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

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 
| **x**      | ** ** | **QUARTERLY REPORT UNDER  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                            |
| ** ** | ** ** | **For  the quarterly period ended December 31, 2007**                                                                      |
|       |       |                                                                                                                            |
| **o**      | ** ** | **TRANSITION REPORT UNDER SECTION 13  OR 15(d) OF THE EXCHANGE ACT**                                                  |
|       |       |                                                                                                                            |
|       |       | **For  the transition period from               to** |
|       |       |                                                                                                                            |
|       |       | **Commission  File number 001-10320**                                                                                           |

 

**NETtime Solutions, Inc.**

(Exact name of smallbusiness issuer as specified in its charter)

 

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

 

**8840 East Chaparral Road, Suite 100, Scottsdale, AZ 85250**

(Address of principal executive offices)

 

**(480) 296-0400**

(Issuer’s telephone number)

 

(Former name, former addressand former fiscal year, if changed since last report)

 

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

 

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

 

State the number of shares outstanding of each of the issuer’s classesof common equity, as of the latest practicable date: At February 14, 2008,the issuer had outstanding 8,902,846 shares of Common Stock, par value $.005per share.

 

Transitional Small Business Disclosure Format:   Yes  o   No  x

** **

** **

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** **

**PART I – FINANCIAL INFORMATION**

 

**Item1 – Financial Statements.**

**NETTIME SOLUTIONS, INC.AND SUBSIDIARIES**

CONSOLIDATED BALANCE SHEETS

 
| ** **                                                                                                            | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                                                                            | ** ** | **2007**              | ** ** | **2007**          | ** ** |
| ** **                                                                                                            | ** ** | **(Unaudited)**       | ** ** | ** **        | ** ** |
| **ASSETS**                                                                                                            | ** ** | ** **            | ** ** | ** **        | ** ** |
| **Current Assets:**                                                                                                   |       |                  |       |              |       |
| Cash and cash equivalents                                                                                             |       | $                     | 745,618    |              | $          | 278,701 |   |
| Accounts receivable – trade, net                                                                                 |       | 510,234               |       | 501,078           |       |
| Inventory, net                                                                                                        |       | 80,554                |       | 66,966            |       |
| Deferred loan costs and other current assets                                                                          |       | 262,996               |       | 427,136           |       |
|                                                                                                                  |       |                  |       |              |       |
| **Total Current Assets**                                                                                              |       | 1,599,402             |       | 1,273,881         |       |
|                                                                                                                  |       |                  |       |              |       |
| **Property and Equipment, net**                                                                                       |       | 226,893               |       | 293,644           |       |
| **Other Assets**                                                                                                      |       | 27,157                |       | 35,183            |       |
|                                                                                                                  |       |                  |       |              |       |
| **Total Assets**                                                                                                      |       | $                     | 1,853,452  |              | $          | 1,602,708 |   |
|                                                                                                                  |       |                  |       |              |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY (DEFICIT)**                                                              | ** ** | ** **            | ** ** | ** **        | ** ** |
|                                                                                                                  |       |                  |       |              |       |
| **Current Liabilities:**                                                                                              |       |                  |       |              |       |
| Current portion of long-term debt-related party                                                                       |       | $                     | 781,604    |              | $          | 610,716 |   |
| Accounts payable                                                                                                      |       | 302,943               |       | 551,102           |       |
| Accrued liabilities                                                                                                   |       | 559,513               |       | 594,875           |       |
| Deferred revenue                                                                                                      |       | 349,489               |       | 564,176           |       |
|                                                                                                                  |       |                  |       |              |       |
| **Total Current Liabilities**                                                                                         |       | 1,993,549             |       | 2,320,869         |       |
|                                                                                                                  |       |                  |       |              |       |
| **Long-Term Debt, less current portion-related  party**                                                               |       | 738,554               |       | 909,442           |       |
| ** **                                                                                                            |       |                  |       |              |       |
| **Total Liabilities**                                                                                                 |       | 2,732,103             |       | 3,230,311         |       |
|                                                                                                                  |       |                  |       |              |       |
| **Common Stock Subject to Registration Rights  (351,923 shares)**                                                     |       | —                |       | 207,635           |       |
|                                                                                                                  |       |                  |       |              |       |
| **Commitments:**                                                                                                      |       | —                |       | —            |       |
|                                                                                                                  |       |                  |       |              |       |
| **Stockholders’ Equity (Deficit):**                                                                              |       |                  |       |              |       |
| Common stock, $.005 par value, 50,000,000 shares authorized;  15,382,404 and 15,030,481 shares issued and outstanding |       | 76,913                |       | 75,153            |       |
| Contributed capital                                                                                                   |       | 10,165,238            |       | 9,889,188         |       |
| Accumulated deficit                                                                                                   |       | (11,120,802           | )          | (11,799,579       | )          |
|                                                                                                                  |       |                  |       |              |       |
| **Total Stockholders’ Equity (Deficit)**                                                                         |       | (878,651              | )          | (1,835,238        | )          |
|                                                                                                                  |       |                  |       |              |       |
| **Total Liabilities and Stockholders’ Equity  (Deficit)**                                                        |       | $                     | 1,853,452  |              | $          | 1,602,708 |   |

 

#### **SeeNotes to Consolidated Financial Statements**

 

2

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#### ** **

#### **NETTIME SOLUTIONS, INC. AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OFOPERATIONS

(UNAUDITED)

 
| ** **                                      | ** ** | **Three Months Ended  December 31,** | ** ** | **Six Months Ended  December 31,** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | **(unaudited)**                                     | ** ** | **(unaudited)**                                   | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| **Revenues:**                                   |       |                                                |       |                                              |       |   |   |   |   |
| Product sales                                   |       | $                                                   | 153,930    |                                              | $          | 1,513,678 |   | $ | 356,949 |   | $ | 2,569,713 |   |
| Services revenue                                |       | 452,939                                             |       | 568,662                                           |       | 930,162 |   | 963,219 |   |
|                                            |       |                                                |       |                                              |       |   |   |   |   |
| **Total Revenues**                              |       | 606,869                                             |       | 2,082,340                                         |       | 1,287,111 |   | 3,532,932 |   |
|                                            |       |                                                |       |                                              |       |   |   |   |   |
| **Cost of Revenues:**                           |       |                                                |       |                                              |       |   |   |   |   |
| Product                                         |       | 52,205                                              |       | 706,682                                           |       | 120,249 |   | 1,228,097 |   |
| Services                                        |       | 144,091                                             |       | 189,266                                           |       | 271,231 |   | 367,907 |   |
|                                            |       |                                                |       |                                              |       |   |   |   |   |
| **Total Cost of Revenues**                      |       | 196,296                                             |       | 895,948                                           |       | 391,480 |   | 1,596,004 |   |
|                                            |       |                                                |       |                                              |       |   |   |   |   |
| **Gross Profit**                                |       | 410,573                                             |       | 1,186,392                                         |       | 895,631 |   | 1,936,928 |   |
|                                            |       |                                                |       |                                              |       |   |   |   |   |
| **Costs and Expenses:**                         |       |                                                |       |                                              |       |   |   |   |   |
| Sales and marketing                             |       | 158,038                                             |       | 394,672                                           |       | 353,313 |   | 743,717 |   |
| Research and development                        |       | 205,223                                             |       | 464,530                                           |       | 490,824 |   | 929,832 |   |
| General and administrative                      |       | 143,278                                             |       | 377,476                                           |       | 346,256 |   | 753,630 |   |
|                                            |       |                                                |       |                                              |       |   |   |   |   |
| **Total Costs and Expenses**                    |       | 506,539                                             |       | 1,236,678                                         |       | 1,190,393 |   | 2,427,179 |   |
|                                            |       |                                                |       |                                              |       |   |   |   |   |
| **Net Loss from Operations**                    |       | (95,966                                             | )          | (50,286                                           | )          | (294,762 | ) | (490,251 | ) |
|                                            |       |                                                |       |                                              |       |   |   |   |   |
| **Other Income (Expense):**                     |       |                                                |       |                                              |       |   |   |   |   |
| Interest expense                                |       | (124,880                                            | )          | (188,270                                          | )          | (249,853 | ) | (385,802 | ) |
| Gain on sale of assets                          |       | 1,200,000                                           |       | —                                            |       | 1,189,596 |   | — |   |
| Other                                           |       | 5,450                                               |       | 74,444                                            |       | 30,450 |   | 184,116 |   |
| Interest income                                 |       | 3,047                                               |       | 623                                               |       | 3,346 |   | 3,304 |   |
|                                            |       |                                                |       |                                              |       |   |   |   |   |
|                                            |       | 1,083,617                                           |       | (113,203                                          | )          | 973,539 |   | (198,382 | ) |
|                                            |       |                                                |       |                                              |       |   |   |   |   |
| **Net Income (Loss)**                           |       | $                                                   | 987,651    |                                              | $          | (163,489 | ) | $ | 678,777 |   | $ | (688,633 | ) |
|                                            |       |                                                |       |                                              |       |   |   |   |   |
| **Basic and Diluted Income (Loss) per Share**   |       | $                                                   | 0.06       |                                              | $          | (0.01 | ) | $ | 0.04 |   | $ | (0.05 | ) |
|                                            |       |                                                |       |                                              |       |   |   |   |   |
| **Basic Weighted Average Shares Outstanding**   |       | 15,290,598                                          |       | 14,677,535                                        |       | 15,160,540 |   | 14,665,008 |   |
| **Diluted Weighted Average Shares Outstanding** |       | 15,290,598                                          |       | 14,677,535                                        |       | 15,160,540 |   | 14,665,008 |   |

 

See Notes to Consolidated Financial Statements

 

3

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#### ** **

#### **NETTIME SOLUTIONS, INC. AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEAR ENDED JUNE 30, 2007 AND

THE SIX MONTH PERIOD ENDED DECEMBER 31, 2007 (Unaudited)

 
| ** **                                      | ** ** | **Common Stock** | ** ** | **Contributed** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|-----------------|------------|-----------------|------------|-------------|------------|
| ** **                                      | ** ** | **Shares**            | ** ** | **Amount**      | ** ** | **Capital**     | ** ** | **Deficit** | ** ** | **Total** | ** ** |
|                                            |       |                  |       |            |       |            |       |        |       |   |   |
| Balance at June 30, 2006                   |       | 14,652,481            |       | $               | 73,263     |            | $          | 9,591,098   |       | $ | (11,940,015 | ) | $ | (2,275,654 | ) |
|                                            |       |                  |       |            |       |            |       |        |       |   |   |
| Exercise of stock options                       |       | 23,000                |       | 115             |       | 5,135           |       | —      |       | 5,250 |   |
| Exercise of stock warrants                      |       | 25,000                |       | 125             |       | 3,625           |       | —      |       | 3,750 |   |
| Share-based awards compensation                 |       | —                |       | —          |       | 142,980         |       | —      |       | 142,980 |   |
| Issuance of common stock for financing          |       | 230,000               |       | 1,150           |       | 102,850         |       | —      |       | 104,000 |   |
| Issuance of common stock for services           |       | 100,000               |       | 500             |       | 43,500          |       | —      |       | 44,000 |   |
| Net income                                      |       | —                |       | —          |       | —          |       | 140,436     |       | 140,436 |   |
| Balance at June 30, 2007                   |       | 15,030,481            |       | 75,153          |       | 9,889,188       |       | (11,799,579 | )          | (1,835,238 | ) |
|                                            |       |                  |       |            |       |            |       |        |       |   |   |
| Share-based awards compensation (Unaudited)     |       | —                |       | —          |       | 70,175          |       | —      |       | 70,175 |   |
| Reclass restricted shares to equity (Unaudited) |       | 351,923               |       | 1,760           |       | 205,875         |       | —      |       | 207,635 |   |
| Net income (Unaudited)                          |       | —                |       | —          |       | —          |       | 678,777     |       | 678,777 |   |
| Balance at December 31, 2007 (Unaudited)   |       | 15,382,404            |       | $               | 76,913     |            | $          | 10,165,238  |       | $ | (11,120,802 | ) | $ | (878,651 | ) |

 

See Notes to ConsolidatedFinancial Statements

#### ** **

4

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#### ** **

#### **NETTIME SOLUTIONS, INC. AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 
| ** **                                                | ** ** | **Six Months Ended  December 31,** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| ** **                                                | ** ** | **(unaudited)**                                   | ** ** | **(unaudited)** | ** ** |
| **Increase (Decrease) in Cash and Cash  Equivalents:**    | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Cash flows from operating activities:**                 |       |                                              |       |   |   |
| Net Income (Loss)                                         |       | $                                                 | 678,777    |   | $ | (688,633 | ) |
| Adjustments to reconcile net income (loss) to net         |       |                                              |       |   |   |
| cash provided (used) by operating activities:             |       |                                              |       |   |   |
| Gain on sale of intangible assets                         |       | (1,200,000                                        | )          | — |   |
| Depreciation                                              |       | 59,819                                            |       | 81,936 |   |
| Amortization of discounts and deferred financing costs    |       | 161,495                                           |       | 157,046 |   |
| Share based compensation expense                          |       | 70,175                                            |       | 74,552 |   |
| Loss on disposal of fixed assets                          |       | 10,404                                            |       | — |   |
| Issuance of common stock for financing                    |       | —                                            |       | 12,000 |   |
| Changes in Assets and Liabilities:                        |       |                                              |       |   |   |
| Accounts receivable-trade, net                            |       | (9,156                                            | )          | 590,366 |   |
| Inventory, net                                            |       | (13,588                                           | )          | 17,746 |   |
| Deferred loan costs and other current assets              |       | 210,671                                           |       | 39,272 |   |
| Accounts payable                                          |       | (248,159                                          | )          | 212,670 |   |
| Accrued liabilities                                       |       | (35,362                                           | )          | (61,484 | ) |
| Deferred revenue                                          |       | (214,687                                          | )          | (299,944 | ) |
| **Net cash provided (used) by operating activities**      |       | (529,611                                          | )          | 135,527 |   |
|                                                      |       |                                              |       |   |   |
| **Cash flows from investing activities:**                 |       |                                              |       |   |   |
| Purchase of property and equipment                        |       | (3,472                                            | )          | (23,826 | ) |
| Proceeds from sale of intangible assets                   |       | 1,000,000                                         |       | — |   |
| **Net cash provided (used) by investing activities**      |       | 996,528                                           |       | (23,826 | ) |
|                                                      |       |                                              |       |   |   |
| **Cash flows from financing activities:**                 |       |                                              |       |   |   |
| Repayment of debt                                         |       | —                                            |       | (868,181 | ) |
| Proceeds from exercise of options and warrants            |       | —                                            |       | 3,750 |   |
| Proceeds from debt                                        |       | —                                            |       | 318,341 |   |
| **Net cash used by financing activities**                 |       | —                                            |       | (546,090 | ) |
|                                                      |       |                                              |       |   |   |
| Net change in cash and cash equivalents                   |       | 466,917                                           |       | (434,389 | ) |
|                                                      |       |                                              |       |   |   |
| Cash and cash equivalents at beginning of period          |       | 278,701                                           |       | 615,204 |   |
|                                                      |       |                                              |       |   |   |
| Cash and cash equivalents at end of period                |       | $                                                 | 745,618    |   | $ | 180,815 |   |
|                                                      |       |                                              |       |   |   |
| **Supplemental disclosure of cash flow  information:**    |       |                                              |       |   |   |
| Interest paid                                             |       | $                                                 | 86,467     |   | $ | 229,904 |   |
| Income taxes paid                                         |       | $                                                 | —     |   | $ | — |   |
|                                                      |       |                                              |       |   |   |
| **Non-cash investing and financing activities:**          |       |                                              |       |   |   |
| Reclass restricted shares from temporary equity to equity |       | $                                                 | 207,635    |   | $ | — |   |

 

See Notes to Consolidated Financial Statements

 

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#### ** **

#### **NETTIME SOLUTIONS, INC. AND SUBSIDIARIES**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

## **SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

## ** **

**Note A - Basis of Presentation and Interim Consolidated FinancialStatements**

 

On April 20, 2007, the Company filed a Certificate of Amendment toits Articles of Incorporation with the Nevada Secretary of State to change thecorporate name of Time America, Inc., a Nevada corporation, to NETtimeSolutions, Inc.  The effective dateof the parent corporate name change was May 10, 2007.  The Company filed a Second Amendment to theArticles of Incorporation with the Arizona Corporation Commission to change thecorporate name of its wholly-owned subsidiary, Time America, Inc., anArizona corporation, to NETtime Solutions, Inc.  The effective date of the subsidiarycorporate name change was January 22, 2007.

 

NETtime Solutions, Inc., a Nevada corporation, is a holdingcorporation (formerly Time America, Inc.). Our operations are conducted through our wholly-owned subsidiaries, oneof which is also named NETtime Solutions, Inc. (formerly Time America, Inc.,an Arizona corporation).  Our otherwholly-owned subsidiary is NetEdge Devices, LLC.  Unless the context indicates otherwise,references to the Company in this report shall include NETtime Solutions (theparent company organized in Nevada), NETtime Solutions, Inc. (ourwholly-owned subsidiary organized in Arizona) and NetEdge Devices, LLC, anArizona limited liability company.

 

The accompanying unaudited consolidated financialstatements of NETtime Solutions, Inc. and subsidiaries have been preparedin accordance with generally accepted accounting principles (“GAAP”), pursuantto the rules and regulations of the Securities and Exchange Commission,and are unaudited.  Accordingly, they donot include 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, 2007, may not be indicative ofthe results for the entire year.  Thesefinancial statements should be read in conjunction with the Company’s Annual Reporton Form 10-KSB for the fiscal year ended June 30, 2007.

 

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 was computed bydividing the net income (loss) by the weighted average number of shares ofcommon stock outstanding during the period.

 

Dilutedincome (loss) per share is computed based on the weighted average number ofshares of common stock and dilutive securities outstanding during theperiod.  Dilutive securities are optionsand warrants that are freely exercisable into common stock at less than theprevailing market price.  Dilutive

 

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#### ** **

#### **NETTIME SOLUTIONS, INC. AND SUBSIDIARIES**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

securitiesare not included in the weighted average number of shares when inclusion wouldincrease the earnings per share or decrease the loss per share.  At December 31, 2007, there were nopotentially dilutive securities included in the calculation as they all hadexercise prices above the then current market price for the Company’s commonstock, as such their effect was anti-dilutive.

 

**Note C - Stock Based Compensation:**

 

Effective July 1,2005, the Company adopted the fair value recognition provisions of Statement ofFinancial Accounting Standards Board No. 123(R), “Share–Based Payment,”using the modified prospective-transition method.  Under this transition method, compensationexpense recognized for the three months ended and six months ended December 31,2007  includes:  (a) compensation expense for allshare-based payments granted prior to, but not yet vested as of June 30,2005 based on the grant date fair value estimated in accordance with theoriginal provisions of SFAS 123 and (b) compensation expense for allshare-based payments granted subsequent to June 30, 2005, based on thegrant date fair value estimated in accordance with the provisions of SFAS 123(R).  The fair value of optiongrants is estimated as of the date of grant utilizing the Black-Scholesoption-pricing model and amortized to expense over the options’ vesting periodnet of estimated forfeitures.

 

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

 

In July 2006, theCompany amended the terms of its note agreements with Frances Simek to deferthe monthly principal payments for the period of July 2006 through December 2006.  The amortization period of the note wasincreased by six months to compensate for the deferred principal payments.

 

In December 2006, the Company entered intoa subordinated note agreement with Frances Simek.  The note is a 90-daynote with the principal due in 90 days and monthly interest payments at anannual percentage rate of 10%.  In consideration for agreeing tosubordinate repayment of the note, the Company issued 30,000 shares ofrestricted common stock to the holder of the subordinated note.  The fairvalue of the stock was recorded as a deferred loan issue charge. The Companyamended the terms of this note agreement with Frances Simek to defer themonthly principal payments through December 2007 as discussed below.

 

In February 2007,the Company amended the terms of all its note agreements with Frances Simek todefer the monthly principal payments through December 2007.  The amortization period of the note wasincreased by 12 months to compensate for the deferred principal payments.  The Company issued 100,000 shares of itscommon stock to Frances Simek in consideration for consent to interest onlypayments through December 2007.

 

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#### ** **

#### **NETTIME SOLUTIONS, INC. AND SUBSIDIARIES**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

**Note E- New Accounting Pronouncements:**

 

In December 2007,the Financial Accounting Standards Board issued Statement of FinancialAccounting Standards No. 160, “Non-controlling Interests in ConsolidatedFinancial Statements—an amendment of Accounting Research Bulletin No. 51”(“SFAS 160”). SFAS 160 establishes new accounting and reporting standards forthe noncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. SFAS No. 160 is effective for fiscal years beginning on orafter December 15, 2008. The Company does not believe that SFAS 160 willhave a material impact on its consolidated financial statements.

 

In December 2007,the Financial Accounting Standards Board issued Statement of FinancialAccounting Standards No. 141 (revised 2007), “Business Combinations”(“SFAS 141(R)”). SFAS 141(R) will change the accounting for businesscombinations. Under SFAS No. 141(R), an acquiring entity will be requiredto recognize all the assets acquired and liabilities assumed in a transactionat the acquisition-date fair value with limited exceptions. SFAS No. 141(R) willchange the accounting treatment and disclosure for certain specific items in abusiness combination. SFAS No. 141(R) applies prospectively tobusiness combinations for which the acquisition date is on or after thebeginning of the first annual reporting period beginning on or after December 15,2008. SFAS 141(R) will impact the Company in the event of any futureacquisition.

 

In February 2007,the Financial Accounting Standards Board issued Statement of FinancialAccounting Standards No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities—Including an amendment of Statement of FinancialAccounting Standards Statement No. 115” (“SFAS 159”), which permitsentities to choose to measure many financial instruments and certain otheritems at fair value at specified election dates. A business entity is requiredto report unrealized gains and losses on items for which the fair value optionhas been elected in earnings at each subsequent reporting date. This statementis expected to expand the use of fair value measurement. SFAS 159 is effectivefor financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years. The Company has notdetermined the impact of SFAS 159 on its financial position or results ofoperations.

 

InSeptember 2006, the Financial Accounting Standard Board issued a Statementof Financial Accounting Standards No. 157, “Fair Value Measurements”(“SFAS 157”). The Statement defines fair value, establishes a framework formeasuring fair value in accordance with GAAP, and expands disclosures aboutfair value measurements.  This Statementis effective for financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years. The adoption of SFAS 157is not expected to have a material affect on our financial position or resultsof operations.

#### ** **

8

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#### **NETTIME SOLUTIONS, INC. AND SUBSIDIARIES**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

**Note F –Asset Sales**

 

On January 16,2007, NETtime Solutions, Inc. (formerly Time America, Inc.), a Nevadacorporation (the “Company”), along with its subsidiaries, NETtime Solutions, Inc.,an Arizona corporation (formerly Time America, Inc.), and NetEdge Devices,LLC, an Arizona limited liability company, entered into an Asset PurchaseAgreement with Synel Industries, Inc., an Israeli registered corporation(“Synel”). Under the agreement, Synel purchased the Company’s reseller saleschannel, source code and related intellectual property for the Company’sGENESIS, HourTrack, and TA7000 product series, certain use rights associatedwith the Company’s NETtime source code, and all of the Company’s rightsassociated with the “Time America” name. The sale closed on January 22,2007.  In connection with the sale, on April 20,2007, the Company filed a Certificate of Amendment to its Articles ofIncorporation with the Nevada Secretary of State to change the corporate nameof Time America, Inc., a Nevada corporation, to NETtime Solutions, Inc.  The effective date of the corporate namechange was May 10, 2007.

 

Under theSynel agreement, the purchase price for the acquired assets was $2.5 million,$250,000 of which was held in escrow pending resolution of certain post-closingobligations. Other contingent consideration under the agreement for theacquired assets consisted of royalty payments, payable to the Company quarterlyover the four year period ending January 15, 2011, equal to 5% of therevenue derived from Synel’s U.S. sales of TA7000 units outside of Synel’sestablished U.S. customer base. Additionally, Synel purchased certain of theCompany’s TA7000 inventory for $140,000 during the year ended June 30,2007. A portion of the proceeds from the sale were used to repay our SecuredConvertible Term Note with Laurus, dated January 3, 2006.  In addition, the Company issued 100,000shares of its common stock to Laurus in consideration for Laurus’s consent toextending the maturity date of the Company’s existing revolving note withLaurus, the asset sale to Synel, and the corporate name change.

 

TheCompany does not distinguish operationally or financially its activities otherthan gross product sales between its sales channels and, as such, the Companyhas not accounted for the sale as discontinued operations under SFAS No. 144“Accounting for the Impairment or Disposal of Long-Lived Assets.”

 

On June 25,2007,  the Company announced that Synel had entered into a masteragreement with PayChex, Inc., a Delaware corporation (“PayChex”), pursuantto which such parties agreed to conduct a pilot program relating to theCompany’s NETtime software.  During the pilot program, the Companyprovided qualified employees to PayChex for consulting services.

 

The masteragreement provides that, in the event PayChex elects to exercise its rightsunder a related license agreement, and in consideration for the grant of aperpetual license under the license agreement, PayChex will pay to Synel anaggregate of $1,500,000, of which amount $1,200,000 will be payable to theCompany as follows:  an initial payment of $1,000,000 will be payable tothe Company upon the election by PayChex to acquire the license rights, and twosubsequent payments of $100,000 each, which will be due three months and sixmonths, respectively, thereafter.  PayChex was obligated to exercise itsoption to acquire the perpetual license rights to the NETtime source code underthe license agreement by December 1, 2007 and did so on November 30,2007.  On Monday, December 4, 2007, the Company received a payment of$1,000,000 in accordance with the terms of the master agreement.

 

9

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#### **NETTIME SOLUTIONS, INC. AND SUBSIDIARIES**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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

 

ThroughDecember 31, 2007, the Company had sustained recurring losses fromoperations, and as of December 31, 2007, the Company estimates that itsworking capital and funds generated from operations are sufficient to fund theCompany’s operations for the next six months. These conditions raise substantial doubt about the ability of theCompany to continue as a going concern. During fiscal 2008, the Company expects to meet its working capital andother cash requirements with its current cash reserves, cash generated fromoperations, and its borrowing capacity under its line of credit 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:**

 

OnFebruary 4, 2008, the Company completed the sale of all of its assets, andthe assets of our two operating subsidiaries, NETtime Solutions, Inc., anArizona corporation, and NetEdge Devices, LLC, an Arizona limited liabilitycompany, to NETtime Solutions, LLC for consideration valued at $1,042,000 andthe assumption of all of our indebtedness, including $500,000 of trade payablesand $1,500,000 of short and long-term notes. Pursuant to the terms of the AssetPurchase Agreement, the Company, and not the stockholders, received all of theproceeds of the Asset Sale.  Incompleting this transaction, the Company has become a “shell” company; havingno operating business or source of revenues and only nominal assets. TheCompany intends to seek to find and acquire or merge with a private companywith an operating business that the Company believes will result in an increasein shareholder value. No such company has yet been identified and there is noassurance of any success in this regard.

 

InJanuary 2008, the Company terminated its five year lease agreement andentered into a new lease agreement for facilities that commences on February 1,2008 and expires May 31, 2010.  Annual expense under the agreement isapproximately $74,000 per year.

 

InJanuary 2008, the Company terminated its credit facility with LaurusMaster Fund.

 

**Item 2. Management’sDiscussion and Analysis or Plan of Operation.**

** **

**Overview**

 

This quarterly report on Form 10-Q covers the quarterly periodended December 31, 2007.  On February 4,2008, our shareholders approved the proposed sale of all of our assets, and theassets of our two operating subsidiaries, to a newly formed private companycalled NETtime Solutions, LLC (the “Buyer”). The aggregate purchase price for the acquired assets was $1,042,000,which was paid at closing in the following manner:  (a) we redeemed from the Buyer anaggregate of 6,478,693 shares of our

 

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Common Stock (as of February 4, 2008, we now have 8,902,846 sharesof common stock outstanding instead of 15,382,404), and (b) the Buyerissued an unsecured promissory note in favor of the Company in the aggregateprincipal amount of $200,000 in payment of the remainder of the purchaseprice.  The Buyer assumed of all of ourindebtedness, including $500,000 of trade payables and $1,500,000 of short andlong-term notes.

 

As a result of this sale transaction, theCompany now has no operating business and is, in effect, a “shell” company withno liabilities and $40,000 of cash.  Ournew management team and board of directors intends to commence looking for aprivate company that it can merge with or acquire and that has an operatingbusiness that will help increase shareholder value.  No such company has yet been identified andthere is no assurance of any success in this regard.  Your review of this quarterly report shouldbe read with the above facts in mind.

 

### **Critical AccountingPolicies**

### ** **

Our significant accounting policies aredescribed in the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-KSBfor the year ended June 30, 2007. We believe our most critical accounting policies are revenuerecognition, software development costs, allowance for potentiallyuncollectible accounts receivable and valuation of stock-based compensation.

 

We license software and sell data collection hardware and relatedancillary products to end-user customers through our direct sales force. Oursoftware license revenue is earned from perpetual licenses of off-the-shelfsoftware requiring no or minor modification or customization. The softwarelicense, data collection hardware and related ancillary product revenues fromour customers are generally recognized when:

 

·                  Persuasive evidence of an arrangementexists, which is typically when a non-cancelable sales and software licenseagreement or purchase order has been signed;

·                  Delivery, which is typically FOBshipping point, is complete for the software (either physically orelectronically), data collection hardware and related ancillary products;

·                  The customer’s fee is deemed to befixed or determinable and free of contingencies or significant uncertainties;

·                  Collectibility is probable; and

·                  Objective evidence of fair valueexists for all undelivered elements, typically maintenance and professionalservices.

 

The fair valueof the undelivered elements is deferred and the remaining portion of thearrangement 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.

 

As part of anarrangement, customers typically purchase maintenance contracts as well asprofessional services from us. Maintenance services include telephone and web-based support as well asrights to unspecified upgrades and enhancements, when and if we make themgenerally available. Professional services are typically for implementation,installation of the software and data collection hardware, training, buildinginterfaces and custom features, and running test data.

 

11

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Revenues frommaintenance services are recognized ratably over the term of the maintenancecontract period, which is usually one year. Maintenance services are typically stated separately in an arrangement.We have classified the value of revenues pertaining to the contractualmaintenance obligations that exist for the 12-month period subsequent to thebalance sheet date as a current liability, and the contractual obligations witha term beyond 12 months, if present, as a non-current liability.

 

Revenues fromcustomer support services are recognized as the services are delivered.  Revenues from professional services aregenerally recognized based on vendor-specific objective evidence of fair valuewhen:

 

·                  A non-cancelable agreement for theservices has been signed or a customer’s purchase order has been received;

·                  The professional services have beendelivered;

·                  The customer’s fee is deemed to befixed or determinable and free of contingencies or significant uncertainties;and

·                  Collectibility is 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 incompleting professional services, we have determined that these services aretypically delivered within a 12-month period subsequent to the contract signingand therefore we classify deferred professional services as a currentliability.

 

Ourarrangements with customers do not include any rights of return or priceprotection. Our arrangements with customers generally include our standardacceptance provision. Our standard acceptance provision states that the customer’sacceptance of the products shall be deemed to occur upon completion of runningour standard diagnostic tests.

 

At the time weenter into an arrangement, we assess the probability of collection of the feeand the terms granted to the customer. The typical payment terms include a deposit and subsequent payments,based on specific due dates, such that all payments for the software license,data collection hardware and related ancillary products, as well as servicesincluded in the original arrangement, are ordinarily due within one year ofcontract signing.

 

If thearrangement includes a substantive acceptance provision, we defer revenue notmeeting the criterion for recognition under Statement of Position 97-2,“Software Revenue Recognition,” and classify this revenue as deferred revenue,including deferred product revenue. This revenue is recognized, assuming allother conditions for revenue recognition have been satisfied, when theuncertainty regarding acceptance is resolved as generally evidenced by writtenacceptance or payment of the arrangement fee. If the payment terms for thearrangement are considered extended, we defer revenue on the arrangement untilthe payment of the arrangement fee becomes due. The deferred amounts related toarrangements with extended payment terms are removed from deferred revenue andaccounts receivable, as we have determined that these amounts do not representeither receivables or deferred revenue until the payment becomes due. We reportthe allocated fair value of revenues related to the product element ofarrangements as a current liability because of the expectation that theserevenues will be recognized within 12 months of the balance sheet date.

 

12

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We capitalizesoftware development costs in accordance with Statement of Financial AccountingStandards No. 86, “Accounting for the Costs of Computer Software to beSold, 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,and changes in software and hardware technology.  Amortization ofcapitalized software development costs begins when the products are availablefor general release to customers and is computed on a product-by-product basisusing straight-line amortization with useful lives of five years or, if less,the remaining 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 for potentially uncollectible accounts receivable by use ofthe allowance method.  The allowance isprovided based upon a review of the individual accounts outstanding, and ourprior history of uncollectible accounts receivable.  It is our practice torecord an estimated allowance for sales returns and adjustments based onhistorical experience and to record individual charges for sales returns andadjustments directly to revenue as incurred.

 

Determining the appropriate fair value model and calculating the fairvalue of share-based payment awards requires the input of highly subjectiveassumptions, including the expected life of the share-based payment awards andstock price volatility. The assumptions used in calculating the fair value ofshare-based payment awards represent management’s best estimates, but theseestimates involve inherent uncertainties and the application of managementjudgment. As a result, if factors change and we use different assumptions, ourstock-based compensation expense could be materially different in the future.In addition, we are required to estimate the expected forfeiture rate and onlyrecognize expense for those shares expected to vest. If our actual forfeiturerate is materially different from our estimate, the stock-based compensationexpense could be significantly different from what we have recorded in thecurrent period.

 

### **Results of Operations for the Three and SixMonths Ended December 31, 2007 and 2006**

### ** **

On February 4, 2008, we completed the sale of all of our assets,and the assets of our two operating subsidiaries, NETtime Solutions, Inc.,an Arizona corporation, and NetEdge Devices, LLC, an Arizona limited liabilitycompany, to NETtime Solutions, LLC for consideration valued at $1,042,000 andthe assumption of all of our indebtedness, including $500,000 of trade payablesand $1,500,000 of short and long-term notes. Pursuant to the terms of the AssetPurchase Agreement, the Company, and not the stockholders, will receive all ofthe proceeds from this transaction.  Incompleting this transaction, the Company has become a “shell” company; havingno operating business or source of revenues and only nominal assets. We nowplan to seek to find and acquire or merge with a private company with anoperating business that we believe will result in an increase in ourshareholder value. No such company has yet been identified and there is noassurance of any success in this regard.

 

This analysisdoes not retroactively take into account the sale of our reseller activity in January 2007,as discussed in Note F in the notes to consolidated financial statements.  We do not distinguish operationally orfinancially activities other than gross product sales between our saleschannels and as such 

 

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we have not accounted for thesale as discontinued operations under SFAS No. 144 “Accounting for theImpairment or Disposal of Long-Lived Assets”.

 

*Revenues:*

 
| ** ** | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** ** | ** ** | **December 31,  2007**      | ** ** | **December 31,  2006**    | ** ** | **Percent  Change** | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** | **Percent  Change** | ** ** |
| Revenues   |       | $606,869                         |       | $2,082,340                     |       | (71 | )% | $1,287,111 |   | $3,532,932 |   | (64 | )% |

 

See “Product Sales” and “Service Revenue” below for a discussionregarding the change.

 

*Product Sales:*

 
| ** **                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **December 31,  2007**      | ** ** | **December 31,  2006**    | ** ** | **Percent  Change** | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** | **Percent  Change** | ** ** |
| Product sales                                |       | $153,930                         |       | $1,513,678                     |       | (90 | )% | $356,949 |   | $2,569,713 |   | (86 | )% |
| Product sales as a percent of total revenues |       | 25                               | %          | 73                             | %          | — |   | 28 | % | 73 | % | — |   |

 

Product sales revenue was approximately $154,000 and $1,514,000 for thethree months ended December 31, 2007 and 2006, respectively, a decrease of$1,360,000 or 90%.  The decrease inproduct sales for the three months ended December 31, 2007, as compared tothe same period in the prior year, was primarily attributable to a decrease ofapproximately $938,000 in reseller product sales as a result of the asset salein January 2007, as discussed in Note F in the notes to consolidatedfinancial statements.  The Company alsohad a decrease in product sales to a Fortune 100 company of approximately$396,000.

 

Product sales revenue was approximately $357,000 and $2,570,000 for thesix months ended December 31, 2007 and 2006, respectively, a decrease of$2,213,000 or 86%.  The decrease inproduct sales for the six months ended December 31, 2007, as compared tothe same period in the prior year, was primarily attributable to a decrease ofapproximately $1,864,000 in reseller product sales as a result of the assetsale in January 2007, as discussed in Note F in the notes to consolidatedfinancial statements.  The Company alsohad a decrease in product sales to a Fortune 100 company of approximately$453,000 and a decrease in direct product sales of approximately $77,000.

 

*Service Revenue:*

 
| ** **                                      | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                      | ** ** | **December 31,  2007**      | ** ** | **December 31,  2006**    | ** ** | **Percent  Change** | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** | **Percent  Change** | ** ** |
| Service revenue                                 |       | $                                | 452,939    |                           | $          | 568,662 |   | (20 | )% | $ | 930,162 |   | $ | 963,219 |   | (3 | )% |
| Service revenue as a percent of total  revenues |       | 75                               | %          | 27                             | %          | — |   | 72 | % | 27 | % | — |   |
|                                                 |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

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The decrease in our service revenue in the current quarter wasprimarily attributable to an approximately $131,000 decrease in ourimplementation and training revenue and a $13,000 decrease in our NETtimesoftware service revenue over the prior year period.  These decreases are substantially all due tothe asset sale in January 2007 as discussed in Note F in the notes toconsolidated financial statements.  Thisdecrease was partially offset by an increase of approximately $29,000 inmaintenance revenue as a result of sales to a Fortune 100 company.

 

The decrease in our service revenue in the six month period wasprimarily attributable to an approximately $140,000 decrease in ourimplementation and training revenue over the prior year period. These decreasesare substantially all due to the asset sale in January 2007 as discussedin Note F in the notes to consolidated financial statements. This decrease waspartially offset by an increase of approximately $89,000 in maintenance revenueas a result of sales to a Fortune 100 company and an increase of approximately$18,000 in our NETtime software service revenue.

 

*Gross Profit:*

* *
| ** **           | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **           | ** ** | **December 31,  2007**      | ** ** | **December 31,  2006**    | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** |
| Product gross margin |       | 66                               | %          | 53                             | %          | 66 | % | 52 | % |
| Service gross margin |       | 68                               | %          | 67                             | %          | 71 | % | 62 | % |
| Total gross margin   |       | 68                               | %          | 57                             | %          | 70 | % | 55 | % |

 

Prior to the asset sale in January 2007, our gross profit marginon products has typically between 50% to 60% depending upon the mix of softwareversus hardware sales and the composition of the hardware sales.  Our gross profit margin on products is higherthan the gross profit margin in the prior periods primarily due to sales to enduser customers having greater profit margins than resale customers. Our productrevenue is comprised of software and hardware sales, with hardware salesyielding a significantly lower gross profit than software sales.   Hardware revenue is primarily derived fromthe sale of two versions of general data collection terminals, badge terminalsand biometric units.  The gross profitmargin is greater on badge terminals than biometric units because we add valueto our badge terminals by installing software on the terminals.

 

15

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Our gross profit percentage on services revenue increased as we wereable to increase our NETtime software service revenue and maintenance revenuewhile also reducing our labor costs.

 

*Operating Expenses:*

 
| ** **                                               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                               | ** ** | **December 31,  2007**      | ** ** | **December 31,  2006**    | ** ** | **Percent  Change** | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** | **Percent  Change** | ** ** |
| Total costs and expenses                                 |       | $                                | 506,539    |                           | $          | 1,236,678 |   | (59 | )% | $ | 1,190,393 |   | $ | 2,427,179 |   | (51 | )% |
| Total costs and expenses as a percent of  total revenues |       | 83                               | %          | 59                             | %          | — |   | 92 | % | 69 | % | — |   |
|                                                          |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

See the discussion below for details on the changes within the expensecategories.

 

*Sales and Marketing Expense:*

 
| ** **                                                  | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                  | ** ** | **December 31,  2007**      | ** ** | **December 31,  2006**    | ** ** | **Percent  Change** | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** | **Percent  Change** | ** ** |
| Sales and marketing expense                                 |       | $                                | 158,038    |                           | $          | 394,672 |   | (60 | )% | $ | 353,313 |   | $ | 743,717 |   | (52 | )% |
| Sales and marketing expense as a percent of  total revenues |       | 26                               | %          | 19                             | %          | — |   | 27 | % | 21 | % | — |   |
|                                                             |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

The decreasein sales and marketing expenses in the current quarter is primarilyattributable to lower costs as the result of the asset sales as discussed inNote F in the notes to consolidated financial statements.  As a result of these sales, our sales andmarketing labor expense decreased by approximately $161,000, advertising andpromotion expenses decreased by approximately $41,000.

 

The decreasein sales and marketing expenses in the six month period is also primarilyattributable to lower costs as the result of the asset sales.  As a result of such asset sales, our salesand marketing labor expense decreased by approximately $283,000, advertisingand promotion expenses decreased by approximately $64,000.

 

*Research and Development Expense:*

 
| ** **                                                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                       | ** ** | **December 31,  2007**      | ** ** | **December 31,  2006**    | ** ** | **Percent  Change** | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** | **Percent  Change** | ** ** |
| Research and development expense                                 |       | $                                | 205,223    |                           | $          | 464,530 |   | (56 | )% | $ | 490,824 |   | $ | 929,832 |   | (47 | )% |
| Research and development expense as a  percent of total revenues |       | 34                               | %          | 22                             | %          | — |   | 38 | % | 26 | % | — |   |
|                                                                  |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

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The decreasein research and development expenses in the current quarter is primarilyattributable to a decrease in research and development labor and consultingexpenses of approximately $163,000 as a result of the asset sale in January 2007,as discussed in Note F in the notes to consolidated financial statements.  Also contributing to the decrease in researchand development expenses is a decrease in hardware and equipment costsassociated with the development of our custom solution for a Fortune 100company.

 

The decreasein research and development expenses in the six month period is primarilyattributable to a decrease in research and development labor and consultingexpenses of approximately $288,000 as a result of the asset sale in January 2007,as discussed in Note F in the notes to consolidated financial statements.  Also contributing to the decrease in researchand development expenses is a decrease in hardware and equipment costsassociated with the development of our custom solution for a Fortune 100company.

 

*General and Administrative Expense:*

 
| ** **                                                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                         | ** ** | **December 31,  2007**      | ** ** | **December 31,  2006**    | ** ** | **Percent  Change** | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** | **Percent  Change** | ** ** |
| General and administrative expense                                 |       | $                                | 143,278    |                           | $          | 377,476 |   | (62 | )% | $ | 346,256 |   | $ | 753,630 |   | (54 | )% |
| General and administrative expense as a  percent of total revenues |       | 24                               | %          | 18                             | %          | — |   | 27 | % | 21 | % | — |   |
|                                                                    |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

The decrease in general and administrative expenses in the currentquarter is primarily attributable to a decrease in our general andadministrative labor expense of approximately $97,000 as a result of the assetsale in January 2007, as discussed in Note F in the notes to consolidatedfinancial statements. Also contributing to the decrease in general andadministrative expenses in the current quarter is a decrease in accounting andlegal fees of approximately $71,000.

 

The decrease in general and administrative expenses for the six monthperiod was primarily due to a decrease in our general and administrative laborexpense of approximately $220,000 as a result of the asset sale in January 2007,as discussed in Note F in the notes to consolidated financial statements. Alsocontributing to the decrease in general and administrative expenses for the sixmonth period is a decrease in accounting and legal fees of approximately$73,000 and a decrease in our allowance for doubtful accounts due to subsequentcash collections of accounts receivable previously reserved for in priorperiods.

 

Other Income (Expense):

 
| ** **                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                             | ** ** | **December 31,  2007**      | ** ** | **December 31,  2006**    | ** ** | **Percent  Change** | ** ** | **December 31,  2007** | ** ** | **December 31,  2006** | ** ** | **Percent  Change** | ** ** |
| Other income (expense)                                 |       | $                                | 1,083,617  |                           | $          | (113,203 | ) | 1057 | % | $ | 973,539 |   | $ | (198,382 | ) | 591 | % |
| Other income (expense) as a percent of  total revenues |       | 179                              | %          | (5                             | )%         | — |   | 76 | % | (6 | )% | — |   |
|                                                        |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Other income (expense) consists primarily of interest expense and otherincome on the gain on sale of assets. The increase in other income is primarily due to an increase in other incomefrom the gains on asset sales as a result of an asset sale during the quarterended December 31, 2007, as discussed in Note F in the notes toconsolidated financial statements.

 

# **Liquidityand Capital Resources**

# ** **

Cash Flow Highlights:

 
| ** **                         | ** ** | **Six Months Ended December 31,** | ** ** | **Percentage** | ** ** |
|------------------------------------|------------|-------------------------------------------------------|------------|----------------|------------|
| ** **                         | ** ** | **2007**                                              | ** ** | **2006**       | ** ** | **Change** | ** ** |
| Net cash from operations           |       | $                                                     | (529,611   | )              | $          | 135,527 |   | (491 | )% |
| Purchase of property and equipment |       | (3,472                                                | )          | (23,826        | )          | 85 | % |
| Repayment of debt                  |       | 0.00                                                  |       | (868,181       | )          | 100 | % |
| Proceeds from debt                 |       | 0.00                                                  |       | 318,341        |       | 100 | % |
| Net change in cash                 |       | 466,917                                               |       | (434,389       | )          | 207 | % |
| Cash at end of period              |       | 745,618                                               |       | 180,815        |       | 312 | % |
|                                    |            |                                                       |            |                |            |  |  |  |  |

 

At December 31, 2007, we had a working capital deficit of$394,147, compared to working capital deficit of $1,046,988 at June 30,2007.  Cash and cash equivalents at thosedates amounted to $745,618 and $278,701, respectively.  We have funded our operations for the pastsix years primarily through a combination of sales of equity securities, debtfinancing and asset sales.

 

*Operating Activities*.  The net cash used from operations was$529,611. Although we had net income of $678,777, this was primarily due to thegain on sale of assets of $1,200,000. Contributing to the net cash used was a decrease in accounts payable anddeferred revenue of $248,159 and $214,687.

 

*Investment Activities*.The net cash provided by investing activities was $996,528 and was primarilyattributable to proceeds from the asset sale as discussed in Note F in thenotes to consolidated financial statements. Our use of cash for property andequipment includes investments in information systems and infrastructure tosupport operations.

 

*Financing Activities*.   The net cash flows provided (used) byfinancing activities was zero for the current six month period.

 

Until we completed the sale of substantially all of our assets toNETtime Solutions, LLC in February 2008 (discussed below), our liquiditywas affected by many factors, some based on the normal ongoing operations ofour time and attendance business and others related to the uncertainties ofsuch industry and global economies.  Nowthat we are a shell company with no source of revenue and nominal assets, ourcash requirements in the future will consist primarily of our corporate officelease, the accounting, legal and other costs associated with being a publiccompany (i.e., filing quarterly and annual 

 

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reports with the Securities andExchange Commission) and any expenses arising out of our efforts to locate anew business to acquire.  Following theasset sale transaction, we have no liabilities and $40,000 cash.  We believe these funds will be sufficient tosatisfy commitments for capital expenditures and other cash requirements forthe next six months.

 

Our ability to raise additional capital in public or private markets inthe future will primarily be dependent upon prevailing market conditions andthe demand for any business that we acquire or merge with.  No assurance can be given that we will beable to raise additional capital, when needed or at all, or that such capital,if available, will be on acceptable terms. In the absence of obtaining additionalfinancing, we may be unable to fund our operations and may experience defaultsunder our lease agreement for our corporate headquarters.  Our lease agreement is subject to terminationin the event of a default.  The lessor ofour corporate headquarters could take legal action against us to collectamounts owed to them.  Accordingly, ourfinancial condition could require that we seek the protection of applicablereorganization laws in order to avoid or delay actions by third parties, whichcould materially adversely affect, interrupt or cause the cessation of ouroperations. As a result, our independent certified public accountants haveissued a going concern opinion on the consolidated financial statements of theCompany for the fiscal year ended June 30, 2007.

 

# **SubsequentEvents**

# ** **

On February 4,2008, the Company completed the sale of all of its assets, and the assets ofour two operating subsidiaries, NETtime Solutions, Inc., an Arizonacorporation, and NetEdge Devices, LLC, an Arizona limited liability company, toNETtime Solutions, LLC for consideration valued at $1,042,000 and theassumption of all of our indebtedness, including $500,000 of trade payables and$1,500,000 of short and long-term notes. Pursuant to the terms of the AssetPurchase Agreement, the Company, and not the stockholders, received all of theproceeds of the Asset Sale.  Incompleting this transaction, the Company has become a “shell” company; havingno operating business or source of revenues and only nominal assets. We now planto seek to find and acquire or merge with a private company with an operatingbusiness that we believe will result in an increase in our shareholder value.No such company has yet been identified and there is no assurance of anysuccess in this regard.

 

InJanuary 2008, the Company terminated its five year lease agreement for itsoffice space and entered into a new lease agreement for facilities thatcommences on February 1, 2008 and expires May 31, 2010.  Annualexpense under the agreement is approximately $74,000 per year.

 

InJanuary 2008, the Company terminated its credit facility with LaurusMaster Fund.

 

**Item3. Controls and Procedures.**

 

An evaluation as of the end of the periodcovered by this report was carried out under the supervision and with theparticipation of our management, including our Chief Executive Officer andPrincipal Accounting Officer, of the effectiveness of the design and operationof our disclosure controls and procedures (as defined in Rule 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934). Based upon thatevaluation, the Chief Executive Officer and Principal Accounting Officerconcluded that those disclosure controls and procedures were effective inproviding reasonable assurance that information 

 

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required to bedisclosed by us in the reports that we file or submit under the SecuritiesExchange Act of 1934, as amended, is recorded, processed, summarized andreported within the time periods specified in the Commission’s rules andforms. In addition, there has been no change in our internal control overfinancial reporting (as defined in Rule 13a-15(f) and 15d-15(f) underthe Securities Exchange Act of 1934) that occurred during the period covered bythis report that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

It should be noted that any system ofcontrols, however well designed and operated, can provide only reasonable, notabsolute, assurance that the objectives of the system are met.  In addition, the design of any control systemis based in part upon certain assumptions about the likelihood of futureevents.  Because of these and otherinherent limitations of control systems, there can be no assurance that anydesign will succeed in achieving its stated goals under all potential futureconditions, regardless of how remote.

 

# **FORWARD-LOOKINGINFORMATION**

# ** **

The statements contained in this Quarterly Report on Form 10-QSBthat are not historical fact are forward-looking statements (as such term isdefined in the Private Securities Litigation Reform Act of 1995), within themeaning of Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended.  The forward-looking statements containedherein are based on current expectations that involve a number of risks anduncertainties.  These statements can beidentified by the use of forward-looking terminology such as “believes,”“expects,” “may,” “will,” “should,” or “anticipates,” or the negative thereofor other variations thereon or comparable terminology, or by discussions ofstrategy that involve risks and uncertainties. The Company wishes to caution the reader that these forward-looking statementsthat are not historical facts are only predictions.  No assurances can be given that the futureresults indicated, whether expressed or implied, will be achieved.  While sometimes presented with numericalspecificity, these projections and other forward-looking statements are basedupon a variety of assumptions relating to the business of the Company, which,although considered reasonable by the Company, may not be realized.  Because of the number and range ofassumptions underlying the Company’s projections and forward-lookingstatements, many of which are subject to significant uncertainties andcontingencies that are beyond the reasonable control of the Company, some ofthe assumptions inevitably will not materialize, and unanticipated events andcircumstances may occur subsequent to the date of this report.  These forward-looking statements are based oncurrent expectations and the Company assumes no obligation to update thisinformation.  Therefore, the actualexperience of the Company and the results achieved during the period covered byany particular projections or forward-looking statements may differsubstantially from those projected. Consequently, the inclusion of projections and other forward-lookingstatements should not be regarded as a representation by the Company or anyother person that these estimates and projections will be realized, and actualresults may vary materially.  There canbe no assurance that any of these expectations will be realized or that any ofthe forward-looking statements contained herein will prove to be accurate.

 

##### **PART II– OTHER INFORMATION**

##### ** **

**Item 1. LegalProceedings.**

** **

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

 

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**Item 6. Exhibits**

** **

(a)     The following exhibits arefiled herewith pursuant to Regulation S-B.

 
| 31.1   |   | Section 302 Certification of Chief Executive Officer      |
|--------|--------|----------------------------------------------------------------|
|   |   |                                                           |
| 31.2   |   | Section 302 Certification of Principal Accounting Officer |
|   |   |                                                           |
| 32     |   | Section 906 Certifications                                |

 

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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.

 
|                                     | NETTIME SOLUTIONS, INC.               |
|------------------------------------------|---------------------------------------|
|                                     |                                  |
|                                     |                                  |
| Dated:  February 14, 2008 |                                  |
|                                     |                                  |
|                                     | By                                    |  /s/  Bahan Sadegh |   |
|                                     | Bahan Sadegh                          |
|                                     | President and Chief Executive Officer |
|                                     | (Principal Executive Offices)         |

 

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