the requirements of the SecuritiesExchange Act of 1934, the registrant caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|                          | TIME AMERICA, INC. |
|--------------------------|--------------------|
| Dated: February 14, 2007 |               |   |
|                     | By:                | /s/ Jonathan Weiss |
|                     |               | Jonathan Weiss |
|                     |               | President and Chief  Executive Officer |
|                     |               | (Principal Executive  Offices) |

 

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