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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, 2000

                                       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>

                                2835 DUKE COURT
                          SANTA ROSA, CALIFORNIA 95407
                    (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 8, 2000. The aggregate market value of the
Registrant's Common Stock held by non-affiliates was approximately $10,068,526
(based upon the closing price of $2.938 on December 8, 2000, as reported by the
NASDAQ Stock Market, Inc.).

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                                     PART I

ITEM 1. BUSINESS AND PROPERTIES

TRUETIME

     TrueTime designs, develops, manufactures and markets 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

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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.

     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

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     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 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

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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.

     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.

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     In the last three fiscal years, approximately 70% of our revenues were from
the sale of our timing products that use GPS as a timing reference for
continuously disciplining our oscillators, the fundamental component that
determines the accuracy of our time and frequency products.

     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 reference for continuously disciplining our
oscillators. GPS provides 24 hour worldwide coverage that is not affected by
weather conditions. The 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:

     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.

     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.

     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 2000, 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.,
Raytheon Systems Company, Novacom Microwave, LTD, Litton Denro 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 1998, 1999 and
2000, purchases by the U.S. Army comprised approximately 10%, 18%, and 13%
respectively, of our sales. Similarly, during fiscal year 1998, purchases by
Hughes Network Systems accounted for 10% of our

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sales. Sales to the U.S. government, as a whole, comprised 23%, 28% and 36% of
our sales during fiscal years 1998, 1999 and 2000, respectively.

SALES AND MARKETING

     In fiscal years 1998, 1999 and 2000, approximately 18%, 16% and 19%,
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 three primary channels:

     Sales Representatives -- More than 85% of our orders come through our 43
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 29 employees in our Sales
and Marketing Departments, including our customer service personnel. Thirteen 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.

     Value Added Resellers (VARs) -- To facilitate sales of our computer
networking products we have entered into contractual relationships with several
Value Added Resellers. These resellers purchase our products at a discount and
integrate them into the total solution they are delivering to their end
customers.

     Sales and Marketing via Internet -- We have established an Internet website
for extending the reach of our marketing and sales efforts. Our website provides
added convenience for our customers who are increasingly using the Internet for
choosing and purchasing products that meet their needs. Because of the growing
importance of our Internet link to customers, we are committed to the continual
enhancement of our website and improvement of our procedures for responding to
customer inquiries received through our website.

     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., 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 decided to begin filing for
formal patents. Accordingly, our proprietary products are subject to
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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 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 material 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 two facilities in Santa Rosa, California. Our
primary facility (approximately 25,000 square feet) houses our Engineering,
Manufacturing, and a portion of our Administration departments. Our second
facility (approximately 20,000 square feet) temporarily houses our Sales,
Marketing, and the balance of our Administrative functions under a
month-to-month arrangement and will be vacated shortly. During the second
quarter of fiscal year 2000, TrueTime entered into a lease for a 70,000 square
foot manufacturing and corporate facility in Santa Rosa, California, and expects
to consolidate operations into this single facility in January 2001. The lease
is for an initial term of fifteen years with three five-year options to extend
the lease. We expect to be able to sublease our primary facility (which does not
expire until 2008) on favorable terms. Expenses related to moving our furniture
and equipment, as well as expenses for preparing our old building for sublease
are not expected to exceed $100,000. Our construction in process as of September
30, 2000 is approximately $863,000. Total costs for these tenant improvements
are estimated to be $1,385,000 at the completion of the project. Further, the
new facility will have rental expenses greater than those of the original
facilities by about $235,000 per quarter for a total rental expense of
approximately $312,000 per quarter.

     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 and surface mount production to key
suppliers with expertise in these areas. All operations are performed under
TrueTime's ISO 9001 certification.

RESEARCH AND DEVELOPMENT

     In fiscal 2000, we spent $3.2 million developing a GPS receiver technology
that is optimized for time and frequency applications, next generation time
servers, and several technology building blocks that will be used in our next
generation products anticipated to be released in fiscal years 2001 & 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. In fiscal 1998, we spent $1.9 million building the
research and development organization and developing the initial core technology
platform for new products.
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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.

EMPLOYEES

     As of September 30, 2000, we employed 131 people on a full-time basis, 128
of whom work at our facility in Santa Rosa, California. We have never
experienced a work stoppage and none of our employees is unionized. Over one
half 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>   11

                                    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 8, 2000, there were approximately 3,932 holders of
record of our common stock.

     The following table presents the range of high and low bid quotations for
our common stock during 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, 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
that sale of all of the securities covered by such Registration Statement. The
Company has used approximately $4,483,000 of the initial net proceeds of
$8,642,668 from the offering for day to day working capital requirements. As of
September 30, 2000, the Company had invested unused net proceeds of the Offering
in the amount of approximately $4,160,000 in short-term money market
investments.

                                       11
<PAGE>   12

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, 1998, 1999 and 2000, and the balance sheet data as of September 30, 1999 and
2000, are derived from our audited financial statements appearing elsewhere in
this Form 10-K. The statement of operations data for the year ended September
30, 1997 and the balance sheet data as of September 30, 1998 were derived from
our audited financial statements not included herein. The selected financial
data shown below as of September 30, 1996 and 1997, and for the year ended
September 30, 1996, are 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 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,
                                               -----------------------------------------------
                                                1996      1997      1998      1999      2000
                                               -------   -------   -------   -------   -------
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                            <C>       <C>       <C>       <C>       <C>
STATEMENT OF OPERATIONS DATA
Sales........................................  $11,292   $13,894   $16,297   $20,645   $21,106
Cost of sales................................    5,111     5,783     7,537     9,076     9,646
                                               -------   -------   -------   -------   -------
Gross profit.................................    6,181     8,111     8,760    11,569    11,460
Operating expenses:
  Selling, general and administrative........    2,960     3,906     4,395     5,905     7,153
  Research and development...................    1,840     1,855     1,873     2,155     3,190
                                               -------   -------   -------   -------   -------
          Total operating expenses...........    4,800     5,761     6,258     8,060    10,343
                                               -------   -------   -------   -------   -------
Income from operations.......................    1,381     2,350     2,492     2,509     1,117
Interest and other income (expense), net.....       37        10       249       305       548
                                               -------   -------   -------   -------   -------
Income before income taxes...................    1,418     2,350     2,741     3,814     1,665
Provision for income taxes...................      588       964     1,122     1,547       681
                                               -------   -------   -------   -------   -------
Net income...................................  $   830   $ 1,396   $ 1,619   $ 2,267   $   984
                                               =======   =======   =======   =======   =======
Earnings per share -- basic and diluted......  $  0.21   $  0.35   $  0.40   $  0.57   $  0.18
Weighted average shares outstanding as
  adjusted for reincorporation -- basic......    4,000     4,000     4,000     4,000     5,514
                     diluted.................    4,000     4,000     4,000     4,000     5,610
</TABLE>

<TABLE>
<CAPTION>
                                                          YEAR ENDED SEPTEMBER 30,
                                              ------------------------------------------------
                                               1996      1997      1998      1999       2000
                                              -------   -------   -------   -------    -------
                                                  (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
Working capital.............................    6,030     7,381     8,641    10,808     18,729
Total assets................................    9,071    11,018    12,160    15,491     24,413
Stockholders' equity........................    7,471     8,867    10,486    12,753     22,423
</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.

                                       12
<PAGE>   13

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".

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 have developed and introduced products for these and other markets that
have contributed to increased sales. As a result, sales have increased from
$11.3 million in the fiscal year 1995 to $21.1 million in the fiscal year 2000.

     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 2000, our sales came from over 1,000 different customers
and we sold dozens of different products.

     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 and the overhead
associated with the manufacturing of products.

     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 five-year life.

RESULTS OF OPERATIONS

     The following table sets forth for fiscal 1998, 1999 and 2000, the
percentage of income statement items to total sales:

<TABLE>
<CAPTION>
                                                              YEAR ENDED SEPTEMBER 30,
                                                              ------------------------
                                                               1998     1999     2000
                                                              ------   ------   ------
<S>                                                           <C>      <C>      <C>
Sales.......................................................  100.0%   100.0%   100.0%
Cost of sales...............................................   46.2     44.0     45.7
                                                              -----    -----    -----
Gross Profit................................................   53.8     56.0     54.3
Operating expenses:
  Selling, general and administrative.......................   27.0     28.6     33.8
  Research and development..................................   11.5     10.4     15.1
                                                              -----    -----    -----
          Total operating expenses..........................   38.5     39.0     48.9
                                                              -----    -----    -----
Income from operations......................................   15.3     17.0      5.4
Interest and other income, net..............................    1.5      1.5      2.5
                                                              -----    -----    -----
Income before income taxes..................................   16.8     18.5      7.9
Provision for income taxes..................................    6.9      7.5      3.2
                                                              -----    -----    -----
Net income..................................................    9.9%    11.0%     4.7%
                                                              =====    =====    =====
</TABLE>

                                       13
<PAGE>   14

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 the result of a less
profitable product mix as well as the write-off of certain obsolete, excess or
slow-moving inventories.

     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 48.8% in fiscal
2000 from 39.0% in fiscal 1999. Selling, general and administrative expenses for
fiscal 2000 were $7.2 million, an increase of $1.3 million, or 21.1%, 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. These increases are the result of investments in our infrastructure to
position the Company for entering our new commercial markets. These investments
have included an enterprise wide computer software and hardware system, the
establishment of a regional field sales management structure, increased
advertising, the launch of a public relations campaign, initial investments in
establishing a "value added reseller" sales channel and the additional
administrative costs of being a public company. 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 10.5% in fiscal 1999.
This increase is the result of investments in state of the art electronic design
tools and additional engineering resources. We have also established a
manufacturing engineering group which 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.

YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO YEAR ENDED SEPTEMBER 30, 1998

     Sales.  Sales for fiscal 1999 were $20.6 million, an increase of $4.3
million, or 26.4%, from $16.3 million in fiscal 1998. The increase in sales is
attributable to increased demand for our products, the introduction of new
products and an increased number of customers purchasing our products during the
year.

     Cost of Sales.  Cost of sales for fiscal 1999 was $9.1 million, and
increase of $1.6 million, or 21.3%, from $7.5 million in fiscal 1998. Cost of
sales decreased as a percentage of total sales to 44.0% in fiscal 1999 from
46.2% in fiscal 1998. Such percentage decrease is the result of decreased
material, labor and overhead costs as a percentage of sales resulting from
economies of scale.

     Operating Expenses.  Operating expenses for fiscal 1999 were $8.1 million,
an increase of $1.8 million, or 28.6%, from $6.3 million in fiscal 1998.
Operating expenses increased as a percentage of total sales to 39.0% in fiscal
1999 from 38.5% in fiscal 1998. Selling, general and administrative expenses for
fiscal 1999 were $5.9 million, an increase of $1.5 million, or 34.1%, from $4.4
million in fiscal 1998. Selling, general and administrative expenses increased
as a percentage of total sales to 28.6% in fiscal 1999 from 27.0% in fiscal 1998
because we increased our sales, customer service and administration teams to
support further growth. Research and development expenses for fiscal 1999 were
$2.2 million, an increase of $300,000, or 15.8%, from $1.9 million in fiscal
1998. Research and development expenses decreased as a percentage of total sales
to 10.4% in fiscal 1999 from 11.5% in fiscal 1998 because we did not increase
research and development expenses as fast as we increased sales.

                                       14
<PAGE>   15

     Interest and Other Income (Expense), Net.  Interest and other income
(expense), net for fiscal 1999 was $305,000, an increase of $56,000, or 22.5%,
from $249,000 in fiscal 1998. This income was earned on our cash deposits held
in OYO USA's central cash management system. Such increase is attributable to an
increase in the level of our deposits held by OYO USA.

     Income Taxes.  TrueTime's effective income tax rate for the year ended
September 30, 1999 was 40.6% compared to 40.9% for the year ended September 30,
1998. Our effective income tax rate differs from the statutory federal rate of
34% primarily as a result of the effect of state income taxes.

TERMINATION OF CASH MANAGEMENT AND COST SHARING ARRANGEMENTS

     As a wholly-owned subsidiary of OYO USA, we previously participated in OYO
USA's central cash management system and received an allocation of investment
earnings on our cash deposits held by OYO USA. In addition, we were allocated
our share of certain costs from OYO USA related primarily to accounting, tax and
employee benefit matters. Upon completion of our initial public offering, the
Company terminated all such arrangements with OYO USA and began operating as a
stand-alone entity. The investment earnings and shared costs allocated to us by
OYO USA have not been materially different from the investment earnings and
costs that we would have earned and incurred as a stand-alone entity. The
termination of these arrangements did not have a material impact on our net
sales or income from operations or cause a material change in the relationship
between costs and sales.

LIQUIDITY AND SOURCES OF CAPITAL

     Historically, we have financed our operations through operating cash flow.
However, cash provided by operating activities was a negative $2.7 million in
fiscal 2000 as compared to a positive $1.6 million in fiscal 1999. The net
decrease of $4.3 million is primarily the result of 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. Cash provided by
operating activities was $1.6 million in fiscal 1999 as compared to $900,000 in
fiscal 1998. The net increase of $700,000 was primarily the result of an
increase in net income of $600,000 during fiscal 1999, as adjusted to include an
increase in depreciation and amortization of $100,000 from investments made in
machinery and equipment, an increase in the change in operating assets in the
amount of $1.5 million principally resulting from increased accounts receivable
and inventories, and an increase in the change in operating liabilities of $1.5
million principally resulting from increased trade accounts payable related to
the increase in inventories and increased accrued expenses related to an
increase in employees.

     We previously participated in OYO USA's central cash management system in
which the net cash provided or used by our operations was transferred to or from
OYO USA on a daily basis. Our books generally reflected a receivable for the
cumulative amount by which the cash provided by operating activities, including
current income taxes allocated from OYO USA, exceeded our working capital and
capital expenditure requirements. The change in this receivable was an investing
cash flow activity, which amount was $433,000 at September 30,1999 as compared
to $2.7 million at September 30, 1998. The decrease resulted from the collection
of $3.5 million from OYO USA in September 1999 for the preliminary and partial
settlement of our receivable balance. The receivable was $2.7 million at
September 30, 1998 as compared to $2.5 million at September 30, 1997. The
increase resulted from the excess of operating cash flows generated in fiscal
1998 over capital expenditures. TrueTime separated from OYO USA's central cash
management system following our initial public offering in December, 1999 and
received the $433,000 from OYO USA at that time. Beginning October 1, 1997, OYO
USA implemented a policy of crediting interest on the receivable balance,
excluding the reduction in the receivable balance for allocated current income
taxes. Interest credited and added to the receivable balance was $305,000 for
fiscal 1999 and $249,000 for fiscal 1998.

     In October 1999, we transferred $3.5 million 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

                                       15
<PAGE>   16

$3.5 million, plus the investment income earned thereon, for our benefit and
would manage the trust assets as part of its other cash management activities.
This action was taken to maximize the return on our assets available for the
investment until such time that we established our own short-term investment
program. On December 1, 1999, the trust was terminated and the trust assets
(consisting of cash and cash equivalents) were distributed to us.

     Other investing activities consist principally of capital expenditures.
Capital expenditures for investments in machinery and equipment were $534,000
for fiscal 2000, $442,000 for fiscal 1999, and $632,000 for fiscal 1998. In
fiscal 2000 there were capital expenditures of $898,000 for computer hardware
and software in connection with the implementation of a new computer system. In
addition there were capital equipment write-offs in fiscal 2000 of approximately
$52,000 net book value. We have entered into a long-term lease agreement on a
new larger manufacturing and office facility of approximately 70,000 square feet
into which we intend to move in the first quarter of fiscal year 2001. We have
used approximately $862,000 of our working capital to build out and equip the
new manufacturing and office facility. We are currently looking to obtain
financing for the purchase of furniture and other leasehold improvements on our
new building. The Company has committed approximately $92,000 in fiscal year
2001 for capital expenditures on design tools and test equipment for our
research and development department.

     We do not have any indebtedness since operating cash flow and the proceeds
of our initial public offering have satisfied our working capital and capital
expenditure requirements. Although we have no current requirements for debt
financing, in all likelihood, we will attempt to establish a facility with a
bank to provide funds in the future if needed.

     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, $14,000 in fiscal 1998 and $13,208
in fiscal 2000. We have included the effects of anticipated increased accounts
receivable in our plans for future working capital requirements.

     Cash and cash equivalents were $7.9 million at September 30, 2000 as
compared to $3.5 million at September 30, 1999. The increase reflects proceeds
from our initial public offering in December 1999 and the related over-allotment
option exercised in January 2000. 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
2001 and support our strategy as described elsewhere in this document.

     Inflation has not had a significant impact on our operations to date.

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

                                       16
<PAGE>   17

RISK FACTORS

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

     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 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

     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.

                                       17
<PAGE>   18

     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. In addition, we believe that some of our competitors
have obtained and maintained business that loses money -- "loss leading" -- in
order to maintain a competitive advantage with regard to specific customers or
products. 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 85% of our orders come through our 43 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.

     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.

                                       18
<PAGE>   19

     BECAUSE MANY OF OUR KEY CUSTOMERS ARE UNITS OF THE U.S. GOVERNMENT AND
ENTITIES THAT ARE DEPENDENT UPON U.S. GOVERNMENT FUNDING FOR PURCHASES,
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, units of the
U.S. government have collectively accounted for an approximate range of 21% to
36% 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.

     IF WE ARE UNABLE TO EXPAND OUR PRODUCTION CAPACITY TO MAINTAIN COMPETITIVE
DELIVERY TIMES, WE WILL LIKELY LOSE CUSTOMERS.

     Our production capacity and ability to fill orders for our customers on a
timely basis is limited by our equipment, the size of our production facilities,
the ability of our suppliers to meet our needs and our human resources. These
resources in turn are limited by the availability of capital and the time
required to increase capacity, particularly to construct additional facilities
and to hire and train employees. We cannot assure you that we will have
sufficient capital and resources to expand our production capacity and to
maintain delivery times which our customers consider appropriate. Further, an
increase in our delivery times may result in loss of customers.

     OUR RESULTS OF OPERATIONS WILL BE ADVERSELY AFFECTED IF WE DO NOT HAVE
ENOUGH DEMAND FOR OUR PRODUCTS TO JUSTIFY OUR INCREASED CAPACITY.

     To meet our goals for future growth, we plan to move into new, larger
manufacturing and office facilities in fiscal 2001, using a portion of our
working capital to build out and equip the new facilities. The additional
capacity provided by the new facilities and equipment will allow us to more than
double our output given sufficient market demand. However, after increasing our
production capacity, we may find that demand for our products does not remain
sufficiently high for us to realize a satisfactory return on the capital we have
spent to increase capacity.
                                       19
<PAGE>   20

     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,
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 certain of our markets, particularly commercial
markets, we will be required to build up inventories of certain of our 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, therefore, be adversely affected by inventory
write-downs from time to time.

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 for which fluctuations in the interest rate
would have very little effect on our bottom line. 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 because we
currently have no debt.

                                       20
<PAGE>   21

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our financial statements, including the reports thereon, the notes thereto
and supplementary data begin at page F-1 of this Form 10-K and are incorporated
herein by reference.

     The following table represents summarized data for each of the quarters in
fiscal 2000 and 1999 (in thousands, except per share amounts).

<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>

<TABLE>
<CAPTION>
                                                                             1999
                                                             -------------------------------------
                                                             FOURTH     THIRD    SECOND     FIRST
                                                             QUARTER   QUARTER   QUARTER   QUARTER
                                                             -------   -------   -------   -------
<S>                                                          <C>       <C>       <C>       <C>
Sales......................................................  $7,855    $5,557    $3,929    $3,304
Gross Profit...............................................   4,859     3,091     2,048     1,571
Income (loss) from operations..............................   1,925     1,288       128       169
Other income (expense), net................................      89        74        83        59
Net income.................................................   1,196       810       126       136
Basic earnings per share...................................  $ 0.30    $ 0.20    $ 0.03    $ 0.03
                                                             ======    ======    ======    ======
Diluted earnings per share.................................  $ 0.30    $ 0.20    $ 0.03    $ 0.03
                                                             ======    ======    ======    ======
</TABLE>

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

     None.

                                       21
<PAGE>   22

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

EXECUTIVE OFFICERS AND DIRECTORS

     The board of directors of TrueTime is currently set at six positions and
consists of the following persons at present. Our certificate of incorporation
provides for the classification of the board into three classes of directors
(Class I, Class II and Class III), with the term of each class expiring at
successive annual stockholders' meetings. Beginning with the annual meeting of
stockholders following the fiscal year ending September 30, 2000, all nominees
of the class standing for election will be elected for three-year terms.

<TABLE>
<CAPTION>
                                                                                  CLASS/YEAR TERM AS
NAME                                  AGE                POSITION               DIRECTOR WILL EXPIRE(1)
----                                  ---                --------               -----------------------
<S>                                   <C>   <C>                                 <C>
Satoru Ohya.........................  68    Director                            Class III/2002
Katsuhiko Kobayashi(2)(3)...........  55    Chairman of the Board and Director  Class III/2002
Elizabeth A. Withers................  40    President and Chief Executive       Class II/2001
                                              Officer and Director
Haresh C. Patnaik(4)................  57    Senior Vice President and Chief
                                              Technical Officer
Donald H. Mitchell..................  65    Vice President and Director of
                                            Sales and Marketing
John E. Dutil.......................  41    Vice President of Finance and
                                              Administration and Chief
                                              Financial Officer
Charles J. Abbe(2)(3)...............  59    Director                            Class I/2000
Charles H. Still(2)(3)..............  58    Director                            Class II/2001
A. Robert Towbin(2)(3)..............  65    Director                            Class I/2000
</TABLE>

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

(1) Term of director expires when successor is elected at annual meeting of
    stockholders following the end of the fiscal year indicated.

(2) Member of the compensation committee of the board of directors.

(3) Member of the audit committee of the board of directors.

(4) Mr. Patnaik tendered his resignation as an officer and employee of the
    Company, effective December 31, 2000.

     Satoru Ohya has been director of TrueTime since its initial public offering
in December 1999. He has been President of OYO Corporation since 1993. For over
40 years, Mr. Ohya has been an employee, officer or director of OYO Corporation
and various of its subsidiaries. He is a director of OYO Geospace Corporation.

     Katsuhiko Kobayashi joined OYO Corporation in 1995 and has been a Senior
Executive Officer since March 2000. From 1996 to 1999, he served as Treasurer of
TrueTime's predecessor and he has served as a director thereof since 1999. From
1967 to 1995 he was employed by Sanwa Bank, primarily in its international
banking area, where he last held the position of general manager of the
International Credit Administration Department from 1993 to 1995. He is a
director of OYO Geospace Corporation.

     Elizabeth A. Withers joined TrueTime in 1991.  She has been a director and
President and Chief Executive Officer of TrueTime since September 1999. From
November 1998 until her appointment as President and Chief Executive Officer,
Ms. Withers served as Vice President of Operations. She has also held the
positions of Operations Manager and Materials Supervisor. Ms. Withers was
formerly Manufacturing Manager at Asea Brown Boveri, Production Manager at
Delphian Corporation and Field Engineering Supervisor at Fortune Systems. She
holds a B.S. degree in Organizational Behavior from the University of San
Francisco and the CPIM certification from the American Production and Inventory
Control Society (APICS).

                                       22
<PAGE>   23

     Haresh C. Patnaik has been Senior Vice President and Chief Technical
Officer of TrueTime since September 1999. From March 1998 until September 1999,
he served as Vice President of Research and Development. Mr. Patnaik joined
TrueTime in 1998 to build the Research and Development function and to assist
TrueTime with his broad management experience. From October 1991 until October
1997, Mr. Patnaik served as Vice President of Engineering at Tegal Corp.,
publicly-traded company in the semiconductor equipment manufacturing industry.
He has also served as the International Liaison and Program Director at Teradata
Corp., the Vice President of Engineering at Kennedy Co. and Director of
Engineering and Operations Program Manager at NCR Corporation. Mr. Patnaik holds
an M.S. degree in Electrical Engineering from Purdue University and a B.S.
degree in Electrical Engineering from IIT in Kharagpur, India. He has also
completed the Executive Management Program at UCLA Graduate School of Business.
On October 25, 2000, Mr. Patnaik tendered his resignation as an officer and
employee of the Company, effective December 31, 2000.

     Donald H. Mitchell joined TrueTime in 1991 and has served as Vice President
and Director of Sales and Marketing since September 1999. He was Vice President
of Sales from July 1999 until September 1999 and Time and Frequency Director
from November 1991 until July 1999. Prior to joining TrueTime, Mr. Mitchell was
Sales and Marketing Manager at Austron, Inc./Frequency and Time Systems, Sales
and Marketing Manager at Datum, Inc. and Program Manager at Kentron
International. At Ling Temco Vought, Mr. Mitchell performed several roles,
including Program Manager responsible for the Hill Wendover Dugway Test Range at
Hill Air Force Base, Dugway Proving Grounds and Yuma Proving Grounds. He served
as Electronic Support Systems Manager at Khalalein Missile Test Range. Mr.
Mitchell has previous experience as Systems Manager for NASA in Kauai, Hawaii
and as Data Reduction Manager at the Navy Parachute Test Facility in El Centro,
California.

     John E. Dutil joined TrueTime in February 2000 as Controller. He became
acting Chief Financial Officer on June 7, 2000. Effective November 8, 2000 he
was appointed Vice President of Finance and Administration and Chief Financial
Officer. From 1995 through January 2000 he served as Executive Vice President
and Chief Financial Officer for LFI Sportswear, Inc. He served as Controller
from 1992 through 1994. From 1984 through 1991, Mr. Dutil served as Senior
Financial Analyst with Hewlett Packard Co. Mr. Dutil holds a B.S. in Business
Administration with an emphasis in Accounting from the University of San
Francisco.

     Charles J. Abbe has been a director of TrueTime since its initial public
offering in December 1999. Mr. Abbe has been President and Chief Operating
Officer of JDS Uniphase Corporation ("JDS") since May 2000 and served as Senior
Vice President and Senior Operating Officer of JDS from the merger of Optical
Coating Laboratory, Inc. ("OCLI") with JDS in February 2000 until May 2000. From
April 1998 to February 2000, Mr. Abbe served as director, President and Chief
Executive Officer of OCLI. Mr. Abbe also served as Vice President and General
Manager of OCLI's Santa Rosa Division from April 1996 through April 1998. Prior
to joining OCLI, Mr. Abbe held various senior management positions with Raychem
Corporation from 1989 to 1996. From 1971 to 1989, Mr. Abbe was employed at
McKinsey & Company, Inc., where he last served as senior partner at the San
Francisco, California office.

     Charles H. Still has been a director of TrueTime since its initial public
offering in December 1999 and was TrueTime's corporate secretary from the
formation of our predecessor in 1991 until his resignation from this post in
April 2000. He has been a partner in the law firm of Fulbright & Jaworski
L.L.P., which serves as legal counsel to OYO Corporation, OYO USA and TrueTime
in various matters, since 1975. He is a director of OYO Geospace Corporation.

     A. Robert Towbin has been a director of TrueTime since its initial public
offering in December 1999. Mr. Towbin has served as Co-Chairman of C.E.
Unterberg, Towbin since November 1999. From December 1995 until November 1999,
Mr. Towbin served as Senior Managing Director of C.E. Unterberg, Towbin. He was
President and Chief Executive Officer of the Russian-American Enterprise Fund
from January 1994 to August 1995. From 1987 until 1993, he was a Managing
Director at Lehman Brothers Inc. He is a director of Gerber Scientific, Inc.,
Globalstar Telecommunications Ltd., Globecomm Systems Inc. and K&F Industries,
Inc.

                                       23
<PAGE>   24

     From August 1994 until September 1999, TrueTime was managed by a team of
either four or five persons. Together, this group of managers was responsible
for the typical functions of executive officers and they reported to Ernest M.
Hall, Jr., who served as President. Prior to our initial public offering, Mr.
Hall resigned as President on September 15, 1999, and Ms. Withers was elected
President and Chief Executive Officer. Prior to being elected President, Ms.
Withers was Vice President and Operations Manager, and a member of the four
person management team serving TrueTime. Messrs. Patnaik and Mitchell were also
members of that management team.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than 10% of a registered class of
the Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than 10% stockholders are required by the regulation to furnish the
Company with copies of all Section 16(a) reports they file.

     Based solely on a review of reports on those filings furnished to the
Company and written representations from reporting persons that no additional
reports were required, the Company believes that during the fiscal year ended
September 30, 2000, all officers, directors and greater than 10% stockholders
complied with all filing requirements applicable to them.

ITEM 11. EXECUTIVE COMPENSATION.

DIRECTOR COMPENSATION

     Non-employee directors and board advisors are compensated for their
services at a rate of $12,000 per year (plus expenses). Pursuant to the 1999
Non-Employee Director Stock Plan, as amended, each of our non-employee directors
received an initial grant of options to purchase 10,000 shares of common stock
at an exercise price equal to the initial public offering price ($5.00 per
share) in connection with the initial public offering. Also, pursuant to that
plan, each non-employee director and board advisor serving on the board of
directors following each annual meeting of stockholders will receive a grant of
options to acquire 3,000 shares of common stock at the market price on the date
of the grant. All non-employee directors are reimbursed for ordinary and
necessary expenses incurred in attending board or committee meetings.

EXECUTIVE COMPENSATION

     A summary of the compensation earned by the current President and Chief
Executive Officer of TrueTime, and the two other executive officers and one
former executive officer of TrueTime who received salary and bonus in the fiscal
years ended September 30, 2000 and 1999, that exceeded $100,000, these persons
being collectively referred to as "named executive officers." The following
compensation data includes bonuses awarded in fiscal 2001 for performance in
fiscal 2000 and bonuses awarded in fiscal 2000 for performance in fiscal 1999.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                    LONG-TERM
                                        ANNUAL COMPENSATION    COMPENSATION AWARDS
                                        --------------------    SHARES UNDERLYING
NAME AND PRINCIPAL POSITION      YEAR    SALARY      BONUS           OPTIONS         OTHER COMPENSATION
---------------------------      ----   --------    --------   -------------------   ------------------
<S>                              <C>    <C>         <C>        <C>                   <C>
Elizabeth A. Withers...........  2000   $157,939    $     --        105,000              $   5,035(2)
  President and Chief Executive  1999     98,077(1)   71,546             --                  4,617(2)
  Officer
Haresh C. Patnaik..............  2000    154,482          --         90,000                  4,979(2)
  Senior Vice President and
     Chief                       1999    135,193      71,546             --                  4,980(2)
  Technical Officer
</TABLE>

                                       24
<PAGE>   25

<TABLE>
<CAPTION>
                                                                    LONG-TERM
                                        ANNUAL COMPENSATION    COMPENSATION AWARDS
                                        --------------------    SHARES UNDERLYING
NAME AND PRINCIPAL POSITION      YEAR    SALARY      BONUS           OPTIONS         OTHER COMPENSATION
---------------------------      ----   --------    --------   -------------------   ------------------
<S>                              <C>    <C>         <C>        <C>                   <C>
Donald H. Mitchell.............  2000    147,705          --         90,000                  3,938(2)
  Vice President and Director
     of                          1999     83,429     207,272(3)           --                 6,473(2)
  Sales and Marketing
Michael P. Von der Porten......  2000    426,206(4)       --         90,000(5)              34,522(2)(6)
  Former Vice President and
     Chief                       1999    102,268      71,546             --                  4,764(2)
  Financial Officer
</TABLE>

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

(1) Ms. Withers' compensation for fiscal 1999 related to her position as Vice
    President of Operations until September 15, 1999.

(2) Represents contributions by TrueTime to a 401(k) savings plan and premiums
    paid on group-term life insurance.

(3) Includes commissions from sales and bonuses.

(4) Mr. Von der Porten resigned from his position with the Company effective
    June 6, 2000. Salary amount includes compensation of $125,699 (including any
    pay out of accrued vacation) for the period through June 6, 2000 and
    separation pay of $300,507.

(5) Michael Von der Porten resigned from his position with the Company effective
    June 6, 2000. The options granted to Mr. Von der Porten terminated on
    September 5, 2000.

(6) Includes consulting fees of $28,470 paid after his resignation as of June 6,
    2000.

STOCK OPTIONS

     Information regarding stock options granted to the executive officers in
fiscal 2000 follows. All of these were granted in connection with our initial
public offering in December 1999.

<TABLE>
<CAPTION>
                                                                                         POTENTIAL REALIZABLE VALUE
                                                                                           AT ASSUMED ANNUAL RATES
                                                                                               OF STOCK PRICE
                               SHARES OF     PERCENT OF TOTAL                                 APPRECIATION FOR
                              COMMON STOCK       OPTIONS        EXERCISE                       OPTION TERM(1)
                               UNDERLYING       GRANTED TO      PRICE PER                ---------------------------
NAME                            OPTIONS         EMPLOYEES         SHARE     EXPIRATION       5%             10%
----                          ------------   ----------------   ---------   ----------   -----------   -------------
<S>                           <C>            <C>                <C>         <C>          <C>           <C>
Elizabeth A. Withers........    105,000            12.7%          $5.00      12/15/09     $855,170      $1,316,715
Haresh C. Patnaik...........     90,000            10.9%           5.00      12/15/09      733,003       1,167,184
Donald H. Mitchell..........     90,000            10.9%           5.00      12/15/09      733,003       1,167,184
Michael P.
  VonderPorten(2)...........         --              --              --            --           --              --
</TABLE>

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

(1) The potential realizable value of the options is based on an assumed
    appreciation in the price of the common stock at a compounded annual rate of
    5% or 10% from the date the option was granted until the date the option
    expires. The 5% and 10% appreciation rates are set forth in the Securities
    and Exchange Commission's regulations. We do not represent that the common
    stock will appreciate at these assumed rates or at all.

(2) Michael Von der Porten resigned from his position with the Company effective
    June 6, 2000. Accordingly, pursuant to the terms of the TrueTime, Inc. 1999
    Key Employee Stock Option Plan and the option agreement granted to Mr. Von
    der Porten, the options for 90,000 shares held by him terminated on
    September 5, 2000.

                                       25
<PAGE>   26

     Information regarding the value of unexercised options held by the
executive officers as of September 30, 2000, follows. None of the executive
officers exercised any options in fiscal 2000. None of the options were
exercisable during fiscal 2000.

<TABLE>
<CAPTION>
                                                     NUMBER OF SECURITIES           VALUE OF UNEXERCISED
                                               UNDERLYING UNEXERCISED OPTIONS AT   IN-THE MONEY OPTIONS AT
NAME                                            SEPTEMBER 30, 2000(# OF SHARES)     SEPTEMBER 30, 2000($)
----                                           ---------------------------------   -----------------------
<S>                                            <C>                                 <C>
Elizabeth A. Withers.........................               105,000                          $(1)
Haresh C. Patnaik............................                90,000                           (1)
Donald H. Mitchell...........................                90,000                           (1)
</TABLE>

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

(1) None of these options were in the money on September 30, 2000, based on
    $4.063 per share, the closing price of the common stock on September 30,
    2000, as reported by The Nasdaq Stock Market, Inc.

EMPLOYMENT AGREEMENTS

     Ms. Withers and Messrs. Patnaik and Mitchell have entered into employment
agreements with the Company. Ms. Withers' base annual salary is $160,000, Mr.
Patnaik's base annual salary is $155,000 and Mr. Mitchell's base annual salary
is $150,000. These salaries may be adjusted by our board of directors. Each of
these employees is also entitled to participate in our 401(k) Plan and any bonus
plan the Company adopts and to receive certain employee benefits and vacation.

     Each of Ms. Withers' and Messrs. Patnaik's and Mitchell's employment
agreements provides that he or she will receive the severance benefits described
below upon termination of his or her employment unless the termination:

     - results from the death, disability or retirement of such employee,

     - is by TrueTime for Cause (as defined in the employment agreement) or

     - is by such employee other than for Good Reason (as defined in the
       employment agreement).

     Under these employment agreements, "Cause" is defined to mean the
employee's willful and continued failure to perform his or her duties after a
demand for such performance or the employee's willfully engaging in gross
misconduct materially and demonstrably injurious to TrueTime. Under these
employment agreements, "Good Reason" is defined to mean a demotion, a reduction
in base salary, a relocation of the employee's base location of employment, the
discontinuation of any employee benefit without comparable substitution, the
failure of any successor of TrueTime to assume the employment agreement or a
purported termination not in compliance with the employment agreement.

     The severance benefits to which Ms. Withers or Messrs. Patnaik or Mitchell
would be entitled include

     - his or her salary through the date of termination,

     - his or her base salary and pro-rated bonus for the fiscal year of
       termination multiplied by one and one-half,

     - any relocation and indemnity payments to which he or she is entitled and
       any costs and legal fees incurred in connection with any dispute over the
       employment agreement, and

     - a gross-up for any applicable "excess parachute payment" tax imposed on
       the employee by the Internal Revenue Code of 1986.

     Each employment agreement has a two-year term and is automatically
renewable unless the Company timely elects not to renew. In these employment
agreements, each of Ms. Withers and Messrs. Patnaik and Mitchell agree that he
or she will not disclose or misappropriate any of our confidential information.
These employment agreements also contain customary non-competition provisions
for a California-based enterprise and California employees, which are limited by
state law.

                                       26
<PAGE>   27

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The compensation committee comprises Messrs. Kobayashi, Abbe, Still and
Towbin. Mr. Still is a partner in the law firm of Fulbright & Jaworski L.L.P.,
which provides legal services to the Company. Fulbright & Jaworski L.L.P. also
provides legal services to OYO Corporation and to OYO USA and its affiliates.
Mr. Towbin is Co-Chairman of C.E. Unterberg, Towbin, one of the underwriters in
TrueTime's initial public offering in December 1999, in connection with which
C.E. Unterberg, Towbin received an aggregate of approximately $409,500 in
underwriting discounts and warrants valued at approximately $455,043 covering an
aggregate of up to 200,000 shares of common stock exercisable at $5.50 per
share.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The beneficial ownership as of December 8, 2000, of shares of the Company's
common stock of each director and executive officer, each person known to the
Company to beneficially own more than 5% of outstanding common stock and all
directors and executive officers as a group, along with the percentage of
outstanding common stock that such ownership represents, follows. Each person
named has sole voting and investment power with respect to the shares indicated
except as otherwise stated in the notes to the table.

<TABLE>
<CAPTION>
BENEFICIAL OWNER                                               SHARES     PERCENTAGE
----------------                                              ---------   ----------
<S>                                                           <C>         <C>
OYO Corporation(1)..........................................  2,500,000      42.0%
  Ichigaya Building
  4-2-6- Kudan Kita
  Chiyoda-ku, Tokyo 102
  Japan
OYO Corporation U.S.A.......................................  2,500,000      42.0
  7334 N. Gessner Road
  Houston, Texas 77040
Satoru Ohya(2)..............................................  2,510,000      42.1
  2-42-10 Takinagara
  Kita-ku,, Tokyo 114
  Japan
Katsuhiko Kobayashi(3)(4)...................................     10,000      *
Elizabeth A. Withers(5).....................................     27,750      *
Haresh C. Patnaik(6)........................................     26,500      *
Donald H. Mitchell(6).......................................     29,000      *
Michael P. Von der Porten(7)................................      2,000      *
Charles J. Abbe(4)..........................................     14,000      *
Charles H. Still(4).........................................     12,000      *
A. Robert Towbin(4)(8)......................................    215,000       3.5
UBS AG(9)...................................................    375,700       6.3
Executive officers and directors as a group (8
  people)(10)...............................................  2,844,250      45.4%
</TABLE>

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

  *  Less than one percent.

 (1) The shares indicated as beneficially owned by OYO Corporation, a Japanese
     corporation, are held directly by its wholly owned subsidiary OYO
     Corporation U.S.A.

 (2) 2,500,000 of the shares indicated as beneficially owned by Mr. Ohya are
     owned directly by OYO USA and are included because Mr. Ohya is an affiliate
     of OYO Corporation. Mr. Ohya disclaims beneficial ownership of the shares
     of common stock owned by OYO USA within the meaning of Rule 13d-3 under the
     Securities Exchange Act of 1934. Mr. Ohya owns 294,800 ordinary shares of
     OYO Corporation, and his wife and children collectively own 23,041 shares
     of OYO Corporation. Mr. Ohya disclaims beneficial ownership of the shares
     of OYO Corporation owned by his children within the meaning of Rule 13d-3
     under the Securities Exchange Act of 1934, as amended. Also includes
     options to purchase 10,000 shares at $5.00 per share that are presently
     exercisable.

                                       27
<PAGE>   28

 (3) Mr. Kobayashi owns 3,420 ordinary shares of OYO Corporation.

 (4) Includes options to purchase 10,000 shares at $5.00 per share that are
     presently exercisable.

 (5) Includes options to purchase 26,250 shares at $5.00 per share that are
     presently exercisable or exercisable within 60 days; excludes options to
     purchase 78,750 shares that are not presently exercisable or exercisable
     within 60 days.

 (6) Includes options to purchase 22,500 shares at $5.00 per share that are
     presently exercisable or exercisable within 60 days; excludes options to
     purchase 67,500 shares that are not presently exercisable or exercisable
     within 60 days.

 (7) Based solely on a Form 4 dated June 8, 2000 filed with the Securities and
     Exchange Commission. Mr. Von der Porten resigned as an officer and employee
     of the Company effective June 6, 2000.

 (8) Includes warrants to purchase 200,000 shares that are presently exercisable
     or exercisable within 60 days held by C.E. Unterberg, Towbin. The shares
     underlying such warrants are listed because of Mr. Towbin's affiliation
     with C.E. Unterberg, Towbin as Co-Chairman and Mr. Towbin disclaims
     beneficial ownership of the warrants and underlying stock owned by C.E.
     Unterberg, Towbin within the meaning of Rule 13d-3 under the Securities
     Exchange Act of 1934, as amended. Also includes options to purchase 10,000
     shares at $5.00 per share that are presently exercisable.

 (9) Based solely on a Schedule 13G filed with the Securities and Exchange
     Commission on February 15, 2000. According to such Schedule 13G, the
     address of this entity is Bahnhofstrasse 45, 8021, Zurich, Switzerland.

(10) Does not include shares beneficially owned by Mr. Von der Porten, who
     resigned as an officer and employee of the Company effective June 6, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Mr. Ohya, a director of the Company, is President of OYO Corporation and
Chairman of the Board of OYO USA and holds other offices of subsidiaries of OYO
USA Mr. Kobayashi, also a director of the Company, is the Joint General Manager
of OYO Corporation. Mr. Kobayashi also holds offices with many subsidiaries of
OYO USA Mr. Still, also a director of the Company, is the Secretary of OYO USA
and also serves in that position with respect to most of the subsidiaries of OYO
USA Mr. Still is a partner in the law firm of Fulbright & Jaworski L.L.P., which
provides legal services to the Company. Mr. Towbin is Co-Chairman of C.E.
Unterberg, Towbin, one of the underwriters in TrueTime's initial public offering
in December 1999, in connection with which C.E. Unterberg, Towbin received an
aggregate of approximately $409,500 in underwriting discounts and warrants
valued at approximately $455,043 covering an aggregate of up to 200,000 shares
of common stock exercisable at $5.50 per share.

                                    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.

                                       28
<PAGE>   29

(b) Reports on Form 8-K

     None

(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 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            -- Form of Employment Agreement entered into between the
                            Registrant and each executive officer of the Registrant
                            (incorporated by reference to Exhibit 10.4 of the
                            Registrant's Registration Statement on Form S-1 (Reg. No.
                            333-90269), as amended).
         10.5            -- 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).
         10.6            -- 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
</TABLE>

                                       29
<PAGE>   30

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                            DESCRIPTION OF DOCUMENTS
        -------                            ------------------------
<C>                      <S>
        *10.7            -- 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.
        *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.
        *27.1            -- Financial Data Schedule.
</TABLE>

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

+ Management Compensation or Incentive Plan

 * Filed herewith

                                       30
<PAGE>   31

                                   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

Date: December 19, 2000

     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 19, 2000
---------------------------------------------
                 Satoru Ohya

           /s/ KATSUHIKO KOBAYASKI               Chairman of the Board              December 19, 2000
---------------------------------------------
             Katsuhiko Kobayashi

          /s/ ELIZABETH A. WITHERS               President, Chief Executive         December 19, 2000
---------------------------------------------    Officer (Principle Executive
            Elizabeth A. Withers                 Officer) and Director

              /s/ JOHN E. DUTIL                  Vice President of Finance and      December 19, 2000
---------------------------------------------    Administration and Chief
                John E. Dutil                    Financial Officer (Principle
                                                 Financial and Accounting Officer)

             /s/ CHARLES J. ABBE                 Director                           December 19, 2000
---------------------------------------------
               Charles J. Abbe

            /s/ CHARLES H. STILL                 Director                           December 19, 2000
---------------------------------------------
              Charles H. Still

            /s/ A. ROBERT TOWBIN                 Director                           December 19, 2000
---------------------------------------------
              A. Robert Towbin
</TABLE>

                                       31
<PAGE>   32

                                 TRUETIME, INC.

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Accountants...........................  F-2
Balance Sheets as of September 30, 1999 and 2000............  F-3
Statements of Operations for the Years Ended September 30,
  1998, 1999, and 2000......................................  F-4
Statements of Changes in Stockholders' Equity for the Years
  Ended September 30, 1998, 1999, and 2000..................  F-5
Statements of Cash Flows for the Years Ended September 30,
  1998, 1999, and 2000......................................  F-6
Notes to Financial Statements...............................  F-7
</TABLE>

                                       F-1
<PAGE>   33

                       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, 1999 and 2000, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 2000 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 29, 2000

                                       F-2
<PAGE>   34

                                 TRUETIME, INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 AS OF SEPTEMBER 30,
                                                              -------------------------
                                                                 1999          2000
                                                              -----------   -----------
<S>                                                           <C>           <C>
                                        ASSETS

Current assets:
  Cash and cash equivalents.................................  $ 3,538,851   $ 7,884,386
  Receivables:
     Trade accounts, net of allowance of $10,000 and
      $34,044...............................................    4,270,985     4,434,391
     Affiliates.............................................       42,760            --
  Receivable from OYO USA...................................      432,608            --
  Inventories...............................................    5,064,779     7,427,895
  Prepaid expenses and other current assets.................       23,753       364,563
  Deferred income tax.......................................      172,791       300,069
                                                              -----------   -----------
          Total current assets..............................   13,546,527    20,411,304
Property and equipment, net.................................    1,128,275     2,903,386
Prepaid expenses, noncurrent................................           --       307,143
Goodwill, net of accumulated amortization of $188,906 and
  $214,682..................................................      816,552       790,776
                                                              -----------   -----------
          Total assets......................................  $15,491,354   $24,412,609
                                                              ===========   ===========

                         LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Trade accounts payable....................................  $   767,337   $   809,773
  Accrued expenses..........................................    1,971,066     1,180,285
                                                              -----------   -----------
          Total current liabilities.........................    2,738,403     1,990,058
                                                              -----------   -----------
Commitments and contingencies
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, 4,000,000 and 5,950,000 shares issued and
     outstanding in 1999 and 2000, respectively.............       40,000        59,500
  Additional paid-in capital................................    4,689,838    12,900,767
  Warrants..................................................           --       455,043
  Retained earnings.........................................    8,023,113     9,007,241
                                                              -----------   -----------
          Total stockholders' equity........................   12,752,951    22,422,551
                                                              -----------   -----------
          Total liabilities and stockholders' equity........  $15,491,354   $24,412,609
                                                              ===========   ===========
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                       F-3
<PAGE>   35

                                 TRUETIME, INC.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                               YEAR ENDED SEPTEMBER 30,
                                                        ---------------------------------------
                                                           1998          1999          2000
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
Net sales.............................................  $16,296,604   $20,645,240   $21,106,457
Cost of sales.........................................    7,536,409     9,076,137     9,646,343
                                                        -----------   -----------   -----------
Gross profit..........................................    8,760,195    11,569,103    11,460,114
Operating expenses:
  Selling, general and administrative.................    4,395,159     5,905,203     7,153,179
  Research and development............................    1,873,365     2,155,597     3,189,767
                                                        -----------   -----------   -----------
          Total operating expenses....................    6,268,524     8,060,800    10,342,946
                                                        -----------   -----------   -----------
Income from operations................................    2,491,671     3,508,303     1,117,168
                                                        -----------   -----------   -----------
Interest and other income (expense):
  Interest income.....................................      259,824       300,109       533,898
  Other, net..........................................      (10,916)        4,982        13,656
                                                        -----------   -----------   -----------
          Total interest and other income, net........      248,908       305,091       547,554
                                                        -----------   -----------   -----------
Income before provision for income taxes..............    2,740,579     3,813,394     1,664,722
Provision for income taxes............................    1,121,608     1,546,846       680,594
                                                        -----------   -----------   -----------
Net Income............................................  $ 1,618,971   $ 2,266,548   $   984,128
                                                        ===========   ===========   ===========
Weighted average shares outstanding as adjusted for
  reincorporation:
  Basic...............................................    4,000,000     4,000,000     5,513,934
  Diluted.............................................    4,000,000     4,000,000     5,610,482
Earnings per share:
                                                        -----------   -----------   -----------
  Basic and diluted...................................  $      0.40   $      0.57   $      0.18
                                                        ===========   ===========   ===========
</TABLE>

    The accompanying notes are an integral part of the financial statements

                                       F-4
<PAGE>   36

                                 TRUETIME INC.

                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
             FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1999 AND 2000

<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, 1997....  4,000,000   $40,000   $ 4,689,838   $     --   $4,137,594   $ 8,867,432
Net income..............         --        --            --         --    1,618,971     1,618,971
                          ---------   -------   -----------   --------   ----------   -----------
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
                          =========   =======   ===========   ========   ==========   ===========
</TABLE>

    The accompanying notes are an integral part of the financial statements

                                       F-5
<PAGE>   37

                                 TRUETIME, INC.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               YEARS ENDED SEPTEMBER 30,
                                                         --------------------------------------
                                                            1998         1999          2000
                                                         ----------   -----------   -----------
<S>                                                      <C>          <C>           <C>
Cash flows from operating activities
  Net Income...........................................  $1,618,971   $ 2,266,548   $   984,128
  Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
     Deferred income taxes.............................      47,531        47,360      (127,279)
     Depreciation and amortization.....................     265,874       342,888       492,756
     Gain or loss on disposal of property and
       equipment.......................................          --            --        51,973
     Compensation related to stock options.............          --            --        42,805
     Effects of changes in operating assets and
       liabilities:
       Receivables.....................................     127,736    (1,365,536)     (121,037)
       Inventories.....................................    (675,414)     (846,951)   (2,363,116)
       Prepaid expenses and other current assets.......     (35,391)      124,902      (340,810)
       Prepaid expense, noncurrent.....................          --            --      (307,143)
       Trade accounts payable..........................    (516,230)      330,790        42,435
       Accrued expenses................................      39,426       733,704      (790,781)
                                                         ----------   -----------   -----------
          Net cash provided by (used in) operating
            activities.................................     872,503     1,633,705    (2,436,069)
                                                         ----------   -----------   -----------
Cash flows from investing activities:
  Decrease (increase) in receivable from OYO USA.......    (201,936)    2,308,981       433,000
  Capital Expenditures.................................    (632,219)     (442,183)   (2,294,064)
                                                         ----------   -----------   -----------
          Net cash provided by (used in) investing
            activities.................................    (834,155)    1,866,798    (1,861,064)
                                                         ----------   -----------   -----------
Cash flows from financing activities:
  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 financing activities....          --            --     8,642,668
                                                         ----------   -----------   -----------
Increase in cash and cash equivalents..................      38,348     3,500,503     4,345,535
Cash and cash equivalents, beginning of period.........          --        38,348     3,538,851
                                                         ----------   -----------   -----------
Cash and cash equivalents, end of period...............  $   38,348   $ 3,538,851   $ 7,884,386
                                                         ==========   ===========   ===========
Supplemental disclosure of cash flow information:
  Cash paid for income taxes...........................  $1,050,371   $ 1,472,432   $   859,493
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>   38

                                 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, 2000,
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 generally
accepted accounting principles 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.

ADVERTISING COSTS

     Advertising costs are expensed as incurred. Advertising expense was
$208,632, $128,548, and $320,087 for the years ended September 30, 1998, 1999,
and 2000, 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
accounting, tax and 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>   39
                                 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 $13,700, zero and
$37,252 for the years ended September 30, 1998, 1999 and 2000, respectively. The
Company's write off of bad debts against the allowance for doubtful accounts was
$13,700, zero and $13,208 for the years ended September 30, 1998, 1999 and 2000,
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.

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
5 years for all property and equipment except leasehold improvements, which are
amortized over the shorter of the 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 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 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

                                       F-8
<PAGE>   40
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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, 1998, 1999 and 2000, 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
comprised of taxes payable for the current period plus the change during the
period in deferred tax assets and liabilities.

                                       F-9
<PAGE>   41
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

EARNINGS PER SHARE

     The Company computes earnings per share pursuant to Statement of Financial
Accounting Standards No. 128, Earnings Per Share. Basic earnings 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 and weighted average
common shares and common share equivalents outstanding for purposes of the
computation of earnings per share:

<TABLE>
<CAPTION>
                                                        YEARS ENDED SEPTEMBER 30,
                                                   ------------------------------------
                                                      2000         1999         1998
                                                   ----------   ----------   ----------
<S>                                                <C>          <C>          <C>
Net earnings available to common stockholders....  $  984,128   $2,266,548   $1,618,971
Weighted average common shares outstanding.......   5,513,934    4,000,000    4,000,000
Dilutive impact of stock options using the
  treasury stock method..........................      96,548           --           --
                                                   ----------   ----------   ----------
Weighted average common shares and common share
  equivalents outstanding........................   5,610,482    4,000,000    4,000,000
                                                   ----------   ----------   ----------
Basic earnings per share.........................  $     0.18   $     0.57   $     0.40
Diluted earnings per share.......................  $     0.18   $     0.57   $     0.40
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the balance sheet, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
SFAS No. 133, as amended, will be effective for fiscal years beginning after
June 15, 2000. The Company does not currently hold derivative instruments or
engage in hedging activities and, accordingly, does not expect the adoption of
SFAS No. 133 to have a significant effect on its financial position or results
of operations.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
SAB No. 101 provides guidance for revenue recognition under certain
circumstances. The Company believes the adoption of SAB 101 will not have a
material impact on the Company's financial position and results of operations.

     In March 2000, the EITF reached a consensus on EITF Issue No. 00-2,
Accounting for Website Development Costs. This EITF provides guidance on whether
certain costs incurred to develop websites should be capitalized or expensed.
The consensus is effective for website development costs incurred for fiscal
quarters beginning after June 30, 2000. The Company does not expect the adoption
of the accounting presented in EITF Issue 00-2 to have a material impact on the
Company's financial position or results of operations.

     In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), Accounting
for Certain Transactions Involving Stock Compensation -- an Interpretation of
APB 25. This Interpretation clarifies (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of

                                      F-10
<PAGE>   42
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

a previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 is effective July
1, 2000; however, certain conclusions in this Interpretation cover specific
events that occur after either December 15, 1998, or January 12, 2000. FIN 44
was adopted during the year ended September 30, 2000; the adoption did not have
a material impact on the Company's financial position or results of operations.

2. INVENTORIES:

     Inventories consisted of the following:

<TABLE>
<CAPTION>
                                                         AS OF SEPTEMBER 30,
                                                       -----------------------
                                                          1999         2000
                                                       ----------   ----------
<S>                                                    <C>          <C>
Finished goods.......................................  $  948,393   $1,265,634
Work in process......................................   1,375,575    2,449,071
Raw materials........................................   2,740,811    3,713,190
                                                       ----------   ----------
                                                       $5,064,779   $7,427,895
                                                       ==========   ==========
</TABLE>

     Inventories are presented net of reserves for slow moving, excess and
obsolete inventory of $30,172 and $220,260 at September 30, 1999 and 2000,
respectively. Net changes in such reserves charged to cost of sales were
$30,172, zero, and $190,088 for the years ended September 30, 1998, 1999 and
2000, 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 $550,000, $585,000 and $580,000
for the years ended September 30, 1998, 1999 and 2000, respectively.

3. PROPERTY AND EQUIPMENT:

     Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                        AS OF SEPTEMBER 30,
                                                     -------------------------
                                                        1999          2000
                                                     -----------   -----------
<S>                                                  <C>           <C>
Machinery and equipment............................  $   690,579   $ 1,131,845
Computer equipment and software....................    1,021,840     1,768,758
Furniture and fixtures.............................      342,716       303,280
Transportation equipment...........................       26,767        27,100
Leasehold improvements.............................      141,728       153,207
Construction in process............................           --       911,964
                                                     -----------   -----------
                                                       2,223,630     4,296,154
Accumulated depreciation and amortization..........   (1,095,355)   (1,392,768)
                                                     -----------   -----------
                                                     $ 1,128,275   $ 2,903,386
                                                     ===========   ===========
</TABLE>

     Included in construction in process at September 30, 2000, is approximately
$863,000 in deposits towards tenant improvements the Company is funding at its
new facility which should be ready for occupancy in January, 2001.

     Depreciation and amortization expense was $240,098, $317,112 and $466,980
for the years September 30, 1998, 1999, and 2000, respectively.

                                      F-11
<PAGE>   43
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. ACCRUED EXPENSES:

     Accrued expenses consisted of the following:

<TABLE>
<CAPTION>
                                                         AS OF SEPTEMBER 30,
                                                       -----------------------
                                                          1999         2000
                                                       ----------   ----------
<S>                                                    <C>          <C>
  Employee bonuses...................................  $  873,157   $       --
  Payroll and other compensation.....................     725,063      681,287
  Compensated absences...............................     246,984      316,246
  Product warranty...................................      12,000       40,000
  Legal and professional fees........................      26,102       99,500
  Other accrued expenses.............................      87,760       43,252
                                                       ----------   ----------
                                                       $1,971,066   $1,180,285
                                                       ==========   ==========
</TABLE>

5. INCOME TAXES:

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

<TABLE>
<CAPTION>
                                                        YEAR ENDED SEPTEMBER 30,
                                                   -----------------------------------
                                                      1998         1999        2000
                                                   ----------   ----------   ---------
<S>                                                <C>          <C>          <C>
Current:
  Federal........................................  $  909,378   $1,269,555   $ 641,169
  State..........................................     164,669      229,931     166,704
                                                   ----------   ----------   ---------
                                                    1,074,077    1,499,486     807,873
                                                   ----------   ----------   ---------
Deferred:
  Federal........................................      40,201       40,051    (111,612)
  State..........................................       7,330        7,309     (15,667)
                                                   ----------   ----------   ---------
                                                       47,531       47,360    (127,279)
                                                   ----------   ----------   ---------
                                                   $1,121,608   $1,546,846   $ 680,594
                                                   ==========   ==========   =========
</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>
                                                         YEAR ENDED SEPTEMBER 30,
                                                    ----------------------------------
                                                       1998         1999        2000
                                                    ----------   ----------   --------
<S>                                                 <C>          <C>          <C>
Provision for income taxes at the statutory
  rate............................................  $  931,797   $1,296,554   $566,005
State income taxes, net of federal income tax
  benefit.........................................     172,029      237,240     99,684
Goodwill amortization.............................       8,764        8,764      8,764
Other.............................................       9,018        4,288      6,140
                                                    ----------   ----------   --------
Provision for income taxes........................  $1,121,608   $1,546,846   $680,594
                                                    ==========   ==========   ========
Effective income tax rate.........................        40.9%        40.6%      40.9%
                                                    ==========   ==========   ========
</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-12
<PAGE>   44
                                 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,
                                                          -------------------
                                                            1999       2000
                                                          --------   --------
<S>                                                       <C>        <C>
Deferred income tax assets:
  Allowance for doubtful accounts.......................  $  4,000   $ 14,584
  Accrued product warranty..............................     5,000     17,136
  Inventories...........................................    43,311    167,712
  Accrued compensated absences..........................    99,635     43,545
  Other.................................................    32,560     69,339
                                                          --------   --------
                                                           184,506    312,316
Deferred income tax liability:
  Property and equipment................................   (11,715)   (12,247)
                                                          --------   --------
          Net deferred income tax asset.................  $172,791   $300,069
                                                          ========   ========
</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.

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 are exercisable beginning on December 22, 2000 and
expire on December 22, 2004. The fair value of the warrants was estimated at
$455,043 using the Black-Sholes model using the following assumptions: risk-free
interest rate of 5.43%; expected life of 2 years; expected dividend rate of 0%;
and volatility of 85%. The fair value has been recorded as a cost of issuance in
the year ended September 30, 2000. No warrants were exercisable at September 30,
2000.

7. STOCK OPTION PLANS

     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
                                      F-13
<PAGE>   45
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 of 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 individuals 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.

     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-
Sholes model using the following assumptions: risk-free interest rate of 5.65%;
expected life of ten years; expected dividend rate of 0%; and volatility of 85%.
This amount has been charged to general and administrative expense during the
year ended September 30, 2000. No options had been exercised at September 30,
2000.

A summary of activity with respect to the Employee Plan and the Director Plan
for the year ended September 30, 2000 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 October 1, 1999
  Available.........................  1,650,000         --         --                  --       --
  Granted...........................   (991,000)   991,000     $3.06-$11.81    $5,153,688    $5.20
  Exercised.........................         --         --         --                  --       --
  Forfeited.........................    114,500   (114,500)       $5.00          (572,500)   $5.00
                                      ---------   --------                     ----------    -----
Outstanding at September 30, 2000...    773,500    876,500                     $4,581,188    $5.23
                                      =========   ========                     ==========    =====
</TABLE>

                                      F-14
<PAGE>   46
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding and
exercisable at September 30, 2000:

<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>
$3.06...................................     64,000         9.84        $ 3.06          --          --
$5.00-$5.50.............................    737,500         9.24        $ 5.08      50,000       $5.00
$11.81..................................     75,000         9.28        $11.81          --          --
                                            -------         ----        ------      ------       -----
                                            876,500         9.29        $ 5.23      50,000       $5.00
                                            =======         ====        ======      ======       =====
</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>
<S>                                                           <C>
Risk-free interest rate.....................................  6.25%
Expected life...............................................   6.5
Expected dividends..........................................    --
Volatility..................................................   118%
</TABLE>

The weighted average fair value of the options granted was $4.91 per share for
the year ended September 30, 2000.

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, 2000, consistent with the provisions of SFAS 123, the pro
forma net income would have been reported as follows:

<TABLE>
<S>                                                    <C>           <C>
Net income...........................................  As reported   $984,128
                                                       Pro forma        8,935
Earnings per share -- basic..........................  As reported   $   0.18
                                                       Pro forma           --
Earnings per share -- diluted........................  As reported   $   0.18
                                                       Pro forma           --
</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 $112,000, $136,000 and $171,000
for the years ended September 30, 1998, 1999 and 2000, respectively.

9. RELATED PARTY TRANSACTIONS:

     Sales to OYO USA and other affiliated companies were approximately $40,000,
$52,000 and $9,400 during the years ended September 30, 1998, 1999 and 2000,
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

                                      F-15
<PAGE>   47
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 $259,824 and
$300,109 for the years ended September 30, 1998 and 1999, respectively. 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. 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 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 co-chairman of one of the underwriters of the Company's initial public
offering in December 1999 is a Director of the Company. The underwriter holds
warrants to purchase 200,000 shares of common stock at $5.50 per share, which
are outstanding as of September 30, 2000. A Director of the Company is a member
of a law firm which provides the Company with legal services. Costs from this
law firm charged to operations and cost of issuance were $315,122 for the year
ended September 30, 2000.

10. COMMITMENTS:

  Operating Leases

     The Company leases certain office space and manufacturing facilities under
noncancelable operating leases. For fiscal years ending after September 30,
2000, the approximate future minimum rental commitments under noncancelable
operating leases were as follows:

<TABLE>
<CAPTION>
                                                           YEAR ENDING
                                                          SEPTEMBER 30,
                                                          -------------
<S>                                                       <C>
2001....................................................   $ 1,067,997
2002....................................................     1,253,652
2003....................................................     1,253,652
2004....................................................     1,253,652
2005....................................................     1,253,652
Thereafter..............................................     9,961,298
                                                           -----------
                                                           $16,043,903
                                                           ===========
</TABLE>

     The above lease commitments include the Company's new lease arrangement
which was entered into on March 3, 2000. The term of the new lease 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

                                      F-16
<PAGE>   48
                                 TRUETIME, INC.

                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

price index. The new premises are expected to be ready for occupancy in January
2001. Currently, the Company operates out of two facilities in Santa Rosa,
California; the main facility, which primary houses engineering and
manufacturing operations, and a second facility which temporarily houses our
sales, marketing, and administrative functions. This temporary facility is under
a month-to-month arrangement and will be vacated shortly.

     Rent expense for the years ended September 30, 1998, 1999 and 2000 was
approximately $191,000, $353,000 and $301,875, respectively.

11. 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>
                                                        YEAR ENDED SEPTEMBER 30,
                                                 ---------------------------------------
                                                    1998          1999          2000
                                                 -----------   -----------   -----------
<S>                                              <C>           <C>           <C>
Revenues from unaffiliated customers:
  United States................................  $13,445,000   $17,276,000   $17,137,000
  Foreign:
     Europe....................................    1,387,000     1,869,000     2,494,000
     Other.....................................    1,425,000     1,448,000     1,466,000
</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 products sales to the U.S. Government
comprised 23%, 28% and 36% of revenues during the years ended September 30,
1998, 1999 and 2000, respectively. Sales to one branch of the U.S. Government
comprised 13% of the Company's revenues for the year ended September 30, 2000.
In addition, sales to a private-sector customer comprised 10% of revenues for
the period ended September 30, 1998.

     There was one customer representing 12%, one customer representing 23% and
one customer representing 29% of the trade accounts receivable balances for the
years ended September 30, 1998, 1999 and 2000, respectively.

                                      F-17
<PAGE>   49

                                 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            -- Form of Employment Agreement entered into between the
                            Registrant and each executive officer of the Registrant
                            (incorporated by reference to Exhibit 10.4 of the
                            Registrant's Registration Statement on Form S-1 (Reg. No.
                            333-90269), as amended).
         10.5            -- 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).
         10.6            -- 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.
</TABLE>
<PAGE>   50

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                            DESCRIPTION OF DOCUMENTS
        -------                            ------------------------
<C>                      <S>
        *10.7            -- 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.
        *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.
        *27.1            -- Financial Data Schedule.
</TABLE>

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

+ Management Compensation or Incentive Plan

 * Filed herewith