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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ---------------------
                                   FORM 10-K
(MARK ONE)
     [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001

                                       OR

     [ ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER 000-28473

                                 TRUETIME, INC.
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      94-3343279
         (State or other jurisdiction                         (I.R.S. Employer
              of incorporation)                             Identification No.)
</Table>

                            3750 WESTWIND BOULEVARD
                          SANTA ROSA, CALIFORNIA 95403
                    (Address of principal executive offices)

                                 (707) 528-1230
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: NONE

          Securities registered pursuant to section 12(g) of the Act:

<Table>
<S>                                            <C>
         Common Stock, Par value $.01                      NASDAQ National Market
</Table>

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ ]

     There were 5,950,000 shares of the Registrant's Common Stock outstanding as
of the close of business on December 6, 2001. The aggregate market value of the
Registrant's Common Stock held by non-affiliates was approximately $5,527,170
(based upon the closing price of $1.61 on December 6, 2001, as reported by the
NASDAQ Stock Market, Inc).

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's definitive Proxy Statement, to be filed with
the commission within 120 days of September 30, 2001, for the Annual Meeting of
Stockholders to be held on March 1, 2002, are incorporated herein by reference
to Items 10, 11, 12 and 13 of Part III of this Annual Report.

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                                     PART I

ITEM 1. BUSINESS AND PROPERTIES

TRUETIME

     TrueTime designs, develops, manufactures, markets, sells and services
precision time and precision electrical signal-generating products that are
essential components used in telecommunications, computer networking,
e-commerce, aerospace and various other commercial markets. Our products use a
variety of external timing references, including most importantly the Global
Positioning System, or GPS, together with advanced electronic circuitry and
software to provide high quality signals and precise time. We offer a wide
variety of products, which can be divided into the following broad categories:

     - precise time and frequency products

     - computer plug-in cards with precise timing capabilities

     - computer network time servers

     - time code products

     - time displays

Our products, incorporated as components in complex systems, allow customers to

     - improve clarity and quality of voice, video and data in wireline,
       wireless and satellite communications,

     - maximize network and communication bandwidth,

     - authenticate the time of stock market and other e-commerce transactions,

     - monitor and control the frequency of electric utility power grids to
       prevent power black-outs and quickly locate power line faults,

     - transmit television signals at designated frequencies to meet regulatory
       requirements,

     - meet requirements for secure communications, particularly in national
       defense and security contexts, and

     - time high resolution data collected in military ranges and in space
       launches with a high degree of accuracy.

     During the past decade, we have strived to produce state-of-the-art precise
time and frequency technology. We have developed and implemented five
generations of precision time products based on GPS technology through the use
of our significant technology resources in the areas of GPS, frequency control,
real-time operating systems and computer networking. Our increased investments
in research and development have allowed us to develop a new platform -- a
combination of new hardware and software -- for many products, decrease time to
market for new products and improve product quality and robustness. Our new
platform also provides a means through which TrueTime can enter new markets.
Advanced technologies also offer opportunities to reduce manufacturing costs and
support expenses by increasing volumes of common products.

MARKET OVERVIEW

     Time and frequency products, like ours, are important to expanding
communications systems of wireline, wireless, satellite and computer network
technologies. The increase in demand for precision timing is due in part to the
growth in communications and computer network systems worldwide. Growth in data,
voice and video transmissions on these networks is anticipated to lead to an
increased demand for substantial bandwidth compared to traditional voice
traffic. We believe that the current trend of wireline, wireless, satellite and
computer network systems coming together in unified operations and the
wide-spread growth of the Internet and e-commerce will lead to increased demand
for precision time and frequency products.

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     Precision time and frequency devices normally require use of an external
timing reference to maintain required accuracy. Currently, the predominantly
used standard is the highly accurate time reference available from GPS operated
by the U.S. Department of Defense. The demand for precision time and frequency
referenced to GPS has grown with the increased use of digital wireless
communication and is now, in addition to more traditional uses in the aerospace,
utility and broadcast industries, being incorporated into wireless, computer and
high-speed wireline networks.

TECHNOLOGY OVERVIEW

     THE PRECISION CLOCK

     The basic clock consists of an oscillator and a counter. While early clocks
used pendulums as the oscillator, today, piezoelectric quartz crystals or atomic
atoms such as rubidium or cesium are used as the resonating reference. In either
instance, a counter tracks the number of oscillations and translates that into a
common time increment, usually a second. High quality quartz oscillators are the
most common oscillators found in precision time and frequency clocks.

     Once a precision clock has been built it is possible to maintain accurate
time and generate precise signals, also called frequencies. Accurate time is
used in time stamping applications such as telecommunications billing and
electronic transactions and can be transferred to other devices for purposes of
synchronization. Frequency generation benefits from an accurate clock because it
becomes possible to create repetitive signals with respect to a very precise
time interval, including high frequency sine waves or digital pulses, both of
which are used in many telecommunications applications.

     IMPROVING ON THE PRECISION CLOCK

     Quartz based clocks are subject to physical factors that effect the overall
clock accuracy and stability. The two primary contributors to clock error are
temperature changes and aging. The oscillation frequency of the quartz crystal
can speed up or slow down depending on variations in temperature. Similarly, the
oscillation frequency of a quartz crystal changes over time. Combined, these two
factors cause the clock to drift, resulting in incorrect time and a shift in the
output frequencies.

     The resonant frequency of the quartz crystal can be adjusted to correct for
physical factors contributing to the clock error. Much like a person
periodically adjusts a wristwatch to the correct time, an oscillator can be
periodically adjusted to the correct frequency. This technique is called
oscillator disciplining. One factor that distinguishes one precision clock from
another is how well the oscillator is disciplined to an external time reference.
One of TrueTime's areas of expertise is in superior oscillator disciplining
technology to create extremely accurate and stable clocks.

     An external time reference is typically another clock of higher accuracy
and precision than the local clock being disciplined. The time base used in all
precision clocks is known as Universal Time Coordinated, or UTC. UTC is
maintained in the United States by the U.S. Naval Observatory, or USNO, in
Washington, D.C. The National Institute of Standards and Technology, or NIST,
plays a major role in distributing that time for commercial use. Oscillator
disciplining focuses on the UTC time transfer mechanism from the reference to
the local clock and the accuracy of that time transfer.

     UTC time is made available for synchronization in several different ways
with varying degrees of accuracy. The primary means of synchronization to UTC
are via the following references:

     - GPS

     - Internet/network clocks

     - AM radio broadcasts

     - Dial-up phone connections

     Timing for GPS is maintained by the U.S. Air Force, using time directly
from the USNO. NIST is responsible for time distribution using the other
techniques. TrueTime manufactures clocks that use all of
                                        3
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these references. The timing accuracy provided by GPS, however, is so superior
that it has become the external timing reference of choice.

     GPS AS A TIME REFERENCE

     GPS is best known for its tremendous impact on markets that are focused on
geographical position. Aviation and marine navigation, as well as land surveying
and car navigation systems, now enjoy positioning accuracy levels never seen in
the past. However, very precise time is integral in determining an accurate
position when using a satellite based navigation system.

     Each GPS satellite has on board several atomic clocks that are precisely
synchronized to UTC. Coded signals are broadcast by each of the 24 GPS
satellites with the exact time and the position of each satellite. GPS receivers
use an antenna to receive the signals and special semiconductor chip sets to
decode them to calculate the position of the antenna. By using a GPS receiver,
optimized for time and not position, it is possible to get timing accuracy's of
plus or minus 1 millionth of a second to UTC. TrueTime's low end products
provide this level of accuracy. By applying sophisticated GPS tracking
algorithms developed by TrueTime to discipline clock oscillators, an accuracy of
40 billionths of a second to UTC is routinely achieved in our products.

     A significant advantage offered by GPS compared to any other time reference
is the worldwide availability of the signals. GPS satellites continuously orbit
the earth broadcasting the coded signals. Provided the GPS antenna on the
receiving device can receive the signals, precise synchronization to UTC is
possible anywhere on the planet. This facilitates an accurate and common time
base to synchronize systems across a country or around the world. Events on one
continent can be very closely correlated with events on others. Similarly,
widely distributed networks such as the Synchronized Optical Network, or SONET,
that carries most of the long haul voice traffic in the U.S., can be precisely
synchronized to improve efficiency and bandwidth use.

     OUTPUTS OF THE PRECISION CLOCK

     As a clock becomes more and more precise, the applications shift from
providing the precise time to generating very high quality frequencies.
Applications for precision clocks generally fall into one of three categories:
precise time, frequency generation, and time transfer.

     Precise Time.  Precise time is a measurement that tells the user what the
exact time is. A common application for precise time is time stamping of
electronic transactions or data. Electric power utilities also use precise time
to measure and maintain operating current and locate transmission faults in the
system. For scientific applications, precise time is used to time tag events
with very high resolution for comparison with other events. Even directives such
as the Emergency 911 initiative for locating cellular based callers will require
precision time stamping. Current state-of-the-art time stamping is to the
millionth of a second referenced to UTC.

     Frequency Generation.  The generation of signals such as high frequency
sine waves, or a once per second pulse, benefits from a precision clock.
Externally disciplined precision clocks can create near perfect waveforms and
pulses and can be precisely synchronized with a superior external reference,
such as GPS. The fastest growing application for GPS referenced precision clocks
is the generation of pulses and frequencies for telecommunications systems. For
example, many current wireless base stations use precision GPS references to
provide the signals used to create the carrier frequency and to coordinate
handoffs between cell sites. Frequency generation also includes high frequency
digital pulse generation. These signals are widely used to synchronize
communications networks and form the basis for signals that will carry data over
networks and satellite systems.

     Time Transfer.  Time transfer is an integral part of synchronization. It is
not feasible to place a precision clock with every computer or instrument that
requires precise time. Time distribution then becomes a critical role of the
precision clock. The most cost effective ways to distribute time are via wires
such as computer serial cables, coaxial cables or ethernet networks.

                                        4
<PAGE>

     A popular time transfer technique in military and aerospace applications
involves time codes sent over coaxial cables. These codes have been standardized
and are known as Inter-Range Instrumentation Group, or IRIG, time codes. IRIG
codes are used to synchronize most of the military and government test ranges
and launch facilities across the U.S. They are also the primary means to
synchronize computers to one millionth of a second to each other.

     The fastest growing time transfer technique, and the one with the greatest
potential, uses ethernet networks or the Internet as the transfer medium. Using
a client server technique known as the Network Time Protocol, or NTP, a single
precision clock configured as a time server can synchronize tens of thousands of
client computers per hour. A packet exchange initiated by the client computer to
the time server can synchronize the client to the satisfactory level for such
purposes of one thousandth of a second to the time server.

TRUETIME'S SOLUTIONS

     TrueTime meets the growing timing and frequency needs of modern
communication and computer systems by using the following technologies:

     GPS Technology -- We strive to develop state-of-the-art products using
current GPS timing references. GPS signals are the most accurate, widely
available and cost-effective source of timing references today. We are
continually working on next-generation designs and applications to maintain and
advance our GPS technologies.

     Oscillator Selection and Control -- We generally use a quartz crystal
oscillator as a fundamental component in our precision timing products. Using
and controlling an extremely stable oscillator is critical to maintaining
accurate time and frequencies, especially if synchronization reference sources
are lost (such as the loss of satellite signals when a GPS antenna is
accidentally damaged). We believe that we have strong relationships with our
oscillator suppliers and a variety of technological advantages in the ability to
test, select and control high-stability oscillators.

     Real-Time Operating Systems -- We incorporate real-time operating systems
in our newest products. These operating systems are required to control
precision timing devices and frequency sources and to process data in real time
without introducing timing delays and synchronization problems. We believe this
provides us with advantages in next-generation applications that will speed the
introduction of new products.

     Internet Interfaces -- We produce precision timing devices that can be
controlled using a browser over the Internet or through a local area network.
This permits the user to control the unit from anywhere in the world. We believe
this is an essential step in the future of networked equipment. Additionally, we
produce a series of NTP products that allow customers to synchronize computers
and other equipment over the Internet.

TRUETIME'S PRODUCTS AND SERVICES

     We offer a wide variety of precision clock products upon which we have
built a reputation for quality and diversity. Our products can generally be
divided into the following broad categories:

     Precise Time and Frequency Products -- We manufacture precision time
products that allow our customers to keep accurate time within 40 billionths of
a second. In many ways, our precise time products are similar to clocks and
stopwatches -- our clocks tell us the time of day and allow us to measure the
time interval between when an event starts and when it stops. The difference
between conventional time measuring devices and our precise time products lies
in the accuracy of the measurements. To place the accuracy of our clocks in
perspective, a clock which accumulates a 40 billionths of a second time error
over a 24 hour period will require more than 500,000 years to accumulate an
error of one second.

     Quartz-based clocks are subject to numerous physical factors that affect
the overall clock accuracy and stability, including temperature changes and
aging. We rely upon GPS as a timing reference for continuously disciplining our
oscillators, the fundamental component that determines the accuracy of our time
and frequency products. GPS provides 24 hour worldwide coverage that is not
affected by weather conditions. The

                                        5
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coverage of the 24 satellites in six near-polar orbits together with numerous
ground monitoring/verifying stations produces a readily available and highly
accurate timing reference with state-of-the-art reliability and performance.
However, GPS navigation receivers tend to deliver compromised results when used
as a time and frequency receiver. To overcome this shortcoming in a standard GPS
receiver, we have developed proprietary receiver technology optimizing time and
frequency that utilizes commercially available GPS electronics. For our older
products utilizing a standard GPS receiver, we employ proprietary algorithms and
firmware to extract optimal accuracy and stability from the clock measurements
provided by the GPS core receiver. We believe our products contain superior
oscillator disciplining technology which enables us to offer extremely accurate
quartz oscillator timing products.

     Computer Plug-In Cards -- We manufacture a broad line of precision timing
products in the form of plug-in cards for computers. These cards provide precise
timing capabilities to computers equipped with very common bus components. Aside
from providing accurate time measurement, these cards can provide a variety of
time and frequency and other time outputs and functions, as well as time
transfer for synchronization. Currently, plug-in cards connected by cables
provide one of the easiest and most accurate ways to synchronize the clocks of
two or more computers. We also offer state-of-the-art software development tools
to speed the integration of these cards into software applications, which may
save software developers significant time and money.

     Computer Network Time Servers -- We manufacture several products for
computer network time distribution. These products provide an extremely powerful
and efficient manner in which to bring entire networks of computers into precise
time synchronization. Designated computers run programs in the background that
periodically correct the time of each local computer to that of the time server.
As a result, we believe that network synchronization of thousands of computers
to an accuracy of a second or less is achievable using these products. With the
pervasive growth of the Internet and e-commerce and increasing electronic
transactions, we believe that the demand for such synchronization products will
continue to increase.

     Time Code Products -- We offer a wide variety of time code generation,
translation and synchronization products, including timing output options for
our precise clocks. A time code is a data format for recording and processing
time measurements. Time codes arose from the need to synchronize the instruments
used to monitor the many aspects of a real time weapons test and to share the
collected data with others monitoring the same test at different locations. Time
codes provide the digital data format necessary for computers to transfer and
correlate encoded time data among computers in a highly accurate manner.

     Time Displays -- We manufacture a variety of time displays. These
one-half-inch to four-inch light-emitting diode, or LED, displays often present
a variety of information including the time of day, frequency information
regarding system electrical current, or "countdown-to-launch" arrays. In many
cases, the display is sold as an accessory to a precision clock to display the
precise time in an instrument rack or control room.

TRUETIME'S CUSTOMERS

     Our customers are businesses and government agencies that have
sophisticated and demanding needs for timing with greater accuracy and
resolution than available from conventional time measuring devices. Our major
customer groups include:

     Aerospace Industry and National Defense -- Among our long-standing
customers are many different government agencies, including the U.S. Department
of Defense, NASA and the State Department, as well as organizations operating
test ranges for the Department of Defense. These customers make measurements of
fast moving objects such as aircraft, weaponry projectiles, missiles and
spacecraft. These customers also need highly accurate clocks to record critical,
high-resolution measurements and gather required data for events that are
changing rapidly.

     Telecommunication Companies -- Telecommunication companies are continually
seeking to deliver greater bandwidth and connectivity to transmit data reliably
at faster speeds. Wireline telephone companies that transmit audio, video and
other data over wires encounter many problems if timing or synchronization is

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not precise. These problems include unreadable facsimiles and corrupted or lost
data as well as frozen images on video conference screens. Similarly, wireless
telephone carriers using cellular or satellite communication need precise time
and synchronization to avoid static and blocked calls. Many of our customers
require customized form, fit, and function of our technology to meet their
specific needs.

     Computer Networks -- Our customers include computer network designers and
users because today's computer network technology is characterized by
increasingly faster data transfer and throughput rates. Most major national and
worldwide businesses operate large computer networks. The operation of computer
networks is also becoming standard for many smaller businesses. Synchronization
of timing in the network can increase the quality of data transmission and
reduce the risk of system downtime.

     E-commerce -- The amount of data being transmitted over the Internet is
expanding rapidly because of the growing number of users and the increasing
range of data-intensive activities for which the Internet is used. Businesses
increasingly enhance their reach to customers and suppliers with applications
such as electronic commerce, supply chain management, global marketing and
customer support via the Internet. Consumers use the Internet to communicate,
collect and publish information, make retail purchases and access online
entertainment. These network-based businesses and consumer activities require
the transmission of increasingly large amounts of data quickly and reliably.
Management of this data amongst our customers is imperative. Our products
provide these customers with an accurate time stamping reference, allowing them
to more efficiently manage such data.

     Power Utilities -- Our power utility customers use precise time to maintain
a precise frequency of 60 Hz for the electricity that literally runs our nation.
Precise monitoring and control of the power line alternating current frequency
helps to prevent power brown-outs and black-outs. Precise timing also aids in
the location of power line faults.

     Television Broadcasting -- Television stations need both accurate time and
frequency references to keep their transmissions synchronized, their
transmitters operating at the correct frequency and to switch between feeds
cleanly. Our GPS timing products provide both time and frequency outputs for
these purposes.

     In fiscal year 2001, we sold our products to more than 1,000 customers. Our
customers include companies that order a large number of very similar products,
as well as customers that order a small number of special order products. The
majority of our sales are made to numerous, and usually repeat, customers who
purchase small quantities of multiple types of products and who often have
custom or semi-custom specifications. For larger orders, we often deliver
multiple types of products to multiple locations. The diversity of our customers
requires significant customer support, flexible manufacturing, and a wide array
of product inventory. Our engineering and manufacturing operations and business
systems have been adapted for fast-turn, customer-specific product variations.
We believe that the size and diversity of our customer base reduces the business
risk inherent in dependence on a small number of large-volume customers. The
large number of our customers results in many customers generating relatively
small amounts of sales.

     Among our largest customers during the last three fiscal years have been
separate purchasing arms of the U.S. military services and Hughes Network
Systems, Oscilloquartz, S.A., Lockheed Martin Corporation, Motorola, Inc.,
Novacom Microwave, LTD, Litton Denro, Boeing, General Dynamics and NASA.
Generally, our largest customers tend to change or rotate from year to year,
although U.S. governmental units or prime contractors to the government are
consistently among our largest customers. During fiscal years 1999, 2000 and
2001, purchases by the U.S. Army comprised approximately 18%, 13%, and 15%
respectively, of our sales. Sales to U.S. government units and indirect
government customers, as a whole, comprised 28%, 36% and 53% of our sales during
fiscal years 1999, 2000 and 2001, respectively.

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SALES AND MARKETING

     In fiscal years 1999, 2000 and 2001, approximately 16%, 19% and 16%,
respectively, of our sales have been in international markets, but we are
attempting to increase our international marketing efforts. We market and sell
our products through the following primary channels:

     Sales Representatives -- More than 95% of our orders come through our 31
domestic and worldwide sales representative organizations. These representatives
are independent firms, each assigned a geographical area for promoting and
selling TrueTime products. Representatives covering our domestic sales areas
receive commissions on the sales generated in their areas, but TrueTime actually
confirms and invoices the sale to the customer. Our arrangements with our
international representatives are different in that these representatives buy
our products at a discount and then resell the products to their customers at
prices dictated by their local market conditions.

     Direct Contact by TrueTime Employees -- We have 27 employees in our Sales
and Marketing Departments, including our customer service personnel. Twelve of
these employees are Business Development and Sales Development Managers and are
in direct contact with our customers. Most of the other employees work in
marketing communications or customer service. We place special emphasis on
making sure our products are performing within specifications and our customers
are satisfied doing business with TrueTime.

     Because we typically turn our orders on hand up to five or more times per
year, we do not regard so-called "backlog" as an indicator of our future
prospects.

TRUETIME'S COMPETITION

     The development, manufacture and sale of precise time and frequency
products is an intensely competitive industry. Companies offering products in
the GPS timing field range from separate timing divisions in very large
companies to small stand alone companies with revenues of less than $1 million
annually. Our principal competitors are Datum, Inc., Frequency Electronics,
Inc., Zyfer (an Odetics, Inc. division), Trak Systems, Inc. (a Veritas
Corporation subsidiary), Trimble Navigation Ltd, and Symmetricom. In addition,
more than a dozen companies produce products that are sold into the time and
frequency markets as indirect competition. These competitors consist primarily
of component suppliers or integrated system suppliers. As we continue to grow,
we will likely encounter these firms as more direct competitors. In general,
most of our competitors have more financial resources than we do, and may be
capable of offering more attractive packages for retaining and recruiting
employees.

INTELLECTUAL PROPERTY

     Our success depends to a significant degree upon the preservation and
protection of our product and manufacturing process designs and other
proprietary technology. Historically, we have not filed patents to protect our
intellectual property, but have instead relied upon the confidential handling of
our designs, nondisclosure agreements with employees and trade secret law to
protect our product designs. Only recently have we begun to file for formal
patents. Accordingly, our proprietary products are subject to examination and
possibly "reverse engineering" by our competitors. While we hope our
intellectual property is adequately protected by our confidential trade-secret
protection plans and programs, we cannot be sure that our competitors will be
prevented from gaining access to our proprietary and confidential technologies.
The use of our technology by others could eliminate any competitive advantages
we may have and cause us to lose sales. Moreover, the laws of other countries
where we market our products may afford even less protection for our
intellectual property.

     Some of our trade identifiers and product names have been trademarked,
including our name, "TrueTime."

     We currently have a patent pending related to packet based synchronization
techniques and will seek to protect future technological developments through
the patent process. Currently, however, no single patent, trademark or group
thereof is considered essential to the success of TrueTime. If we resort to
legal proceedings

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to enforce our intellectual property rights, the proceedings could be burdensome
and costly, even if we were to prevail. There are no proceedings currently
pending relating to our intellectual property.

REGULATORY MATTERS

     Our operations are subject to numerous local, state and federal laws and
regulations. While we do not foresee the need for significant expenditures to
ensure continued compliance with current environmental protection laws,
regulations in this area are subject to change, and we cannot be sure that
future laws and regulations will not have a materially adverse effect on our
company. We use very few chemicals or other hazardous materials in our
operations and do not expect that significant costs will be incurred in
continuing to comply with existing environmental and other laws. We can offer no
assurance that future laws or regulations will not increase the costs of
compliance, and this could have a materially adverse effect on our company.

MANUFACTURING OPERATIONS AND FACILITIES

     Currently, we operate out of our Westwind Boulevard facility in Santa Rosa,
California. We moved to this new 70,000 square foot facility in January, 2001.
The lease on our current facility is for an initial term of fifteen years with
three five-year options to extend the lease. The Company abandoned and
physically moved out of approximately 34,500 square feet of the Westwind
facility as of December 15, 2001. Due to the recent economic downturn,
management determined that there was excess capacity on the noncancelable lease
and a restructuring charge of $1.0 million was recorded in the fourth quarter.
The Company is continuing to look for a tenant to sub-lease this portion of the
building.

     The Company entered into a sublease on our former facility (which lease
does not expire until 2008) in January 2001 on favorable terms. The sublease has
a base rent of $21,250 per month and a term of forty-eight and one half months
with an option to extend the sublease for one additional thirty-six month
period.

     We use our production capacity to support top-level assembly and
modification, and to conduct sophisticated tests of our products. We subcontract
base-level fabrication, low-level assembly, surface mount production, and
limited top-level assembly to key suppliers with expertise in these areas. All
operations are performed under TrueTime's ISO 9001 certification.

RESEARCH AND DEVELOPMENT

     In fiscal years 2000 and 2001, we spent $3.2 million and $3.5 million,
respectively, developing a GPS receiver technology that is optimized for time
and frequency applications, next generation time servers, and several technology
building blocks. This will be used in our next generation products anticipated
to be released in fiscal year 2002. In fiscal 1999, we spent $2.2 million
developing network time servers, network interface features and higher levels of
integration and capabilities in GPS and real time operating systems.

SUPPLIERS

     We depend upon our suppliers for parts and services. Most of our parts and
services are obtainable from multiple sources, although some parts and services
are obtainable from only one source. Currently, Trimble Navigation Limited
provides most of our supply of a key component for our GPS-based products. While
to date we have not had difficulty obtaining these parts and services, if
single-source products or services were to become unavailable, our ability to
provide products would be materially affected. We believe that advances and
investment in development technologies and modular designs will allow us to
respond quickly if part availability affects production, but there can be no
assurance as to that circumstance.

     Our current delivery times have been affected from time to time by
disruptions in the supply chain. Current deliveries range from (1) one to two
days for standard products kept in inventory, (2) two weeks to 45 days for
products that require configuration and (3) 60 to 90 days for custom products
that must be specially built to our customers' specifications.

     We sell on open account. Therefore, we use working capital to pay for the
wages of our employees and to carry inventories and accounts receivable pending
collections from our customers.
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EMPLOYEES

     As of September 30, 2001, we employed 113 people on a full-time basis, 110
who work at our facility in Santa Rosa, California. We have never experienced a
work stoppage and none of our employees is unionized. Over 40% of our employees
have scientific and technical backgrounds.

CORPORATE INFORMATION

     In 1991, OYO Corporation U.S.A., a Texas corporation and wholly-owned
subsidiary of OYO Corporation, a Japanese corporation, acquired our business as
part of its acquisition of Kinemetrics, Inc., which manufactures and sells
earthquake monitoring instrumentation. Shortly after acquiring Kinemetrics, OYO
U.S.A. established a new California corporation named TrueTime, Inc., and
transferred the ownership of the Kinemetrics/TrueTime business to the newly
established corporation. In November 1999, we were incorporated in Delaware and
we became a publicly traded company in December 1999.

ITEM 2. PROPERTIES

     See Item 1 for information with respect to properties. We believe that our
facilities are adequate for our current and immediately projected needs.

ITEM 3. LEGAL PROCEEDINGS

     We are not aware of any current or pending litigation or proceedings that
could have a material adverse effect on our results of operations, cash flows or
financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

                                        10
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock began trading on the Nasdaq National Market on December
17, 1999, under the symbol "TRUE". Before that time, there was no market for our
common stock. On December 6, 2001, there were approximately 78 holders of record
of our common stock and an estimated 3,927 beneficial holders.

     The following table presents the range of high and low bid quotations for
our common stock during the year ended September 30, 2001, and the year ended
September 30, 2000, our first year as a public company, as reported by The
Nasdaq Stock Market, Inc.

<Table>
<Caption>
YEAR ENDED SEPTEMBER 30, 2001:                                 LOW      HIGH
------------------------------                                ------   ------
<S>                                                           <C>      <C>
First Quarter...............................................  $2.250   $4.250
Second Quarter..............................................   2.250    3.563
Third Quarter...............................................   1.960    2.500
Fourth Quarter..............................................   1.630    2.150
</Table>

<Table>
<Caption>
YEAR ENDED SEPTEMBER 30, 2000:                                 LOW      HIGH
------------------------------                                ------   -------
<S>                                                           <C>      <C>
First Quarter...............................................  $6.250   $ 8.750
Second Quarter..............................................   6.135    15.500
Third Quarter...............................................   2.750     7.500
Fourth Quarter..............................................   2.500     5.813
</Table>

     Historically, we have not paid dividends, and we do not intend to pay cash
dividends on our common stock in the foreseeable future. We presently intend to
retain earnings for use in our business, with any future decision to pay cash
dividends dependent upon our growth, profitability, financial condition and
other factors the Board of Directors may deem relevant.

     The Company commenced the initial public offering (the "Offering") of its
common stock on December 16, 1999 pursuant to a Registration Statement on Form
S-1 (Registration No. 333-90269), which was declared effective by the Securities
and Exchange Commission on December 16, 1999. The Offering was terminated upon
the sale of all of the securities covered by such Registration Statement. The
Company has used approximately $7,828,300 of the initial net proceeds of
$8,642,668 from the offering for day to day working capital requirements. As of
September 30, 2001, the Company had invested unused net proceeds of the Offering
in the amount of approximately $814,300 in short-term money market investments.

ITEM 6. SELECTED FINANCIAL DATA

     The following tables set forth certain selected historical financial data
of the Company.

     The following statement of operations data for the years ended September
30, 1999, 2000 and 2001, and the balance sheet data as of September 30, 2000 and
2001, are derived from our audited financial statements appearing elsewhere in
this Form 10-K. The statement of operations data for the years ended September
30, 1997 and 1998 and the balance sheet data as of September 30, 1998 and 1999
were derived from our audited financial statements not included herein. The
selected balance sheet data shown below as of September 30, 1997 is derived from
our unaudited financial statements. In our opinion, such unaudited financial
information includes all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of our results of operations for
the periods then ended and our financial position as of such date. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial

                                        11
<PAGE>

Condition and Results of Operations" and our financial statements and the
related notes thereto included elsewhere in this Form 10-K.

<Table>
<Caption>
                                                          YEAR ENDED SEPTEMBER 30,
                                               -----------------------------------------------
                                                1997      1998      1999      2000      2001
                                               -------   -------   -------   -------   -------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                            <C>       <C>       <C>       <C>       <C>
STATEMENT OF OPERATIONS DATA
Sales........................................  $13,894   $16,297   $20,645   $21,106   $19,442
Cost of sales................................    5,783     7,537     9,076     9,646    11,376
                                               -------   -------   -------   -------   -------
Gross profit.................................    8,111     8,760    11,569    11,460     8,066
Operating expenses
  Selling, general and administrative........    3,906     4,395     5,905     7,153     7,650
  Research and development...................    1,855     1,873     2,155     3,190     3,519
  Restructuring costs........................       --        --        --        --       998
                                               -------   -------   -------   -------   -------
          Total operating expenses...........    5,761     6,268     8,060    10,343    12,167
                                               -------   -------   -------   -------   -------
Income (loss) from operations................    2,350     2,492     3,509     1,117    (4,101)
Interest and other income (expense), net.....       10       249       305       548       297
                                               -------   -------   -------   -------   -------
Income (loss) before income taxes............    2,360     2,741     3,814     1,665    (3,804)
Provision (benefit) for income taxes.........      964     1,122     1,547       681    (1,533)
                                               -------   -------   -------   -------   -------
Net income (loss)............................  $ 1,396   $ 1,619   $ 2,267   $   984   $(2,271)
                                               =======   =======   =======   =======   =======
Earnings (loss) per share -- basic and
  diluted....................................  $  0.35   $  0.40   $  0.57   $  0.18   $ (0.38)
Weighted average shares outstanding as
  adjusted for reincorporation -- basic......    4,000     4,000     4,000     5,514     5,950
                  -- diluted.................    4,000     4,000     4,000     5,610     5,950
</Table>

<Table>
<Caption>
                                                         YEAR ENDED SEPTEMBER 30,
                                             -------------------------------------------------
                                              1997      1998      1999        2000      2001
                                             -------   -------   -------     -------   -------
                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                          <C>       <C>       <C>         <C>       <C>
BALANCE SHEET DATA
Cash and cash equivalents..................  $    --   $    38   $ 3,539(1)  $ 7,884   $ 7,809
Working capital............................    7,381     8,641    10,808      18,404    16,350
Total assets...............................   11,018    12,160    15,491      24,413    24,023
Stockholders' equity.......................    8,867    10,486    12,753      22,423    20,158
</Table>

---------------

(1) Includes $3,500,000 which was transferred in October 1999 to OYO USA
    pursuant to a trust arrangement under which TrueTime was the sole beneficial
    owner of the trust assets. The trust was established to maximize the return
    on our assets available for investment until such time that we established
    our own short-term investment program. On December 1, 1999, the trust
    agreement was terminated and the cash and cash equivalents held in trust
    were distributed to TrueTime.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The following is management's discussion and analysis of the major elements
of our financial statements. You should read this discussion and analysis
together with our financial statements and accompanying notes and other detailed
information appearing elsewhere in this Form 10-K. Our discussion of our
financial condition and results of operations includes various forward-looking
statements about our markets, the demand for our products and services and our
future results. These statements are based on assumptions that we consider to be
reasonable, but that could prove to be incorrect. For more information regarding
our assumptions, you should refer to "Forward Looking Statements" and "Risk
Factors".

                                        12
<PAGE>

OVERVIEW

     In recent years, the time and frequency industry has undergone changes in

     - its conversion from other timing sources to primarily GPS sources,

     - the increasing utilization of timing and frequency in computer networks
       and the Internet, and

     - the increasing need for higher-accuracy frequencies for
       broader-communications bandwidth in wireline, wireless and satellite
       communications.

     We generate revenues primarily from sales of our products. We also receive
small amounts of revenue, which are included in sales, from service and
non-recurring engineering charges. We record sales when a product ships and
title passes. In fiscal 2001, our sales came from over 1,000 different customers
and we sold dozens of different products. A substantial portion of our business
is generated from direct and indirect U.S. Government customers. Some of these
sales are program driven and can increase the quarterly revenue fluctuations
that TrueTime experiences.

     We ship most products within 60 days of the date they are ordered, so order
backlog is not a satisfactory predictor of our future performance. Since we do
not maintain a substantial backlog and customer ordering patterns fluctuate, we
experience variations in results from quarter to quarter.

     Cost of goods sold includes direct material, direct labor, overhead
associated with the manufacturing of products, and warranty expenses.

     We expense selling, commissions, general and administrative costs in the
period in which they are incurred. Research and development costs are also
expensed as they are incurred. Capital expenditures are capitalized and
depreciated, usually over a three to fifteen year life.

RESULTS OF OPERATIONS

     The following table sets forth for fiscal 1999, 2000 and 2001, the
percentage of income statement items to total sales:

<Table>
<Caption>
                                                              YEAR ENDED SEPTEMBER 30,
                                                              ------------------------
                                                               1999     2000     2001
                                                              ------   ------   ------
<S>                                                           <C>      <C>      <C>
Sales.......................................................  100.0%   100.0%   100.0%
Cost of sales...............................................   44.0     45.7     58.5
                                                              -----    -----    -----
Gross profit................................................   56.0     54.3     41.5
Operating expenses:
  Selling, general and administrative.......................   28.6     33.8     39.4
  Research and development..................................   10.4     15.1     18.1
  Restructuring costs.......................................     --       --      5.1
                                                              -----    -----    -----
          Total operating expenses..........................   39.0     48.9     62.6
                                                              -----    -----    -----
Income (loss) from operations...............................   17.0      5.4    (21.1)
Interest and other income, net..............................    1.5      2.5      1.5
                                                              -----    -----    -----
Income (loss) before income taxes...........................   18.5      7.9    (19.6)
Provision (benefit) for income taxes........................    7.5      3.2     (7.9)
                                                              -----    -----    -----
Net income (loss)...........................................   11.0%     4.7%   (11.7)%
                                                              =====    =====    =====
</Table>

YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO YEAR ENDED SEPTEMBER 30, 2000

     Sales.  Sales for fiscal 2001 were $19.44 million, a decrease of $1.67
million, or 7.9%, from $21.11 million in fiscal 2000. The decrease in sales is
primarily attributable to the general economic slow down specifically evident in
our commercial markets.

     Cost of Sales.  Cost of sales for fiscal 2001 was $11.38 million, an
increase of $1.73 million, or 17.9%, from $9.65 million in fiscal 2000. Cost of
sales increased as a percentage of total sales to 58.5% in fiscal 2001

                                        13
<PAGE>

from 45.7% in fiscal 2000. Such percentage increase is primarily the result of
current year obsolete inventory write-downs of $0.60 million. This one-time
write-off of certain obsolete inventories takes into consideration our
anticipated fiscal year 2002 new product introductions. Also contributing to our
increased cost of sales margin was higher compensation and consulting costs of
$0.61 million due to process improvement initiatives and upward wage pressures,
reduced margins of $0.5 million resulting from unfavorable product and customer
mix, and increased facility costs of $0.32 million.

     Operating Expenses.  Operating expenses for fiscal 2001 were $12.17
million, an increase of $1.83 million, or 17.7%, from $10.34 million in fiscal
2000. Operating expenses increased as a percentage of total sales to 62.6% in
fiscal 2001 from 48.9% in fiscal 2000. Operating expenses consisted of the
following:

          Selling, general and administrative.  Selling, general and
     administrative expenses for fiscal 2001 were $7.65 million, an increase of
     $.50 million, or 7.0%, from $7.15 million in fiscal 2000. Selling, general
     and administrative expenses increased as a percentage of total sales to
     39.4% in fiscal 2001 from 33.8% in fiscal 2000. The increase of $0.5
     million is primarily the result of increased facility costs of $0.23
     million with the move to the new building, an additional $0.17 million in
     costs related to being a public company for a full twelve month period and
     additional promotional, selling costs of $0.34 million as we develop new
     commercial markets, offset by lower consultant costs of $0.23 million due
     to the software implementation in the prior year.

          Research and development.  Research and development expenses for
     fiscal 2001 were $3.52 million, an increase of $0.33 million, or 10.3%,
     from $3.19 million in fiscal 2000. Research and development expenses
     increased as a percentage of total sales to 18.1% in fiscal 2001 from 15.1%
     in fiscal 2000. This increase is the result of adding additional
     engineering resources and increased facility costs to support future new
     product introductions.

          Restructuring costs.  Restructuring charges of $1.0 million were
     accrued in fiscal 2001 due to the abandonment of excess facility space.
     Given the recent economic downturn, TrueTime's management has determined
     that the Company has excess capacity that will not be utilized in the
     mid-term, and has elected to abandon this space. The restructuring charges
     primarily relate to noncancelable lease costs. The space will be abandoned
     effective December 15, 2001.

     Interest and Other Income (Expense), Net.  Interest and other income
(expense), net for fiscal 2001 was $297,418, a decrease of $250,136 or 45.7%,
from $547,554 in fiscal 2000. Interest income for fiscal 2001 was $320,170, a
decrease of $213,728 or 40.0%, from $533,898 in fiscal 2000. This income was
earned on our cash deposits held in our money market investment and bank cash
accounts. Such decrease is attributable to the continuing decline in interest
rates during the year and fluctuation in cash balances. A capital lease was
entered into in the third quarter of fiscal 2001 for furniture and electronic
equipment. This resulted in interest expense of $23,539 during fiscal 2001.

     Income Taxes.  TrueTime's effective income tax rate for the year ended
September 30, 2001 was 40.3% compared to 40.9% for the year ended September 30,
2000. Our effective income tax rate differs from the statutory federal rate of
34% primarily as a result of the effect of state income taxes.

YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO YEAR ENDED SEPTEMBER 30, 1999

     Sales.  Sales for fiscal 2000 were $21.1 million, an increase of $461
thousand, or 2.4%, from $20.6 million in fiscal 1999. The increase in sales is
attributable to the increased demand for the newly released versions of our
network timeservers.

     Cost of Sales.  Cost of sales for fiscal 2000 was $9.65 million, an
increase of $570 thousand, or 6.3%, from $9.08 million in fiscal 1999. Cost of
sales increased as a percentage of total sales to 45.7% in fiscal 2000 from
44.0% in fiscal 1999. Such percentage increase is primarily the result of
additional costs associated with the implementation of our ERP software.

                                        14
<PAGE>

     Operating Expenses.  Operating expenses for fiscal 2000 were $10.3 million,
an increase of $2.2 million, or 27.2%, from $8.1 million in fiscal 1999.
Operating expenses increased as a percentage of total sales to 48.9% in fiscal
2000 from 39.0% in fiscal 1999. Operating expenses consisted of the following:

          Selling, general and administrative.  Selling, general and
     administrative expenses for fiscal 2000 were $7.2 million, an increase of
     $1.3 million, or 22.0%, from $5.9 million in fiscal 1999. Selling, general
     and administrative expenses increased as a percentage of total sales to
     33.8% in fiscal 2000 from 28.6% in fiscal 1999. The increase of $1.3
     million is primarily the result of additional costs of being a public
     company of $0.6 million, additional promotional and selling costs of $0.4
     million

          Research and development.  Research and development expenses for
     fiscal 2000 were $3.2 million, an increase of $1.0 million, or 45%, from
     $2.2 million in fiscal 1999. Research and development expenses increased as
     a percentage of total sales to 15.1% in fiscal 2000 from 10.4% in fiscal
     1999. The increase of $1.0 million is primarily a result of adding
     engineering resources to support enhancement of current products and new
     product introductions. We have also established a manufacturing engineering
     group that has been given the responsibility of insuring the
     manufacturability of our next generation products through the installation
     of a Product Data Management System. This system is intended to reduce the
     new product introduction cycle time and to more efficiently integrate new
     products into the manufacturing process.

     Interest and Other Income (Expense), Net.  Interest and other income
(expense), net for fiscal 2000 was $547,554, an increase of $242,463 or 79.4%,
from $305,000 in fiscal 1999. This income was earned on our cash deposits held
in our market investment account. Such increase is attributable to the interest
on the cash generated from our initial public offering in December 1999.

     Income Taxes.  TrueTime's effective income tax rate for the year ended
September 30, 2000 was 40.9% compared to 40.6% for the year ended September 30,
1999. Our effective income tax rate differs from the statutory federal rate of
34% primarily as a result of the effect of state income taxes.

LIQUIDITY AND SOURCES OF CAPITAL

     Historically, we have financed our operations through operating cash flow.
Cash provided by operating activities was $1.2 million in fiscal 2001 as
compared to a negative $2.4 million in fiscal 2000. The net increase of $3.6
million is primarily the result of a decrease in net income of $3.2 million
offset by a decrease in the change in operating assets in the amount of $6.8
million. The net decrease in the change in operating assets is primarily the
result of the following:

     - a net decrease in the change of inventories from the prior fiscal year of
       $4.3 million due to a successful effort in lowering our inventory as well
       as the write-off of obsolete inventory;

     - a net decrease in trade receivables of $1.2 million due to increased
       collection efforts;

     - restructuring costs of $1.0 million due to excess facility space;

     - a net decrease in prepaid expenses of $0.7 million;

     - deferred revenue of $0.2 for long-term service contracts; and

     - increased income taxes receivable of $0.6 million due to a net loss for
       the year.

Cash provided by operating activities was a negative $2.4 million in fiscal 2000
as compared to a positive $1.6 million in fiscal 1999. The net decrease of $4.0
million was primarily the result of the following:

     - a decrease in net income of $1.3 million during fiscal 2000;

     - an increase in the change in operating assets in the amount of $1.0
       million principally resulting from increasing inventories related to a
       broader product offering and to support next day shipping on specific
       products; and

     - a decrease in the change in operating liabilities of $1.8 million
       principally resulting from lower accrued expenses due to a decision not
       to pay management and employee bonuses for fiscal 2000.

                                        15
<PAGE>

     Other investing activities consist principally of capital expenditures.
Capital expenditures for investments in machinery and equipment were $442,000,
$534,000 and $262,000 for fiscal years ending 1999, 2000, and 2001 respectively.
In fiscal 2001 there were additional capital expenditures of $1,673,000 used to
build out and equip our new manufacturing and office facility. The Company sold
a group of these assets to a commercial bank in a sale leaseback transaction on
April 30,2001 to finance a portion of these costs. This transaction resulted in
a capital lease in the amount of $752,186. The capital lease is for a
forty-eight month period. In addition there were capital equipment disposals in
fiscal 2001 of approximately $23,000 net book value primarily related to the
move from our former facility. The Company has committed approximately $160,000
in fiscal year 2002 for capital expenditures for design and production of our
products.

     We sell on open account with terms that usually require payment within 30
days of invoice. Many customers pay later than the agreed-upon terms allow, but
generally not later than 30 days after the original due date. We had no
write-offs for bad debts in fiscal year 1999, $13,208 in fiscal 2000 and $34,004
in fiscal 2001. We have included the effects of anticipated increased accounts
receivable in our plans for future working capital requirements.

     Cash and cash equivalents were $7.8 million at September 30, 2001 as
compared to $7.9 million at September 30, 2000. The decrease reflects cash used
for capital expenditures offset by proceeds from the capital lease entered into
in May 2001. Cash equivalents are invested on a short-term basis with a major
bank and in investment grade, interest-bearing securities. We expect that the
combination of cash and cash equivalents, cash flow from operations and the
proceeds from the sale of stock should provide us with sufficient capital
resources and liquidity to fund our operations during fiscal 2002 and support
our strategy as described elsewhere in this document.

RECENT ACCOUNTING PRONOUNCEMENTS

     Accounting for Derivative Instruments and Hedging Activities.  The Company
has adopted the provisions of Financial Accounting Standards Board (FASB) No.
133, "Accounting for Derivative Instruments and Hedging Activities". The Company
does not currently hold derivative instruments or engage in hedging activities
and therefore the adoption of FASB No. 133 has not had a significant effect on
the Company's financial position, results of operations or cash flows.

     Revenue Recognition in Financial Statements.  The Company has complied with
the guidance provided by Staff Accounting Bulletin (SAB) No. 101 for the year
ended September 30,2001. Compliance with this provision did not have a material
impact on the Company's financial position, results of operations or cash flows.

     On June 29, 2001, the Financial Accounting Standards Board (FASB or the
"Board") unanimously voted in favor of issuing two Statements: Statement No. 141
(SFAS 141), Business Combinations, and Statement No. 142 (SFAS 142), Goodwill
and Other Intangible Assets.

     SFAS 141 primarily addresses the accounting for the cost of an acquired
business (i.e., the purchase price allocation), including any subsequent
adjustments to its cost. SFAS 141 supercedes APB 16, Business Combinations.

     The most significant changes made by SFAS 141 are:

     - It requires use of the purchase method of accounting for all business
       combinations, thereby eliminating use of the pooling-of-interests method.

     - It provides new criteria for determining whether intangible assets
       acquired in a business combination should be recognized separately from
       goodwill.

     SFAS 141 is effective for all business combinations (as defined in the
Statement) initiated after June 30, 2001 and for all business combinations
accounted for by the purchase method that are completed after June 30, 2001
(that is, the date of acquisition is July 1, 2001, or later).

                                        16
<PAGE>

     SFAS 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition (i.e., the post-acquisition accounting).
SFAS 142 supercedes APB 17, Intangible Assets.

     The most significant changes made by SFAS 142 are:

     - Goodwill and indefinite lived intangible assets will no longer be
       amortized and will be tested for impairment at least annually.

     - Goodwill will be tested at least annually at the reporting unit level.

     - The amortization period of intangible assets with finite lives is no
       longer limited to forty years.

     SFAS 142 is effective for fiscal years beginning after December 15, 2001 to
all goodwill and other intangible assets recognized in an entity's statement of
financial position at that date, regardless of when those assets were initially
recognized. Early application is permitted for entities with fiscal years
beginning after March 15, 2001 provided that the first interim period financial
statements have not been issued previously. In all cases, the provisions of SFAS
142 should be applied at the beginning of a fiscal year. Retroactive application
is not permitted.

     The Company has goodwill for which amortization has been recorded against
in prior periods. The impact of the future adoption of SFAS 142 has yet to be
determined. Under the current guidelines, the Company could adopt the provisions
of SFAS 142 on October 1, 2001. However, the Company has not opted for early
adoption. Amortization of goodwill per quarter is $6,444; amortization of
goodwill for 2001 was $25,776. Upon adoption, the Company will need to review
the potential impairment of carrying values of goodwill to determine if there
will be a write-down. Currently, goodwill is carried at $765,000, the net book
value.

     On October 3, 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144). SFAS 144 supersedes SFAS 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144
applies to all long-lived assets (including discontinued operations) and
consequently amends Accounting Principles Board Opinion No. 30 (APB 30),
"Reporting Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transaction." SFAS 144 develops one accounting model for long-lived
assets that are to be disposed of by sale. SFAS 144 requires that long-lived
assets that are to be disposed of by sale be measured at the lower of book value
or fair value less cost to sell. Additionally, SFAS 144 expands the scope of
discontinued operations to include all components of an entity with operations
that (1) can be distinguished from the rest of the entity and (2) will be
eliminated from the ongoing operations of the entity in a disposal transaction.
The provisions of this Statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with early application encouraged.

     The Company is in the process of evaluating the effect of SFAS 142 and 144
on its financial statements.

FORWARD LOOKING STATEMENTS

     Certain of the statements contained in this document and in documents
incorporated by reference herein, including those made under the captions
"Business and Properties" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," are "forward-looking" statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. All statements other than statements of
historical fact included herein, including statements regarding potential future
products and markets, the Company's future financial position, business strategy
and other plans and objectives for future operations, are forward-looking
statements. We can give no assurance that such expectations will prove to have
been correct. These statements are subject to known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to differ materially from the future results, performance or
achievements expressed or implied by such forward-looking statements. Important
factors that could cause actual results performance or achievements to differ
materially from the Company's expectations are disclosed below under the heading
"Risk Factors". Further, all written

                                        17
<PAGE>

and verbal forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by such factors.

RISK FACTORS

     The following risks could impact our business and operations and should be
considered by investors.

     OUR BUSINESS WILL SUFFER IF WE CONTINUE TO EXPERIENCE A GENERAL ECONOMIC
SLOWDOWN IN THE U.S., PARTICULARLY AS THAT SLOWDOWN AFFECTS TECHNOLOGY MARKETS.

     Our commercial operations are cyclical and dependent for success on the
general economic well-being of the United States and certain other world
markets. If the United States or world economies were to continue to decline or
the demand for technology continues its recent downward trends, we may continue
to experience adverse impacts on our revenues and income. Further, other general
market conditions such as increased inflation and higher interest rates, were
they to occur, could also adversely impact our revenue, profitability,
cash-flow, and appropriate levels of inventory.

     OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO KEEP UP WITH RAPID
TECHNOLOGICAL CHANGE AND PRODUCT OBSOLESCENCE.

     If we fail to maintain our technological leadership and good reputation
with our customers in the areas of GPS, real-time operating systems and network
technologies, the value of your investment in TrueTime will decrease. The
markets for timing and frequency products are characterized by continual and
rapid technological developments that have resulted in, and will likely continue
to result in, substantial improvements in product function and performance. Our
success will depend on our ability to anticipate changes in technology and
industry requirements and to respond to technological developments on a timely
basis, either internally or through strategic alliances.

     We will likely be constantly threatened by current competitors or new
market entrants who may develop new technologies or products or establish new
standards that could render our products obsolete and unmarketable. Thus, we can
offer no assurances that we will be successful in developing and marketing, on a
timely and cost effective basis, product enhancements or new products that
respond to technological developments, that are accepted in the marketplace or
that comply with industry standards.

     WE RELY ON A LIMITED NUMBER OF SUPPLIERS FOR CERTAIN CRITICAL COMPONENTS,
AND WE USE A SINGLE SUPPLIER FOR MOST OF OUR GPS-BASED COMPONENTS, MAKING US
SUBJECT TO SUPPLY AND QUALITY CONTROL PROBLEMS.

     Most of our products incorporate certain components or technology supplied
in part by third parties. From time to time, we experience delays and
disruptions in our supply chain. To date, these delays and disruptions have not
materially adversely affected our business, but they could do so in the future.
Wherever possible, we try to develop multiple sources of supply, but we do not
always succeed. To the extent that we experience significant supply or quality
control problems with our vendors, these problems can cause us to have
difficulty in controlling our quality and can have a significant adverse effect
on our ability to meet future production and delivery commitments to our
customers.

     Currently, Trimble Navigation Limited provides most of our GPS receivers, a
key component for our older GPS-based products. In addition, Trimble has begun
competing in markets similar to our own. While there can be no assurances that
we can ensure continuous supply of these components, we have partially mitigated
this risk by developing and integrating our own proprietary GPS receiver
technology that is based upon widely available GPS chip sets. Further, this
technology has been integrated into several of our newer products. If we are
unable to obtain adequate supplies of Trimble's component for any reason or to
successfully develop our own substitute technology, we will likely experience
delays or reductions in production and increased expenses. Our operations will
be negatively affected if we experience inadequate supplies of any key
components.

                                        18
<PAGE>

     OUR TRADE SECRETS, TRADEMARKS AND PATENTS MAY NOT BE ADEQUATE OR
ENFORCEABLE AND OTHERS MAY USE OUR PROPRIETARY TECHNOLOGY.

     Historically, we have not generally filed patents to protect our
intellectual property. While we hope our intellectual property is adequately
protected by our confidential trade-secret protection plans and programs, we
cannot be sure that our competitors will be prevented from gaining access to our
proprietary and confidential technologies. Furthermore, although we have applied
for a patent related to a computer network timing product, we can offer no
assurances that a patent will be issued for this patent application or other
future applications and, if issued, that any patent will be enforceable. If the
protection of our intellectual property proves to be inadequate or
unenforceable, others may use our proprietary developments without compensation
to us and in competition against us.

     WE FACE THE RISK OF LITIGATION ALLEGING OUR INFRINGEMENT OF OTHER PEOPLE'S
INTELLECTUAL PROPERTY RIGHTS.

     We do not know of any instances where our products violate the intellectual
property rights of others or inappropriately use their technology. However,
technology-based companies are often very litigious. Therefore, we face the risk
of adverse claims and litigation alleging infringement of other people's
intellectual property rights. These claims could result in costly litigation and
divert management's attention from other matters. Alternatively, these claims
could practically require us to obtain licenses in order to use, manufacture and
sell certain of our products, regardless of the merits of the infringement
claims, in order to maintain business levels, or we could otherwise be excluded
from participation in certain markets. We cannot be certain that any necessary
licenses will be available or that, if available, they can be obtained on
reasonable terms acceptable to us.

     OUR COMPETITORS MAY USE THEIR GREATER RESOURCES AND BROADER PRODUCT
OFFERINGS TO INCREASE COMPETITION AND REDUCE OUR SALES AND PROFITABILITY.

     Many of our existing and potential competitors have substantially greater
marketing, financial and technical resources than we have. In addition, some of
our competitors have broader product offerings and manufacture internally
certain critical components of time and frequency products. Currently, we do not
have a complete offering of precise time and frequency products nor do we
manufacture internally certain critical components, placing us at a disadvantage
to some of our competitors. If our competitors were to use such tactics in the
future, we would be unable to maintain our market position without incurring a
negative impact on our profitability.

     The race for a leading position in new technological advances is always
very competitive. Advances in technology may reduce the cost for potential
competitors to gain market entry, particularly for less expensive time and
frequency products. We cannot assure you that sales of our products will
continue at current volumes or prices in any event, but especially if our
current competitors or new market entrants introduce new products with better
features, better performance or lower prices or having other characteristics
that are more attractive than our own. Competitive pressures or other factors
also may result in significant price competition that could have a material
adverse effect on our results of operations.

     OUR INDUSTRY MAY NOT GROW AS FORECASTED AND OUR REVENUES AND OPERATING
RESULTS MAY BE DIMINISHED.

     Our future successful performance is inextricably tied to the growth of our
industry. However, even if our industry grows, there can be no assurance that we
will be able to grow consistently with our industry.

     OUR RELATIONSHIPS WITH OUR SALES REPRESENTATIVES COULD BE IMPAIRED AND
CAUSE US TO LOSE ORDERS.

     More than 95% of our orders come through our 31 domestic and worldwide
sales representative offices. Many of these representatives act as relationship
brokers and the loss of any key representatives could have a negative effect on
our sales.

                                        19
<PAGE>

     WE MAY BE UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES, DELAYING PRODUCT
DEVELOPMENT AND MANUFACTURING.

     Our success depends upon attracting and retaining highly skilled
professionals. A number of our employees are highly skilled engineers and other
technical professionals, and our failure to continue to attract and retain such
individuals could adversely affect our ability to compete in the industry. In
addition, our success will depend to a significant extent upon the abilities and
efforts of several members of our senior management.

     MANY OF OUR KEY CUSTOMERS ARE UNITS OF THE U.S. GOVERNMENT AND ENTITIES
THAT ARE DEPENDENT UPON U.S. GOVERNMENT FUNDING FOR PURCHASES, THEREFORE,
DECREASED GOVERNMENT SPENDING COULD ADVERSELY AFFECT OUR BUSINESS.

     Our defense, military and aerospace based business depends largely on U.S.
government expenditures, whether directly with us or indirectly with our
customers who contract with the U.S. government. In recent years, sales to U.S.
government units and indirect government customers have accounted for
approximately 28% to 53% of our annual revenues. There can be no assurances as
to whether future governmental spending will adequately support our business in
those areas, and substantial decreases in government spending or loss of U.S.
governmental customers could materially and adversely affect our operations.

     OUR MARKET IS SEGMENTED INTO A LIMITED NUMBER OF CUSTOMER GROUPS, THE LOSS
OR CHANGE OF WHICH COULD SIGNIFICANTLY DECREASE OUR SALES.

     While we sell our products to a large number of individual customers, the
number of customer groups is limited. These groups include telecommunications,
computer networking, aerospace, military, satellite, U.S. government and power
utility customers. The loss, or changes in the purchasing behavior, of one or
more of these groups of customers could cause a material decrease in the sale of
our products.

     THE FAILURE OF GPS AND OTHER TIME AND FREQUENCY REFERENCES WOULD CAUSE OUR
PRODUCTS TO FAIL TO PERFORM TO SPECIFICATION.

     The time and frequency products that we manufacture rely upon the
availability of highly accurate timing references, primarily GPS operated by the
U.S. Department of Defense, and to a lesser degree, other timing references
operated by the U.S. National Institute of Science and Technology and other
outside signal sources. The failure of these timing references, particularly
GPS, would create many problems for our products and our customers and seriously
disrupt the sale of our products.

     OUR PRODUCTS COULD FAIL TO PERFORM ACCORDING TO SPECIFICATION OR PROVE TO
BE UNRELIABLE, CAUSING DAMAGE TO OUR CUSTOMER RELATIONSHIPS AND INDUSTRY
REPUTATION AND RESULTING IN LOSS OF SALES.

     Our customers require demanding specifications for product performance and
reliability. Because our precision time and frequency products are complex and
often use state-of-the-art components, processes and techniques, undetected
errors and design flaws may occur. Product defects result in higher product
service and warranty and replacement costs and may cause serious damage to our
customer relationships and industry reputation, all of which will negatively
impact our sales and business.

     FLUCTUATIONS IN QUARTERLY PERFORMANCE CAN RESULT IN INCREASES IN OUR
INVENTORY AND RELATED CARRYING COSTS, CAN DIMINISH OUR OPERATING RESULTS AND
CASH FLOW AND CAN RESULT IN A LOWER TRUETIME STOCK PRICE.

     Historically, the rate of incoming orders for our products has varied
substantially from quarter to quarter. In past fiscal years, our highest sales
quarter has been as much as 250% of our lowest sales quarter. This quarter to
quarter variation is not seasonal or predictable. We attempt to accurately
forecast orders for our products and commence purchasing and manufacturing prior
to the receipt of such orders. However, it is highly unlikely that we will
consistently accurately forecast the timing and rate of orders. The flow of
orders (or lack thereof) from governmental agencies has been particularly
difficult to forecast in recent periods. This aspect of our business makes our
planning inexact and, in turn, affects our shipments, costs, inventories,
                                        20
<PAGE>

operating results and cash flow for any given quarter. In addition, our
quarterly operating results are affected by competitive pricing, announcements
regarding new product developments and cyclical conditions in the industry.
Accordingly, we may experience wide quarterly fluctuations in our operating
performance and profitability, which may adversely affect our stock price even
if our year to year performance is more stable, which it also may not be. In
addition, many of our products require significant manufacturing time, making it
difficult to increase production on short notice. If we are unable to satisfy
unexpected customer orders, our business and customer relationships could
suffer.

     CARRYING VALUES OF INVENTORIES OF OUR PRODUCTS AND COMPONENTS THEREFORE MAY
BE SUBJECT TO PERIODIC WRITE-DOWN, ADVERSELY AFFECTING OUR OPERATIONS.

     To be competitive in some of our markets, particularly our commercial
markets, we will be required to build up inventories of certain products and
services in anticipation of future orders. There can be no assurance that we
will not experience problems of obsolete, excess or slow-moving inventory if we
are not able to properly balance inventories against the prospect of future
orders, and our operations may be adversely affected by inventory write-downs.

     CARRYING VALUES OF INTANGIBLE ASSETS MAY BE SUBJECT TO PERIODIC WRITE-DOWN,
ADVERSELY AFFECTING OUR OPERATIONS.

     Goodwill and other intangible assets are reviewed for impairment whenever
an event or change in circumstances indicates that the carrying amount may not
be recoverable. If the carrying value of our intangible assets exceeds the
expected undiscounted future cash flows, a loss would be recognized to the
extent the carrying amount of assets exceeds their fair values. This loss may
negatively impact our results of operation.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     We are exposed to market risks related to changes in interest rates in the
future. The unused proceeds from our initial public offering are invested in
short term financial instruments, the value of which is subject to interest rate
risk and could fall if interest rates rise. These short term instruments are in
low-yield, high quality investments. The decline in interest rates during the
year ended September 30, 2001 resulted in a decrease in interest income on these
investments of approximately $78,000. Additionally, while we have no plans for
future borrowings, any future borrowings will likely have a variable rate
component that will fluctuate as interest rates change. If market interest rates
were to increase immediately and uniformly by 10%, there would not be a material
effect on the results of operations or on our balance sheet.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our financial statements, including the reports thereon, the notes thereto
and supplementary data begin on page F-3 of this Form 10-K and are incorporated
herein by reference.

     The following table represents unaudited summarized data for each of the
quarters in fiscal 2001 and 2000 (in thousands, except per share amounts).

<Table>
<Caption>
                                                                           2001
                                                           -------------------------------------
                                                           FOURTH     THIRD    SECOND     FIRST
                                                           QUARTER   QUARTER   QUARTER   QUARTER
                                                           -------   -------   -------   -------
<S>                                                        <C>       <C>       <C>       <C>
Sales....................................................  $ 5,408   $ 4,531   $4,561    $4,942
Gross profit.............................................    1,632     1,771    2,121     2,542
Loss from operations.....................................   (2,136)   (1,006)    (876)      (83)
Other income (expense), net..............................       48        59       82       108
Net (loss) income........................................   (1,285)     (525)    (476)       15
                                                           =======   =======   ======    ======
Basic (loss) earnings per share..........................  $ (0.21)  $ (0.09)  $(0.08)   $ 0.00
                                                           -------   -------   ------    ------
Diluted (loss) earnings per share........................  $ (0.21)  $ (0.09)  $(0.08)   $ 0.00
                                                           -------   -------   ------    ------
</Table>

                                        21
<PAGE>

<Table>
<Caption>
                                                                           2000
                                                           -------------------------------------
                                                           FOURTH     THIRD    SECOND     FIRST
                                                           QUARTER   QUARTER   QUARTER   QUARTER
                                                           -------   -------   -------   -------
<S>                                                        <C>       <C>       <C>       <C>
Sales....................................................  $ 5,949   $ 4,940   $4,659    $5,556
Gross profit.............................................    3,053     2,720    2,712     2,975
Income (loss) from operations............................      212         1      246       658
Other income (expense), net..............................      173       124      143       108
Net income...............................................      248        66      218       452
                                                           =======   =======   ======    ======
Basic earnings per share.................................  $  0.04   $  0.01   $ 0.04    $ 0.11
                                                           =======   =======   ======    ======
Diluted earnings per share...............................  $  0.04   $  0.01   $ 0.03    $ 0.10
                                                           =======   =======   ======    ======
</Table>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Pursuant to General Instruction G(3) to Form 10-K, information on directors
and executive officers of the Registrant is incorporated herein by reference
from the Registrant's Definitive Proxy Statement to be filed pursuant to
Regulation 14A within 120 days after the close of the fiscal year ended
September 30, 2001.

ITEM 11. EXECUTIVE COMPENSATION

     Pursuant to General Instruction G(3) to Form 10-K, information on executive
compensation is incorporated herein by reference from the Registrant's
Definitive Proxy Statement to be filed pursuant to Regulation 14A within 120
days after the close of the fiscal year ended September 30, 2001.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Pursuant to General Instruction G(3) to Form 10-K, information on security
ownership of certain beneficial owners and management is incorporated herein by
reference from the Registrant's Definitive Proxy Statement to be filed pursuant
to Regulation 14A within 120 days after the close of the fiscal year ended.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Pursuant to General Instruction G(3) to Form 10-K, information on certain
relationships and related transactions is incorporated herein by reference from
the Registrant's Definitive Proxy Statement to be filed pursuant to Regulation
14A within 120 days after the close of the fiscal year ended.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) and (d) Financial Statements and Financial Statement Schedules

     The financial statements listed on the accompanying Index to Financial
Statements (see page F-1) are filed as part of this Form 10-K. All other
schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes there to.

(b) Reports on Form 8-K

     None

                                        22
<PAGE>

(c) Exhibits

<Table>
<Caption>
        EXHIBIT
         NUMBER                            DESCRIPTION OF DOCUMENTS
        -------                            ------------------------
<C>                      <S>
           3.1           -- Certificate of Incorporation of the Registrant
                            (incorporated by reference to Exhibit 3.1 of the
                            Registrant's Registration Statement on Form S-1 (Reg. No.
                            333-90269), as amended).
           3.2           -- By-laws of the Registrant (incorporated by reference to
                            Exhibit 3.2 of the Registrant's Registration Statement on
                            Form S-1 (Reg. No. 333-90269), as amended).
           4.1           -- Specimen Certificate of the Registrant's common stock
                            (incorporated by reference to Exhibit 4.1 of the
                            Registrant's Registration Statement on Form S-1 (Reg. No.
                            333-90269), as amended).
           4.2           -- See Exhibit 3.1 for provisions of the Registrant's
                            Certificate of Incorporation defining the rights of the
                            holders of common stock.
           4.3           -- See Exhibit 3.2 for provisions of the Registrant's
                            By-laws defining the rights of holders of common stock.
           4.4           -- Form of Warrant Agreement and Warrant, dated as of
                            December 16, 1999, by and between the Registrant and C.E.
                            Unterberg, Towbin (incorporated by reference to Exhibit
                            1.2 of the Registrant's Registration Statement on Form
                            S-1 (Reg. No. 333-90269), as amended).
           4.5           -- Form of Registration Rights Agreement between the
                            Registrant and OYO Corporation U.S.A. (incorporated by
                            reference to Exhibit 10.8 of the Registrant's
                            Registration Statement on Form S-1 (Reg. No. 333-90269),
                            as amended).
         +10.1           -- Form of Indemnification Agreement between the Registrant
                            and its officers and directors (incorporated by reference
                            to Exhibit 10.1 of the Registrant's Registration
                            Statement on Form S-1 (Reg. No. 333-90269), as amended).
         +10.2           -- TrueTime, Inc. 1999 Key Employee Stock Option Plan, as
                            amended as of March 1, 2000 (incorporated by reference to
                            Exhibit 4.4 of the Registrant's Registration Statement on
                            Form S-8, Reg. No. 333-35858, filed with the Commission
                            on April 28, 2000).
          10.3           -- TrueTime, Inc. 1999 Non-Employee Director Plan, as
                            amended as of December 16, 1999 (incorporated by
                            reference to Exhibit 10.1 to the Registrant's Quarterly
                            Report on Form 10-Q (Reg. No. 000-28473), filed with the
                            Commission on February 14, 2000).
          10.4           -- Standard Industrial Lease between Manor Development Co.
                            and the Registrant (incorporated by reference to Exhibit
                            10.9 of the Registrant's Registration Statement on Form
                            S-1 (Reg. No. 333-90269), as amended).
          10.5           -- Standard Industrial/Commercial Single-Tenant
                            Lease -- Net, dated as of January 24, 2000, by and
                            between Copperhill Development Corporation and TrueTime,
                            Inc. (incorporated by reference to Exhibit 10.1 to the
                            Registrant's Quarterly Report on Form 10-Q (Reg. No.
                            000-28473), filed with the Commission on May 15, 2000).
          10.6           -- Amendment to the Standard Industrial/Commercial
                            Single-Tenant Lease -- Net, dated as of January 24, 2000,
                            by and between Copperhill Development Corporation and
                            TrueTime, Inc. (incorporated by reference to Exhibit 10.6
                            to the Registrant's Annual Report on Form 10-K (Reg. No.
                            000-28473), filed with the Commission on December 20,
                            2000).
</Table>

                                        23
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                            DESCRIPTION OF DOCUMENTS
        -------                            ------------------------
<C>                      <S>
          10.7           -- Standard Industrial Sublease dated as of December 11,
                            2000 by and between Innovadyne Technologies, Inc. and
                            TrueTime, Inc. (incorporated by reference to Exhibit 10.1
                            to the Registrant's Quarterly Report on Form 10-Q (Reg.
                            No. 000-28473), filed with the Commission on February 14,
                            2001).
          10.8           -- Lease Intended as Security dated as of April 30, 2001 by
                            and between Bank of America and TrueTime, Inc.
                            (incorporated by reference to Exhibit 10.1 to the
                            Registrant's Quarterly Report on Form 10-Q (Reg. No.
                            000-28473), filed with the Commission on August 10,
                            2001).
         *11.1           -- Statement re Computation of Earnings per Share.
         *21.1           -- List of Subsidiaries of the Registrant.
         *23.1           -- Consent of PricewaterhouseCoopers LLP, independent
                            accountants.
</Table>

---------------

+ Management Compensation or Incentive Plan

* Filed herewith

                                        24
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized

                                            TRUETIME, INC.

                                            By:  /s/ ELIZABETH A. WITHERS
                                              ----------------------------------
                                            Elizabeth A. Withers
                                            President and Chief Executive
                                            Officer

Dated: December 18, 2001

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
                  SIGNATURE                                    TITLE                      DATE
                  ---------                                    -----                      ----
<C>                                              <S>                                <C>

               /s/ SATORU OHYA                   Director                           December 18, 2001
---------------------------------------------
                 Satoru Ohya

           /s/ KATSUHIKO KOBAYASHI               Director                           December 18, 2001
---------------------------------------------
             Katsuhiko Kobayashi

          /s/ ELIZABETH A. WITHERS               President, Chief Executive         December 18, 2001
---------------------------------------------    Officer (Principle Executive
            Elizabeth A. Withers                 Officer) and Director

              /s/ JOHN E. DUTIL                  Vice President of Finance and      December 18, 2001
---------------------------------------------    Administration and Chief
                John E. Dutil                    Financial Officer (Principle
                                                 Financial and Accounting Officer)

             /s/ CHARLES J. ABBE                 Chairman of the Board              December 18, 2001
---------------------------------------------
               Charles J. Abbe

            /s/ CHARLES H. STILL                 Director                           December 18, 2001
---------------------------------------------
              Charles H. Still

                                                 Director                           December   , 2001
---------------------------------------------
               Haresh C. Shah
</Table>

                                        25
<PAGE>

                                 TRUETIME, INC.

                         INDEX TO FINANCIAL STATEMENTS

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Accountants...........................  F-2
Balance Sheets as of September 30, 2000 and 2001............  F-3
Statements of Operations for the Years Ended September 30,
  1999, 2000, and 2001......................................  F-4
Statements of Changes in Stockholders' Equity for the Years
  Ended September 30, 1999, 2000, and 2001..................  F-5
Statements of Cash Flows for the Years Ended September 30,
  1999, 2000, and 2001......................................  F-6
Notes to Financial Statements...............................  F-7
</Table>

                                       F-1
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and
Stockholders of TrueTime, Inc.:

     In our opinion, the accompanying balance sheets and the related statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of TrueTime, Inc. at
September 30, 2000 and 2001, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 2001 in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

November 2, 2001

                                       F-2
<PAGE>

                                 TRUETIME, INC.

                                 BALANCE SHEETS

<Table>
<Caption>
                                                                 AS OF SEPTEMBER 30,
                                                              -------------------------
                                                                 2000          2001
                                                              -----------   -----------
<S>                                                           <C>           <C>
                                        ASSETS


Current assets:
  Cash and cash equivalents.................................  $ 7,884,386   $ 7,809,156
  Receivables:
     Trade accounts, net of allowance of $34,044 and
      $48,790...............................................    4,434,391     3,450,098
  Inventories...............................................    7,427,895     5,395,465
  Prepaid expenses and other current assets.................      364,563       569,151
  Income taxes receivable...................................           --       635,039
  Deferred income tax, current..............................      282,611     1,252,114
                                                              -----------   -----------
          Total current assets..............................   20,393,846    19,111,023
                                                              -----------   -----------
  Property and equipment, net...............................    2,903,386     4,093,540
  Prepaid expenses, non-current.............................      307,143        52,956
  Deferred income tax, non-current..........................       17,458            --
  Goodwill, net of accumulated amortization of $240,458 and
     $266,234...............................................      790,776       765,000
                                                              -----------   -----------
          Total assets......................................  $24,412,609   $24,022,519
                                                              ===========   ===========

                         LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:
  Trade accounts payable....................................  $   809,773   $   724,030
  Accrued expenses..........................................    1,146,750     1,165,033
  Income taxes payable......................................       33,535            --
  Capital lease.............................................           --       172,226
  Deferred revenue..........................................           --       121,677
  Lease loss accrual........................................           --       577,940
                                                              -----------   -----------
          Total current liabilities.........................    1,990,058     2,760,906
                                                              -----------   -----------
Non-current liabilities:
  Deferred income taxes.....................................           --       105,178
  Capital lease.............................................           --       512,054
  Deferred revenue..........................................           --        65,899
  Lease loss accrual........................................           --       420,264
                                                              -----------   -----------
          Total liabilities.................................    1,990,058     3,864,301
                                                              -----------   -----------
Commitments and contingencies (Note 10)
Stockholders' equity:
  Preferred stock, $.01 par value, 1,000,000 shares
     authorized, no shares issued and outstanding...........           --            --
  Common stock, $.01 par value, 20,000,000 shares
     authorized; 5,950,000 shares issued and outstanding....       59,500        59,500
  Additional paid-in capital................................   12,900,767    12,907,247
  Warrants..................................................      455,043       455,043
  Retained earnings.........................................    9,007,241     6,736,428
                                                              -----------   -----------
          Total stockholders' equity........................   22,422,551    20,158,218
                                                              -----------   -----------
          Total liabilities and stockholders' equity........  $24,412,609   $24,022,519
                                                              ===========   ===========
</Table>

    The accompanying notes are an integral part of the financial statements

                                       F-3
<PAGE>

                                 TRUETIME, INC.

                            STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                               YEARS ENDED SEPTEMBER 30,
                                                        ---------------------------------------
                                                           1999          2000          2001
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Net sales.............................................  $20,645,240   $21,106,457   $19,441,543
Cost of sales.........................................    9,076,137     9,646,343    11,375,940
                                                        -----------   -----------   -----------
Gross profit..........................................   11,569,103    11,460,114     8,065,603
                                                        -----------   -----------   -----------
Operating expenses:
  Selling, general and administrative.................    5,905,203     7,153,179     7,649,595
  Research and development............................    2,155,597     3,189,767     3,519,035
  Restructuring costs.................................           --            --       998,204
                                                        -----------   -----------   -----------
          Total operating expenses....................    8,060,800    10,342,946    12,166,834
                                                        -----------   -----------   -----------
Income (loss) from operations.........................    3,508,303     1,117,168    (4,101,231)
                                                        -----------   -----------   -----------
Interest and other income (expense):
  Interest income.....................................      300,109       533,898       320,170
  Other, net..........................................        4,982        13,656       (22,752)
                                                        -----------   -----------   -----------
          Total interest and other income, net........      305,091       547,554       297,418
                                                        -----------   -----------   -----------
Net income (loss) before income taxes.................    3,813,394     1,664,722    (3,803,813)
Provision (benefit) for income taxes..................    1,546,846       680,594    (1,533,000)
                                                        -----------   -----------   -----------
Net income (loss).....................................  $ 2,266,548   $   984,128   $(2,270,813)
                                                        ===========   ===========   ===========
Weighted average shares outstanding as adjusted for
  reincorporation:
  Basic...............................................    4,000,000     5,513,934     5,950,000
  Diluted.............................................    4,000,000     5,610,482     5,950,000
Earnings (loss) per share:
  Basic and diluted...................................  $      0.57   $      0.18   $     (0.38)
                                                        ===========   ===========   ===========
</Table>

    The accompanying notes are an integral part of the financial statements

                                       F-4
<PAGE>

                                 TRUETIME INC.

                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
             FOR THE YEARS ENDED SEPTEMBER 30, 1999, 2000 AND 2001

<Table>
<Caption>
                            COMMON STOCK       ADDITIONAL
                         -------------------     PAID-IN                 RETAINED
                          SHARES     AMOUNT      CAPITAL     WARRANTS    EARNINGS        TOTAL
                         ---------   -------   -----------   --------   -----------   -----------
<S>                      <C>         <C>       <C>           <C>        <C>           <C>
Stockholders' equity,
  September 30, 1998...  4,000,000   $40,000   $ 4,689,838   $     --   $ 5,756,565   $10,486,403
Net income.............         --        --            --         --     2,266,548     2,266,548
                         ---------   -------   -----------   --------   -----------   -----------
Stockholders' equity,
  September 30, 1999...  4,000,000    40,000     4,689,838         --     8,023,113    12,752,951
Issuance of common
  stock in initial
  public offering,
  including over-
  allotment option, net
  of issuance costs....  1,950,000    19,500     8,623,167         --            --     8,642,667
Warrants issued to
  underwriters in
  conjunction with
  initial public
  offering.............         --        --      (455,043)   455,043            --            --
Issuance of options in
  exchange for
  services.............         --        --        42,805         --            --        42,805
Net income.............         --        --            --         --       984,128       984,128
                         ---------   -------   -----------   --------   -----------   -----------
Stockholders' equity,
  September 30, 2000...  5,950,000    59,500    12,900,767    455,043     9,007,241    22,422,551
Issuance of options in
  exchange for
  services.............         --        --         6,480         --            --         6,480
Net loss...............         --        --            --         --    (2,270,813)   (2,270,813)
                         ---------   -------   -----------   --------   -----------   -----------
Stockholders' equity,
  September 30, 2001...  5,950,000   $59,500   $12,907,247   $455,043   $ 6,736,428   $20,158,218
                         =========   =======   ===========   ========   ===========   ===========
</Table>

    The accompanying notes are an integral part of the financial statements

                                       F-5
<PAGE>

                                 TRUETIME, INC.

                            STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                               YEARS ENDED SEPTEMBER 30,
                                                        ---------------------------------------
                                                           1999          2000          2001
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Cash flows from operating activities
  Net income (loss)...................................  $ 2,266,548   $   984,128   $(2,270,813)
  Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating activities:
     Deferred income taxes............................       47,360      (127,279)     (846,867)
     Depreciation and amortization....................      342,888       492,756       732,005
     Gain or loss on disposal of property and
       equipment......................................           --        51,973         3,525
     Issuance of stock options in exchange for
       services.......................................           --        42,805         6,480
     Lease loss accrual...............................           --            --       998,204
     Effects of changes in operating assets and
       liabilities:
       Trade accounts receivable, net.................   (1,365,536)     (121,037)      984,293
       Inventories....................................     (846,951)   (2,363,116)    2,032,430
       Prepaid expenses and other assets..............      124,902      (647,953)       49,599
       Income taxes...................................           --        33,535      (668,574)
       Trade accounts payable.........................      330,790        42,435       (85,743)
       Accrued expenses...............................      733,704      (824,316)       18,283
       Deferred revenue...............................           --            --       187,576
                                                        -----------   -----------   -----------
          Net cash provided by (used in) operating
            activities................................    1,633,705    (2,436,069)    1,140,398
                                                        -----------   -----------   -----------
Cash flows from investing activities:
  Decrease in receivable from OYO USA.................    2,308,981       433,000            --
  Proceeds from sale of equipment and sales
     leaseback........................................           --            --       787,186
  Capital expenditures................................     (442,183)   (2,294,064)   (1,934,908)
                                                        -----------   -----------   -----------
          Net cash provided by (used in) investing
            activities................................    1,866,798    (1,861,064)   (1,147,722)
                                                        -----------   -----------   -----------
Cash flows from financing activities:
  Principal payments on capital lease.................           --            --       (67,906)
  Proceeds from initial public offering, including
     over-allotment option............................           --     9,750,000            --
  Costs of initial public offering, including
     commissions......................................           --    (1,107,332)           --
                                                        -----------   -----------   -----------
          Net cash provided by (used in) financing
            activities................................           --     8,642,668       (67,906)
                                                        -----------   -----------   -----------
Increase (decrease) in cash and cash equivalents......    3,500,503     4,345,535       (75,230)
Cash and cash equivalents, beginning of period........       38,348     3,538,851     7,884,386
                                                        -----------   -----------   -----------
Cash and cash equivalents, end of period..............  $ 3,538,851   $ 7,884,386   $ 7,809,156
                                                        ===========   ===========   ===========
Supplemental disclosure of cash flow information:
  Cash paid for income taxes..........................  $ 1,472,432   $   859,493   $   178,000
  Cash paid for interest..............................           --            --   $    23,539
Supplemental disclosures of non cash investing and
  financing transactions:
  Non-cash settlement of cumulative allocated current
     income taxes by offset against receivable from
     OYO USA..........................................  $ 4,229,878            --            --
  Warrants issued to underwriter in conjunction with
     initial public offering..........................           --   $   455,043            --
</Table>

    The accompanying notes are an integral part of the financial statements
                                       F-6
<PAGE>

                                 TRUETIME, INC.

                         NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     TrueTime, Inc. (the "Company") is a publicly traded company incorporated in
the state of Delaware. The Company had its initial public offering on December
16, 1999. Prior to the completion of its initial public offering, the Company
was a wholly owned subsidiary of OYO Corporation U.S.A., a Texas corporation,
("OYO USA" or "Parent"). OYO USA is a wholly owned subsidiary of OYO
Corporation, a Japanese corporation ("OYO Japan"). As of September 30, 2001,
approximately 42% of TrueTime's common stock was owned by OYO USA. The Company
designs, develops and manufactures precision time products that are essential
components in modern communications and computer systems. The Company's products
are used in telecommunications, computer networking and aerospace industries as
well as in various other commercial markets. The Company's products use a
variety of external timing references, including most importantly the Global
Positioning System, together with state-of-the-art clocks to provide high
quality signals (frequencies) and precision time.

     The significant accounting policies followed by the Company are summarized
below:

USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

REVENUE RECOGNITION

     Revenue is primarily derived from the sale of precision time and frequency
instruments. Revenue is recognized when products are shipped and title has
passed to the customer. The Company also sells extended service contracts on its
products. Revenue on these service contracts is deferred and recognized over the
life of the contract.

ADVERTISING COSTS

     Advertising costs are expensed as incurred. Advertising expense was
$128,548, $320,087, and $400,678 for the years ended September 30, 1999, 2000,
and 2001, respectively.

RESEARCH AND DEVELOPMENT COSTS

     Research and development costs are expensed as incurred.

ALLOCATION OF OPERATING EXPENSES FROM OYO USA

     The Company and OYO USA have separate management, operating facilities and
administrative functions and do not conduct shared research and development
activities. OYO USA arranged for specific shared services for its subsidiaries,
including the Company prior to its initial public offering, related primarily to
employee benefit matters. The costs of such shared services were charged
directly to the subsidiaries when the vendor provided a specific subsidiary
breakout of the total costs or were allocated to the subsidiaries based on total
revenues or other reasonable allocation bases. Management believes that the
method for allocating the costs of shared services is reasonable and that such
costs allocated to the Company for all periods presented in the accompanying
financial statements are not materially different from the costs that would have
been incurred if the Company had operated on a stand alone basis.

                                       F-7
<PAGE>
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid debt securities purchased with an
original or remaining maturity at the time of purchase of three months or less
to be cash equivalents.

CONCENTRATIONS OF CREDIT RISK

     Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash and cash equivalents and trade
accounts receivable.

     The Company maintains some of its cash in bank deposit accounts which at
times, may exceed federally insured limits. Management believes the financial
strength of the financial institutions minimizes the credit risk related to such
deposits. The Company also maintains cash equivalent assets in high quality U.S.
issued money market securities, other U.S. government securities, and repurchase
agreements.

     The Company sells products to customers throughout the United States and
various foreign countries. The Company's normal credit terms for trade
receivables are 30 days. In certain situations, credit terms may be extended to
60 days. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Allowances are maintained for estimated
credit losses. The Company's provision for bad debts was zero, $37,252 and
$48,790 for the years ended September 30, 1999, 2000 and 2001, respectively. The
Company's write off of bad debts against the allowance for doubtful accounts was
zero, $13,208 and $34,044 for the years ended September 30, 1999, 2000 and 2001,
respectively.

INVENTORIES

     Inventories are stated at the lower of cost (as determined by a standard
cost method that approximates the first-in, first-out method) or market.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities, approximate face value due to their short maturities.

     Capital lease -- the estimated fair value of the capital lease was
determined by discounting estimated future cash flows using the Company's
incremental borrowing rate. Based on this calculation, the estimated fair value
approximates the carrying value.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Depreciation and amortization
expense is provided by the straight-line method over an estimated useful life of
3 years for computer software and hardware, 5 years for equipment, and 7 years
for furniture and fixtures. Leasehold improvements are amortized over the
shorter of their economic life or the term of the lease.

     Expenditures for renewals and betterments are capitalized. Repairs and
maintenance are charged to expense as incurred. The cost and accumulated
depreciation and amortization of assets sold or otherwise disposed of are
removed from the accounts and any gain or loss thereon is reflected in
operations.

INTERNAL USE SOFTWARE COSTS

     Internal use software costs have been accounted for in accordance with
Statement of Position No. 98-1 (SOP 98-1) Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. Under the standard, computer
software costs related to internal software that are incurred in the preliminary
project

                                       F-8
<PAGE>
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

stage are expensed as incurred. Once the capitalization criteria of SOP 98-1
have been met, external direct costs of materials and services consumed in
developing or obtaining internal-use computer software, payroll and
payroll-related costs for employees who are directly associated with and who
devote time to the internal-use computer software project (to the extent of the
time spent directly on the project), and interest costs incurred when developing
computer software for internal use are capitalized. Internally developed
software costs are amortized on the straight-line basis over an estimated useful
life of 3 years.

GOODWILL

     Goodwill is amortized to expense using the straight-line method over an
estimated useful life of 40 years.

     Goodwill and other long-lived assets are reviewed for impairment whenever
an event or change in circumstances indicates that the carrying amount of the
assets may not be recoverable. The impairment review includes comparison of
future cash flows expected to be generated by the Company's operations with the
carrying value of goodwill and other long-lived assets. If the carrying value of
such assets exceeds the expected undiscounted future cash flows, an impairment
loss is recognized to the extent the carrying amount of the assets exceeds their
fair values.

     Amortization expense was $25,776, $25,776, and $25,776 for the years ended
September 30, 1999, 2000 and 2001, respectively.

STOCK-BASED COMPENSATION

     The Company has adopted the disclosure provisions of Financial Accounting
Standards Board Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-based Compensation. The Company has elected to account for
stock-based compensation issued to employees using Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and its
related interpretations (including FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- An Interpretation of APB
No. 25). Under APB No. 25, compensation expense is based on the difference, if
any, on the date of the grant, between the fair value of the Company's stock and
the exercise price. The Company accounts for equity instruments issued to
non-employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services.

PRODUCT WARRANTIES

     The Company sells products under one-year warranties. The estimated future
cost under existing warranties is accrued.

INCOME TAXES

     Prior to its initial public offering in December, 1999, the Company joined
in the consolidated federal and state income tax returns of OYO USA; the
provision for income taxes was provided by the Company as if it filed separate
income tax returns. Subsequent to the initial public offering, the Company is
filing independent federal and state tax returns.

     The Company follows the liability method of accounting for income taxes
whereby deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to affect taxable income.
The Company provides a valuation allowance, if necessary, to reduce deferred tax
assets to their estimated realizable value. Provision for income taxes is

                                       F-9
<PAGE>
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

comprised of taxes payable for the current period plus the change during the
period in deferred tax assets and liabilities.

RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform to the 2001
financial statement presentation. The reclassifications have no impact on
previously reported 1999 and 2000 net income, cash flows or stockholder's
equity.

LITIGATION

     The Company is involved from time to time in various legal proceedings
which are incidental to the industry and for which certain matters are covered
in whole or in part by insurance, or for which the Company has recorded accruals
for estimated settlements. Management believes that any liability which may
result from these proceedings will not have a material adverse effect on the
Company's financial statements.

EARNINGS PER SHARE

     The Company computes earnings (loss) per share pursuant to Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Basic earnings
(loss) per share is computed by dividing net income applicable to common
stockholders by the weighted average number of shares of the Company's common
stock outstanding during the period. Diluted earnings per share is determined in
the same manner as basic earnings per share except that the number of shares is
increased for common equivalent shares assuming exercise of dilutive stock
options and warrants using the treasury stock method.

     The following summarizes the calculation of net income (loss) and weighted
average common shares and common share equivalents outstanding for purposes of
the computation of earnings (loss) per share:

<Table>
<Caption>
                                                        YEARS ENDED SEPTEMBER 30,
                                                  -------------------------------------
                                                     1999         2000         2001
                                                  ----------   ----------   -----------
<S>                                               <C>          <C>          <C>
Net income (loss) available to common
  stockholders..................................  $2,266,548   $  984,128   $(2,270,813)
Weighted average common shares outstanding......   4,000,000    5,513,934     5,950,000
Weighted average common share equivalents
  outstanding*..................................          --       96,548            --
                                                  ----------   ----------   -----------
Weighted average common shares and common share
  equivalents outstanding.......................   4,000,000    5,610,482     5,950,000
                                                  ----------   ----------   -----------
Basic earnings (loss) per share.................  $     0.57   $     0.18   $     (0.38)
Diluted earnings (loss) per share...............  $     0.57   $     0.18   $     (0.38)
</Table>

---------------

* Due to their anti-dilutive effect, additional warrants and options of 75,000
  and 983,075 shares equivalent for the years ending September 30, 2000 and
  2001, respectively, are excluded from the calculation above.

RECENT ACCOUNTING PRONOUNCEMENTS

     Accounting for Derivative Instruments and Hedging Activities.  The Company
has adopted the provisions of Financial Accounting Standards Board (FASB) No.
133, "Accounting for Derivative Instruments and Hedging Activities". The Company
does not currently hold derivative instruments or engage in hedging activities
and therefore the adoption of FASB No. 133 has not had a significant effect on
the Company's financial position, results of operations or cash flows.

     Revenue Recognition in Financial Statements.  The Company has complied with
the guidance provided by Staff Accounting Bulletin (SAB) No. 101 for the year
ended September 30,2001. Compliance with this

                                       F-10
<PAGE>
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

provision did not have a material impact on the Company's financial position,
results of operations or cash flows.

     On June 29, 2001, the Financial Accounting Standards Board (FASB or the
"Board") unanimously voted in favor of issuing two Statements: Statement No. 141
(SFAS 141), Business Combinations, and Statement No. 142 (SFAS 142), Goodwill
and Other Intangible Assets.

     SFAS 141 primarily addresses the accounting for the cost of an acquired
business (i.e., the purchase price allocation), including any subsequent
adjustments to its cost. SFAS 141 supercedes APB 16, Business Combinations.

     The most significant changes made by SFAS 141 are:

     - It requires use of the purchase method of accounting for all business
       combinations, thereby eliminating use of the pooling-of-interests method.

     - It provides new criteria for determining whether intangible assets
       acquired in a business combination should be recognized separately from
       goodwill.

     SFAS 141 is effective for all business combinations (as defined in the
Statement) initiated after June 30, 2001 and for all business combinations
accounted for by the purchase method that are completed after June 30, 2001
(that is, the date of acquisition is July 1, 2001, or later).

     SFAS 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition (i.e., the post-acquisition accounting).
SFAS 142 supercedes APB 17, Intangible Assets.

     The most significant changes made by SFAS 142 are:

     - Goodwill and indefinite lived intangible assets will no longer be
       amortized and will be tested for impairment at least annually.

     - Goodwill will be tested at least annually at the reporting unit level.

     - The amortization period of intangible assets with finite lives is no
       longer limited to forty years

     SFAS 142 is effective for fiscal years beginning after December 15, 2001 to
all goodwill and other intangible assets recognized in an entity's statement of
financial position at that date, regardless of when those assets were initially
recognized. Early application is permitted for entities with fiscal years
beginning after March 15, 2001 provided that the first interim period financial
statements have not been issued previously. In all cases, the provisions of SFAS
142 should be applied at the beginning of a fiscal year. Retroactive application
is not permitted.

     The Company has goodwill for which amortization has been recorded against
in prior periods. The impact of the future adoption of SFAS 142 has yet to be
determined. The Company has not opted for early adoption of SFAS 142.
Amortization of goodwill per quarter is $6,444; amortization of goodwill for
2001 was $25,776. The Company will need to review the potential impairment of
carrying values of goodwill to determine if there will be a write-down.
Currently, goodwill is carried at $765,000, the net book value.

     On October 3, 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144). SFAS 144 supersedes SFAS 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144
applies to all long-lived assets (including discontinued operations) and
consequently amends Accounting Principles Board Opinion No. 30 (APB 30),
"Reporting Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transaction." SFAS 144 develops one accounting model for long-lived
assets that are to be disposed of by sale. SFAS 144 requires that long-lived
assets that are to be disposed of by sale be measured at

                                       F-11
<PAGE>
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

the lower of book value or fair value less cost to sell. Additionally, SFAS 144
expands the scope of discontinued operations to include all components of an
entity with operations that (1) can be distinguished from the rest of the entity
and (2) will be eliminated from the ongoing operations of the entity in a
disposal transaction. The provisions of this Statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early application
encouraged.

     The Company is in the process of evaluating the effect of SFAS 144 on its
financial statements.

2. INVENTORIES:

     Inventories consisted of the following:

<Table>
<Caption>
                                                                AS OF SEPTEMBER 30,
                                                              -----------------------
                                                                 2000         2001
                                                              ----------   ----------
<S>                                                           <C>          <C>
Finished goods..............................................  $1,265,634   $  819,618
Work in process.............................................   2,449,071      737,350
Raw materials...............................................   3,713,190    3,838,497
                                                              ----------   ----------
                                                              $7,427,895   $5,395,465
                                                              ==========   ==========
</Table>

     Inventories are presented net of reserves for slow moving, excess and
obsolete inventory of $220,260 and $805,432 as of September 30, 2000 and 2001,
respectively. Net changes in such reserves charged to cost of sales were zero,
$190,088 and $585,172 for the years ended September 30, 1999, 2000 and 2001,
respectively.

     The Company relies on a limited number of suppliers for certain critical
components and uses a single supplier for a key component of its largest product
line. Purchases from this supplier approximated $585,000, $580,000 and $560,000
for the years ended September 30, 1999, 2000 and 2001, respectively.

3. PROPERTY AND EQUIPMENT:

     Property and equipment consisted of the following:

<Table>
<Caption>
                                                                AS OF SEPTEMBER 30,
                                                             -------------------------
                                                                2000          2001
                                                             -----------   -----------
<S>                                                          <C>           <C>
Machinery and equipment....................................  $ 1,131,845   $ 1,378,647
Computer equipment and software............................    1,768,758     2,102,431
Furniture and fixtures.....................................      303,280       969,053
Transportation equipment...................................       27,100        27,100
Leasehold improvements.....................................      153,207     1,560,061
Construction in process....................................      911,964        59,991
                                                             -----------   -----------
                                                               4,296,154     6,097,283
Accumulated depreciation and amortization..................   (1,392,768)   (2,003,743)
                                                             -----------   -----------
                                                             $ 2,903,386   $ 4,093,540
                                                             ===========   ===========
</Table>

     Depreciation and amortization expense was $317,112, $466,980 and $721,598
for the years ended September 30, 1999, 2000, and 2001, respectively.

     Included in the property and equipment summary is equipment under capital
lease with an aggregate cost of $752,186 and a net carrying value of $681,384 as
of September 30, 2001.

                                       F-12
<PAGE>
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. ACCRUED EXPENSES:

     Accrued expenses consisted of the following:

<Table>
<Caption>
                                                                AS OF SEPTEMBER 30,
                                                              -----------------------
                                                                 2000         2001
                                                              ----------   ----------
<S>                                                           <C>          <C>
Payroll and other compensation..............................  $  681,287   $  643,751
Compensated absences........................................     316,246      349,962
Product warranty............................................      40,000       36,000
Legal and professional fees.................................      99,500       90,784
Other accrued expenses......................................       9,717       44,536
                                                              ----------   ----------
                                                              $1,146,750   $1,165,033
                                                              ==========   ==========
</Table>

5.  INCOME TAXES:

     The provision (benefit) for income taxes consisted of the following:

<Table>
<Caption>
                                                       YEARS ENDED SEPTEMBER 30,
                                                  ------------------------------------
                                                     1999        2000         2001
                                                  ----------   ---------   -----------
<S>                                               <C>          <C>         <C>
Current:
  Federal.......................................  $1,269,555   $ 641,169   $  (686,933)
  State.........................................     229,931     166,704           800
                                                  ----------   ---------   -----------
                                                   1,499,486     807,873      (686,133)
                                                  ----------   ---------   -----------
Deferred:
  Federal.......................................      40,051    (111,612)     (599,067)
  State.........................................       7,309     (15,667)     (247,800)
                                                  ----------   ---------   -----------
                                                      47,360    (127,279)     (846,867)
                                                  ----------   ---------   -----------
                                                  $1,546,846   $ 680,594   $(1,533,000)
                                                  ==========   =========   ===========
</Table>

     The differences between the effective tax rate reflected in the total
provision for income taxes and the statutory federal tax rate of 34% were as
follows:

<Table>
<Caption>
                                                        YEARS ENDED SEPTEMBER 30,
                                                   -----------------------------------
                                                      1999        2000        2001
                                                   ----------   --------   -----------
<S>                                                <C>          <C>        <C>
Provision for income taxes at the statutory
  rate...........................................  $1,296,554   $566,005   $(1,176,649)
State income taxes, net of federal income tax
  benefit........................................     237,240     99,684      (335,595)
Goodwill amortization............................       8,764      8,764        10,408
Other............................................       4,288      6,141       (31,164)
                                                   ----------   --------   -----------
Provision for income taxes.......................  $1,546,846   $680,594   $(1,533,000)
                                                   ==========   ========   ===========
Effective income tax rate........................        40.6%      40.9%         40.3%
                                                   ==========   ========   ===========
</Table>

     Deferred income taxes under the liability method reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for

                                       F-13
<PAGE>
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

income tax purposes. Significant components of the Company's deferred income tax
liabilities and assets were as follows:

<Table>
<Caption>
                                                               AS OF SEPTEMBER 30,
                                                              ---------------------
                                                                2000        2001
                                                              --------   ----------
<S>                                                           <C>        <C>
Deferred income tax assets:
  Allowance for doubtful accounts...........................  $ 14,584   $   20,902
  Accrued product warranty..................................    17,136       15,422
  Inventories...............................................   167,712      380,931
  Accrued compensated absences..............................    43,545      101,948
  NOL carryforward..........................................        --      439,212
  Lease loss accrual........................................        --      428,400
  Other.....................................................    57,092     (134,701)
                                                              --------   ----------
                                                               300,069    1,252,114
Deferred income tax liability:
  Other.....................................................        --     (105,178)
                                                              --------   ----------
          Net deferred income tax asset.....................  $300,069   $1,146,936
                                                              ========   ==========
</Table>

     Under the liability method, a valuation allowance is provided when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. Based on the Company's historical taxable income record and
taxable income available in carryback years, management believes that the
Company will realize the deferred tax assets.

     At September 30, 2001 the Company had available net operating loss (NOL)
carryforwards of approximately $1,347,000 and $1,269,000 for federal and state
income tax purposes, respectively, all of which expire in the years 2020
(federal) and 2010 (state).

6. STOCKHOLDERS' EQUITY:

     Effective November 1, 1999, the Company was reincorporated from California
to Delaware under the name TrueTime, Inc. The reincorporation was accomplished
by the merger of the California corporation into the Delaware corporation and
the issuance to OYO USA of 4,000,000 shares of $.01 par value common stock in a
newly formed Delaware corporation. After the reincorporation, the Company has
20,000,000 authorized shares of $.01 par value common stock. On December 16,
1999 in association with the Company's initial public offering, 1,500,000 shares
were issued and later on January 8, 2000 an additional 450,000 shares were
issued to cover the exercise of over-allotment options by the underwriters for
the initial public offering. A total of 5,950,000 shares are outstanding. The
accompanying financial statements reflect the capital structure of the Company
after the reincorporation and the assets, liabilities, total stockholders'
equity and results of operations of the predecessor California corporation for
all dates and periods presented. Earnings per share information has been
computed giving effect to the common shares outstanding after the
reincorporation for all periods presented.

     Effective with the reincorporation, the Company has 1,000,000 authorized
shares of $0.01 par value preferred stock. No preferred shares have been issued.

     In addition, the Company has issued warrants to purchase 200,000 shares to
C.E. Unterberg, Towbin as additional underwriting compensation in connection
with the initial public offering at an exercise price equal to $5.50 (110% of
the offering price). The warrants were immediately exercisable and expire on
December 22, 2004. The fair value of the warrants was estimated at $455,043
using the Black-Scholes model using the following assumptions: risk-free
interest rate of 5.43%; expected life of 2 years; expected dividend rate of 0%;

                                       F-14
<PAGE>
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

and volatility of 85%. The fair value has been recorded as a cost of issuance in
the year ended September 30, 2000. No warrants had been exercised as of
September 30, 2001.

7. STOCK OPTION PLAN:

     The Company's employees participate in the TrueTime, Inc. 1999 Key Employee
Stock Option Plan (the "Employee Plan") and the non-employee directors and
consultants participate in the TrueTime, Inc. 1999 Non-Employee Director Plan
(the "Director Plan"). The Employee Plan covers substantially all eligible
employees in the United States. These plans were established on November 1,
1999.

     The Employee Plan is administered by a committee of no fewer than two
persons appointed by the board. Under the Employee Plan, options to purchase
common stock and restricted stock awards up to an aggregate of 1,500,000 shares
of common stock may be granted by the committee. Under the Director Plan,
options to purchase common stock and restricted stock awards up to an aggregate
of 150,000 shares of common stock may be granted. A total of 1,650,000 shares of
the Company's common stock have been reserved for issuance under the plans.

     Options under the Employee Plan may be either "Incentive Stock Options"
(ISO) or "Nonqualified Stock Options" (NSO) as defined under Section 422 of the
Internal Revenue Code. Only an NSO can be granted under the Non-Employee
Director Plan. The exercise price of an option shall not be less than the
greater of (i) 100% of the fair market value of the shares or (ii) the aggregate
par value of the shares, on the date the option is granted. The exercise price
of any ISO granted to a person owning more than 10% of the total combined voting
power of all classes of stock of the Company shall not be less than 110% of the
fair market value of the shares on the date the option is granted.

     Under the Employee Plan, options generally vest at a rate of 25% of the
total at the end of each anniversary of the date of grant. Options granted under
the Non-Employee Director Plan are fully exercisable from date of grant. Options
generally expire ten years from the date of the grant except in the case of an
ISO granted to an optionee who, at the time the option is granted, owns stock
representing more than ten percent of the voting power of all classes of stock
outstanding. In this case, the term of the option is five years from the date of
the grant.

     Vested options held by employees upon termination of their relationship
with the Company may be exercised no later than three months following the date
of termination or twelve months following death or disability until expiration
of the option. Options exercisable were 60,000 and 225,925 for the years ended
September 30, 2000 and 2001, respectively.

     During the year ended September 30, 2001, the Company issued an option to
purchase 3,000 shares of common stock at $2.59 per share to an advisor to the
Company in return for services; the options vested immediately and expire in ten
years. The fair value of these options was estimated at $6,480 using the Black-
Scholes model using the following assumptions: risk-free interest rate of 4.93%;
expected life of five years; expected dividend rate of 0%; and volatility of
118%. During the year ended September 30, 2000 the Company issued an option to
purchase 10,000 shares of common stock at $5 per share to an advisor to the
Company in return for services; the options vested immediately and expire in ten
years. The fair value of these options was estimated at $42,805 using the
Black-Scholes model using the following assumptions: risk-free interest rate of
4.5%; expected life of ten years; expected dividend rate of 0%; and volatility
of 85%. These amounts have been charged to general and administrative expense
during the years ended September 30, 2001 and 2000 respectively. No options had
been exercised as of September 30, 2001.

                                       F-15
<PAGE>
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of activity with respect to the Employee Plan and the Director
Plan for the years ended September 30, 2000 and September 30, 2001 is as
follows:

<Table>
<Caption>
                                                         OPTIONS OUTSTANDING
                                   ----------------------------------------------------------------
                                                                                           WEIGHTED
                                    OPTIONS                                                AVERAGE
                                   AVAILABLE    NUMBER OF                     AGGREGATE    EXERCISE
                                   FOR GRANT     OPTIONS    EXERCISE PRICE      PRICE       PRICE
                                   ----------   ---------   --------------   -----------   --------
<S>                                <C>          <C>         <C>              <C>           <C>
Outstanding at September 30, 1999
  Available......................   1,650,000          --        --                   --       --
  Granted........................  (1,001,000)  1,001,000   $3.06-$11.81     $ 5,454,690    $5.45
  Exercised......................          --          --        --                   --       --
  Forfeited......................     114,500    (114,500)   $3.06-$6.19        (572,375)   $5.00
                                   ----------   ---------                    -----------    -----
Outstanding at September 30,
  2000...........................     763,500     886,500   $3.06-$11.81       4,882,315    $5.51
  Granted........................    (198,000)    198,000    $2.14-$3.19         590,915     2.98
  Exercised......................          --          --        --                   --       --
  Forfeited......................     289,425    (289,425)  $2.25-$11.81      (1,928,097)    6.66
                                   ----------   ---------                    -----------    -----
Outstanding at September 30,
  2001...........................     854,925     795,075                    $ 3,545,133    $4.46
                                   ==========   =========                    ===========    =====
</Table>

     The following table summarizes information about stock options outstanding
and exercisable as of September 30, 2001:

<Table>
<Caption>
                                                   OPTIONS OUTSTANDING              OPTIONS CURRENTLY
                                          -------------------------------------        EXERCISABLE
                                                          WEIGHTED                ----------------------
                                                          AVERAGE      WEIGHTED                 WEIGHTED
                                                        CONTRACTUAL    AVERAGE                  AVERAGE
                                            NUMBER       REMAINING     EXERCISE     NUMBER      EXERCISE
EXERCISE PRICE                            OUTSTANDING   LIFE (YEARS)    PRICE     OUTSTANDING    PRICE
--------------                            -----------   ------------   --------   -----------   --------
<S>                                       <C>           <C>            <C>        <C>           <C>
$2.14...................................        500         9.82        $2.14            --      $2.14
$2.25...................................     11,500         9.57        $2.25            --      $2.25
$2.59...................................     24,000         9.41        $2.59        22,000      $2.59
$3.00...................................     70,000         9.32        $3.00            --      $3.00
$3.06...................................     47,875         8.84        $3.06        15,250      $3.06
$3.19...................................     83,000         9.11        $3.19            --      $3.19
$5.00...................................    523,075         8.22        $5.00       177,925      $5.00
$6.19...................................     35,125         8.53        $6.19        10,750      $6.19
                                            -------         ----        -----       -------      -----
                                            795,075         8.52        $4.46       225,925      $4.69
                                            =======         ====        =====       =======      =====
</Table>

The following information is presented in accordance with the disclosure
requirements of SFAS 123. The fair value of each option grant to employees has
been estimated on the date of grant using the Black-Scholes method with the
following weighted average assumptions used for grants:

<Table>
<Caption>
                                                               YEARS ENDED
                                                              SEPTEMBER 30,
                                                              -------------
                                                              2000    2001
                                                              -----   -----
<S>                                                           <C>     <C>
Risk-free interest rate.....................................  6.25%   6.02%
Expected life...............................................   6.5     6.5
Expected dividends..........................................    --      --
Volatility..................................................   118%   109%
</Table>

The weighted average fair value of the options granted were $4.90 and $3.86 per
share for the years ended September 30, 2000 and 2001, respectively.

                                       F-16
<PAGE>
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Had compensation expense for the Employee Plan and Director Plan been determined
based on the fair value at the grant date for options granted during the year
ended September 30, 2001, consistent with the provisions of SFAS 123, the pro
forma net income (loss) would have been reported as follows:

<Table>
<Caption>
                                                              YEARS ENDED SEPTEMBER 30,
                                                              --------------------------
                                                                 2000          2001
                                                              ----------   -------------
<S>                                                           <C>          <C>
Net income (loss)
  As reported...............................................   $984,128     $(2,270,813)
  Pro forma.................................................   $  8,935     $(2,951,998)
Earnings (loss) per share -- basic
  As reported...............................................   $   0.18     $     (0.38)
  Pro forma.................................................   $     --     $     (0.50)
Earnings (loss) per share -- diluted
  As reported...............................................   $   0.18     $     (0.38)
  Pro forma.................................................   $     --     $     (0.50)
</Table>

8. RETIREMENT PLAN:

     The Company's employees are participants in a 401(k) plan (the "Plan")
provided by the Company, which covers substantially all eligible employees in
the United States. The Plan is a qualified salary reduction plan in which all
eligible participants may elect to have a percentage of their compensation
contributed to the Plan, subject to annual limitations. The Company participated
in the OYO USA plan until the initial public offering. The Company's share of
discretionary contributions was approximately $136,000, $171,000 and $190,500
for the years ended September 30, 1999, 2000 and 2001, respectively.

9. RELATED PARTY TRANSACTIONS:

     Sales to OYO USA and other affiliated companies were approximately $52,000,
$9,400 and $239,000 during the years ended September 30, 1999, 2000 and 2001,
respectively.

     Prior to the initial public offering, the Company participated in the
central cash management system of OYO USA in which the net cash provided or used
by operations was transferred to or from OYO USA on a daily basis. Since the
implementation of the central cash management system, the Company's cash flow
provided from operating activities exceeded capital expenditure and, as a
result, the Company maintained a receivable from OYO USA for the excess that was
held in the cash management system. Beginning October 1, 1997, OYO USA
implemented a policy of crediting interest on the receivable balance. Interest
credited and added to the receivable balance was $300,109 for the year ended
September 30, 1999. For financial reporting purposes, the receivable from OYO
USA represents the cumulative amount of cash contributed to the central cash
management system, plus the interest credited thereon, net of the cumulative
amount of current federal income taxes that have been allocated from OYO USA.

     On September 30, 1999, the Company and OYO USA conducted a partial and
preliminary settlement of the receivable from OYO USA. On that date, OYO USA
formally settled the cumulative amount of allocated current income taxes of
$4,229,878 by offsetting such amount against the receivable from OYO USA for the
cumulative amount of cash contributed to the central cash management system. In
addition, OYO USA paid the Company $3,500,000 in cash as a partial settlement of
the resulting net receivable balance. At September 30, 1999, after considering
this transaction, the remaining receivable from OYO USA was $432,608. This
amount was paid in fiscal year 2000. In October 1999, the Company transferred
$3,500,000 in cash to OYO USA subject to the terms of a Trust Agreement with OYO
USA. Under the terms of the Trust Agreement, OYO USA acknowledged and agreed
that it held $3,500,000, plus the investment income earned thereon, for the
Company's benefit and managed the trust assets as part of OYO USA's other cash

                                       F-17
<PAGE>
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

management activities. This action was taken to maximize the return on the
Company's assets available for investment. On December 1, 1999, the Trust
Agreement was terminated and the cash and cash equivalents held in trust in the
amount of $3,530,089 were distributed to the Company.

     The underwriter of the Company's initial public offering holds warrants to
purchase 200,000 shares of common stock at $5.50 per share, which are
outstanding and exercisable as of September 30, 2001. A Director of the Company
is a member of a law firm which provides the Company with legal services. Costs
from this law firm of $315,122 were charged to operations and cost of issuance
for the year ended September 30, 2000. Costs from this firm of $116,922 were
charged to operations for the year ended September 30, 2001.

10. COMMITMENTS:

  Operating and Capital Leases

     The Company leases certain office space and manufacturing facilities under
noncancelable operating leases. The Company also entered into a capital lease on
April 30, 2001 for certain modular furnishings and equipment. For fiscal years
ending after September 30, 2001, the approximate future minimum rental
commitments under noncancelable operating leases and capital leases are as
follows:

<Table>
<Caption>
YEARS ENDED SEPTEMBER 30,                                     CAPITAL     OPERATING
-------------------------                                     --------   -----------
<S>                                                           <C>        <C>
2002........................................................  $219,468   $ 1,181,767
2003........................................................   219,468     1,173,965
2004........................................................   219,468     1,165,927
2005........................................................   128,023     1,348,984
2006........................................................        --     1,441,867
Thereafter..................................................        --    11,785,714
                                                              --------   -----------
          Total minimum lease payments......................  $786,427   $18,098,224
                                                                         ===========
Less amount representing interest...........................   102,147
                                                              --------
Present value of minimum lease payments.....................   684,280
Less current portion of capital lease obligations...........   172,226
                                                              --------
Long term portion...........................................   512,054
                                                              --------
</Table>

     The above lease commitments include the Company's lease on its former Duke
Court facility and the lease on its new building at 3750 Westwind Blvd. TrueTime
entered into a sublease on its former facility in December, 2000 for a term of
forty-eight and one half months with an option to extend the sublease for one
additional thirty-six month period. The cost of the lease and leasehold
improvements is offset by a positive cash flow generated by the sublease. Lease
expense for the former facility will be $644,840 over the balance of the
sublease (40 month period), subject to an adjustment at December 22, 2004 based
on the national consumer price index ("CPI"). Income from the sublease for that
period will be $896,824. The Company moved to its new Westwind facility in
January, 2001. The term of the lease on the Westwind facility runs through
December 2015 with three five-year renewal options. The terms of the lease
provide for fixed or minimum payments plus additional rents based on the
consumer price index. The Company has abandoned and physically moved from
approximately 34,500 square feet of the Westwind facility, as of December 15,
2001. Due to the recent economic downturn, management determined that there was
excess capacity on the noncancelable lease and a restructuring charge of
$998,204 has been made in fiscal year 2001. See note 11 for further discussion.

     Rent expense for the years ended September 30, 1999, 2000 and 2001 was
approximately $353,000, $301,875 and $990,772, respectively.

                                       F-18
<PAGE>
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     The capital lease commitment is for a sale leaseback transaction entered
into with a commercial bank on April 30, 2001. The sale leaseback transaction
was on modular furnishings and machinery and equipment previously purchased by
the Company in the third quarter of fiscal year 2001. The results of this
transaction increased our cash by $752,186 in May 2001. The lease is for a
period of forty-eight months. The interest expense on this lease for year ended
September 30, 2001 was $23,539.

11. RESTRUCTURING COSTS

     In July, 2001, the Company adopted a restructuring plan which included the
abandonment and physical move from approximately 34,500 square feet of its
existing leased facility at Westwind Blvd. and as a result the Company has
recorded a $998,204 lease loss accrual as of September 30, 2001. The accrual
represents costs recognized pursuant to EITF 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring) and SAB 100, Restructuring
and Impairment Charges. The Company has committed to a sufficiently detailed
plan that identifies significant actions to be taken and the activities that
will not be continued (including the method of disposition and location of such
activities). The expected date of completion of the plan is December 15, 2001
and significant changes to the plan are not likely.

12. SEGMENT INFORMATION:

     The Company manages its business on a total product-line basis and has one
reportable segment. The product-line and related accounting policies are
described in Note 1.

     Revenues related to continuing operations in the United States and foreign
countries are presented below:

<Table>
<Caption>
                                                       YEARS ENDED SEPTEMBER 30,
                                                ---------------------------------------
                                                   1999          2000          2001
                                                -----------   -----------   -----------
<S>                                             <C>           <C>           <C>
Revenues from unaffiliated customers:
  United States...............................  $17,276,000   $17,137,000   $16,398,000
  Foreign:
     Europe...................................    1,869,000     2,494,000     1,752,000
     Other (including Africa, Asia, Canada,
       the Far East and South America)........    1,448,000     1,466,000     1,052,000
                                                -----------   -----------   -----------
Total.........................................  $20,593,000   $21,097,000   $19,202,000
                                                ===========   ===========   ===========
</Table>

     All of the Company's long-lived assets related to continuing operations are
located in the United States.

     Various branches and agencies of the U.S. Government utilize the Company's
products in varying applications. Total product sales to U.S. government units
and indirect government customers, as a whole, comprised 28%, 36% and 53% of
revenues during the years ended September 30, 1999, 2000 and 2001, respectively.
Sales to one branch of the U.S. Government comprised 18%, 13% and 15% of the
Company's revenues for the years ended September 30, 1999, 2000 and 2001,
respectively. There was one customer representing 23%, one customer representing
29% and one customer representing 21% of the trade accounts receivable balances
for the years ended September 30, 1999, 2000 and 2001, respectively.

                                       F-19
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
        EXHIBIT
         NUMBER                            DESCRIPTION OF DOCUMENTS
        -------                            ------------------------
<C>                      <S>
          3.1            -- Certificate of Incorporation of the Registrant
                            (incorporated by reference to Exhibit 3.1 of the
                            Registrant's Registration Statement on Form S-1 (Reg. No.
                            333-90269), as amended).
          3.2            -- By-laws of the Registrant (incorporated by reference to
                            Exhibit 3.2 of the Registrant's Registration Statement on
                            Form S-1 (Reg. No. 333-90269), as amended).
          4.1            -- Specimen Certificate of the Registrant's common stock
                            (incorporated by reference to Exhibit 4.1 of the
                            Registrant's Registration Statement on Form S-1 (Reg. No.
                            333-90269), as amended).
          4.2            -- See Exhibit 3.1 for provisions of the Registrant's
                            Certificate of Incorporation defining the rights of the
                            holders of common stock.
          4.3            -- See Exhibit 3.2 for provisions of the Registrant's
                            By-laws defining the rights of holders of common stock.
          4.4            -- Form of Warrant Agreement and Warrant, dated as of
                            December 16, 1999, by and between the Registrant and C.E.
                            Unterberg, Towbin (incorporated by reference to Exhibit
                            1.2 of the Registrant's Registration Statement on Form
                            S-1 (Reg. No. 333-90269), as amended).
          4.5            -- Form of Registration Rights Agreement between the
                            Registrant and OYO Corporation U.S.A. (incorporated by
                            reference to Exhibit 10.8 of the Registrant's
                            Registration Statement on Form S-1 (Reg. No. 333-90269),
                            as amended).
        +10.1            -- Form of Indemnification Agreement between the Registrant
                            and its officers and directors (incorporated by reference
                            to Exhibit 10.1 of the Registrant's Registration
                            Statement on Form S-1 (Reg. No. 333-90269), as amended).
        +10.2            -- TrueTime, Inc. 1999 Key Employee Stock Option Plan, as
                            amended as of March 1, 2000 (incorporated by reference to
                            Exhibit 4.4 of the Registrant's Registration Statement on
                            Form S-8, Reg. No. 333-35858, filed with the Commission
                            on April 28, 2000).
         10.3            -- TrueTime, Inc. 1999 Non-Employee Director Plan, as
                            amended as December 16, 1999 (incorporated by reference
                            to Exhibit 10.1 to the Registrant's Quarterly Report on
                            Form 10-Q (Reg. No. 000-28473), filed with the Commission
                            on February 14, 2000).
         10.4            -- Standard Industrial Lease between Manor Development Co.
                            and the Registrant (incorporated by reference to Exhibit
                            10.9 of the Registrant's Registration Statement on Form
                            S-1 (Reg. No. 333-90269), as amended).
         10.5            -- Standard Industrial/Commercial Single-Tenant
                            Lease -- Net, dated as of January 24, 2000, by and
                            between Copperhill Development Corporation and TrueTime,
                            Inc. (incorporated by reference to Exhibit 10.1to the
                            Registrant's Quarterly Report on Form 10-Q (Reg. No.
                            000-28473), filed with the Commission on May 15, 2000.
         10.6            -- Amendment to the Standard Industrial/Commercial
                            Single-Tenant Lease -- Net, dated as of January 24, 2000,
                            by and between Copperhill Development Corporation and
                            TrueTime, Inc. (incorporated by reference to Exhibit 10.6
                            to the Registrant's Annual Report on Form 10-K (Reg. No.
                            000-28473), filed with the Commission on December 20,
                            2000).
</Table>
<PAGE>

<Table>
<Caption>
        EXHIBIT
         NUMBER                            DESCRIPTION OF DOCUMENTS
        -------                            ------------------------
<C>                      <S>
         10.7            -- Standard Industrial Sublease dated as of December 11,
                            2000 by and between Innovadyne Technologies, Inc. and
                            TrueTime, Inc. (incorporated by reference to Exhibit 10.1
                            to the Registrant's Quarterly Report on Form 10-Q (Reg.
                            No. 000-28473), filed with the Commission on February 14,
                            2001).
         10.8            -- Lease Intended as Security dated as of April 30, 2001 by
                            and between Bank of America and TrueTime, Inc.
                            (incorporated by reference to Exhibit 10.1 to the
                            Registrant's Quarterly Report on Form 10-Q (Reg. No.
                            000-28473), filed with the Commission on August 10,
                            2001).
        *11.1            -- Statement re Computation of Earnings per Share.
        *21.1            -- List of Subsidiaries of the Registrant.
        *23.1            -- Consent of PricewaterhouseCoopers LLP, independent
                            accountants.
</Table>

---------------

+ Management Compensation or Incentive Plan

* Filed herewith