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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|[X]  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
|    
|     |  | For the quarterly period ended June 30, 2002                                            
|    
|     |  | OR                                                                                      
|    
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 000-28473

TRUETIME, INC.

|                                  |  |                                                
|--------------------------------- |  | -----------------------------------------------
|DELAWARE
(State of
Incorporation) |  | 94-3343279
(I.R.S. Employer
Identification No.)

3750 Westwind Blvd.

SANTA ROSA, CALIFORNIA 95403

(707) 528-1230

(Address of principal executive offices)



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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 the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X ] No [   ]

There were 5,950,000 shares of the Registrants Common Stock outstanding
as of the close of business on August 12, 2002.



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TABLE OF CONTENTS



|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I: FINANCIAL INFORMATION
|                              | ITEM 1: Financial Statements and Notes                                                       
|                              | ITEM 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | ITEM 3: Quantitative and Qualitative Disclosures About Market Risk.                          
|PART II: OTHER INFORMATION   
|                              | ITEM 1. Legal Proceedings.                                                                   
|                              | ITEM 2. Changes in Securities and Use of Proceeds.                                           
|                              | ITEM 3. Defaults upon Senior Securities.                                                     
|                              | ITEM 4. Submission of Matters to a Vote of Security Holders.                                 
|                              | ITEM 5. Other Information.                                                                   
|                              | ITEM 6. Exhibits and Reports on Form 8-K.                                                    
|SIGNATURES                   



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##### Table of Contents



TRUETIME, INC.

|         |  |                                                                                       |  |  |    |  |        |  | 
|-------- |  | ------------------------------------------------------------------------------------- |  |  | -- |  | ------ |  | 
|         |  |                                                                                       |  |  |    |  | PAGE  
|         |  |                                                                                       |  |  |    |  | NUMBER
|         |  |                                                                                       |  |  |    |  |       
|        
|PART I.  |  | FINANCIAL INFORMATION                                                                 |  |  |    | 
|        
|Item 1.  |  | Financial Statements and Notes                                                        |  |  | 3  | 
|        
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |  | 10 | 
|        
|Item 3.  |  | Quantitative and Qualitative Disclosure about Market Risk                             |  |  | 20 | 
|        
|PART II. |  | OTHER INFORMATION                                                                     |  |  |    | 
|        
|Item 1.  |  | Legal Proceedings                                                                     |  |  | 21 | 
|        
|Item 2.  |  | Changes in Securities and Use of Proceeds                                             |  |  | 21 | 
|        
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  |  | 21 | 
|        
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  |  | 21 | 
|        
|Item 5.  |  | Other Information                                                                     |  |  | 21 | 
|        
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |  | 21 | 

2



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PART I: FINANCIAL
INFORMATION

ITEM 1:Financial Statements and Notes

TrueTime, Inc.
BALANCE SHEETS
(in thousands except share and per share amounts)

|                                     |                                                            |                                                                                                 |                            |                                            |        |                    |        |               |        |             |        | 
|------------------------------------ | ---------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------ | ------------------ | ------ | ------------- | ------ | ----------- | ------ | 
|                                     |                                                            |                                                                                                 |                            |                                            |        | September 30, 2001 |        | June 30, 2002
|                                     |                                                            |                                                                                                 |                            |                                            |        |                    |        |               |        | (unaudited)
|ASSETS                               |                                                            |                                                                                                 |                            |                                            |        |                    |        |              
|                                     | Current assets:                                            |                                                                                                 |                            |                                            |        |                    |        |               |       
|                                     |                                                            | Cash and cash equivalents                                                                       |                            | $                                          | 7,809  |                    |        | $             | 6,702  |            
|                                     |                                                            | Trade accounts receivable, net of allowance of $49 and $7                                       |                            |                                            | 3,450  |                    |        |               | 3,495  |            
|                                     |                                                            | Inventories                                                                                     |                            |                                            | 5,396  |                    |        |               | 4,623  |            
|                                     |                                                            | Prepaid expenses and other assets                                                               |                            |                                            | 569    |                    |        |               | 532    |            
|                                     |                                                            | Income taxes receivable                                                                         |                            |                                            | 635    |                    |        |               | 438    |            
|                                     |                                                            | Deferred income tax                                                                             |                            |                                            | 1,252  |                    |        |               |       |            
|                                     |                                                            |                                                                                                 |                            |                                            |        |                    |        |              
|                                     |                                                            |                                                                                                 | Total current assets       |                                            |        | 19,111             |        |               |        | 15,790      |       
|                                     | Property and equipment, net                                |                                                                                                 |                            | 4,094                                      |        |                    |        | 3,781         |       
|                                     | Prepaid expenses, non-current                              |                                                                                                 |                            | 53                                         |        |                    |        |              |       
|                                     | Goodwill, net of accumulated amortization of $266 and $286 |                                                                                                 |                            | 765                                        |        |                    |        | 745           |       
|                                     |                                                            |                                                                                                 |                            |                                            |        |                    |        |              
|                                     |                                                            |                                                                                                 |                            | Total assets                               |        | $                  | 24,023 |               |        | $           | 20,316 | 
|                                     |                                                            |                                                                                                 |                            |                                            |        |                    |        |              
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                            |                                                                                                 |                            |                                            |        |                    |        |              
|                                     | Current liabilities:                                       |                                                                                                 |                            |                                            |        |                    |        |               |       
|                                     |                                                            | Trade accounts payable                                                                          |                            | $                                          | 724    |                    |        | $             | 888    |            
|                                     |                                                            | Accrued expenses                                                                                |                            |                                            | 1,165  |                    |        |               | 871    |            
|                                     |                                                            | Capital lease, current                                                                          |                            |                                            | 172    |                    |        |               | 182    |            
|                                     |                                                            | Deferred revenue                                                                                |                            |                                            | 122    |                    |        |               | 118    |            
|                                     |                                                            | Lease loss accrual                                                                              |                            |                                            | 578    |                    |        |               | 618    |            
|                                     |                                                            |                                                                                                 |                            |                                            |        |                    |        |              
|                                     |                                                            |                                                                                                 | Total current liabilities  |                                            |        | 2,761              |        |               |        | 2,677       |       
|                                     | Non-Current liabilities:                                   |                                                                                                 |                            |                                            |        |                    |        |               |       
|                                     |                                                            | Deferred income taxes                                                                           |                            |                                            | 105    |                    |        |               |       |            
|                                     |                                                            | Capital lease                                                                                   |                            |                                            | 512    |                    |        |               | 374    |            
|                                     |                                                            | Deferred revenue                                                                                |                            |                                            | 66     |                    |        |               | 106    |            
|                                     |                                                            | Lease loss accrual                                                                              |                            |                                            | 421    |                    |        |               |       |            
|                                     |                                                            |                                                                                                 |                            |                                            |        |                    |        |              
|                                     |                                                            |                                                                                                 | Total liabilities          |                                            |        | 3,865              |        |               |        | 3,157       |       
|                                     |                                                            |                                                                                                 |                            |                                            |        |                    |        |              
|                                     | 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 authorized; 5,950,000
shares issued and outstanding    |                            |                                            | 60     |                    |        |               | 60     |            
|                                     |                                                            | Additional paid-in capital                                                                      |                            |                                            | 12,907 |                    |        |               | 12,912 |            
|                                     |                                                            | Additional paid-in capital  warrants                                                           |                            |                                            | 455    |                    |        |               | 455    |            
|                                     |                                                            | Retained earnings                                                                               |                            |                                            | 6,736  |                    |        |               | 3,732  |            
|                                     |                                                            |                                                                                                 |                            |                                            |        |                    |        |              
|                                     |                                                            |                                                                                                 | Total stockholders equity |                                            |        | 20,158             |        |               |        | 17,159      |       
|                                     |                                                            |                                                                                                 |                            |                                            |        |                    |        |              
|                                     |                                                            |                                                                                                 |                            | Total liabilities and stockholders equity |        | $                  | 24,023 |               |        | $           | 20,316 | 
|                                     |                                                            |                                                                                                 |                            |                                            |        |                    |        |              

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

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TrueTime, Inc.
STATEMENTS OF OPERATIONS
(in thousands except share and per share amounts)
(unaudited)

|                                             |  |                    |           |                   |  |               |           |               |  |   |           |   |  |   |           |  
|-------------------------------------------- |  | ------------------ | --------- | ----------------- |  | ------------- | --------- | ------------- |  | - | --------- | - |  | - | --------- | -
|                                             |  | Three months ended |           | Nine months ended
|                                             |  |                    |           |                  
|                                             |  | June 30, 2001      |           | June 30, 2002     |  | June 30, 2001 |           | June 30, 2002
|                                             |  |                    |           |                   |  |               |           |              
|Net sales                                    |  | $                  | 4,531     |                   |  | $             | 5,793     |               |  | $ | 14,034    |   |  | $ | 14,095    |  
|Cost of sales                                |  |                    | 2,760     |                   |  |               | 3,145     |               |  |   | 7,599     |   |  |   | 8,055     |  
|                                             |  |                    |           |                   |  |               |           |               |  |   |           |   |  |   |           |  
|Gross profit                                 |  |                    | 1,771     |                   |  |               | 2,648     |               |  |   | 6,435     |   |  |   | 6,040     |  
|Selling, general and administrative expenses |  |                    | 1,870     |                   |  |               | 1,691     |               |  |   | 5,788     |   |  |   | 4,954     |  
|Research & development                       |  |                    | 907       |                   |  |               | 956       |               |  |   | 2,611     |   |  |   | 2,663     |  
|Acquisition expenses                         |  |                    |          |                   |  |               | 175       |               |  |   |          |   |  |   | 325       |  
|                                             |  |                    |           |                   |  |               |           |               |  |   |           |   |  |   |           |  
|Loss from operations                         |  |                    | (1,006    | )                 |  |               | (174      | )             |  |   | (1,964    | ) |  |   | (1,902    | )
|Interest income                              |  |                    | 69        |                   |  |               | 28        |               |  |   | 259       |   |  |   | 102       |  
|Interest expense                             |  |                    | 10        |                   |  |               | 12        |               |  |   | 10        |   |  |   | 36        |  
|                                             |  |                    |           |                   |  |               |           |               |  |   |           |   |  |   |           |  
|Loss before taxes                            |  |                    | (947      | )                 |  |               | (158      | )             |  |   | (1,715    | ) |  |   | (1,836    | )
|Income taxes (Benefit)                       |  |                    | (422      | )                 |  |               | 1,763     |               |  |   | (729      | ) |  |   | 1,168     |  
|                                             |  |                    |           |                   |  |               |           |               |  |   |           |   |  |   |           |  
|Net loss                                     |  | $                  | (525      | )                 |  |               | ($1,921   | )             |  | $ | (986      | ) |  |   | ($3,004   | )
|                                             |  |                    |           |                   |  |               |           |               |  |   |           |   |  |   |           |  
|Weighted average shares outstanding  Basic  |  |                    | 5,950,000 |                   |  |               | 5,950,000 |               |  |   | 5,950,000 |   |  |   | 5,950,000 |  
|Basic loss per share                         |  |                    | ($0.09    | )                 |  |               | ($0.32    | )             |  |   | ($0.17    | ) |  |   | ($0.50    | )
|Diluted loss per share                       |  |                    | ($0.09    | )                 |  |               | ($0.32    | )             |  |   | ($0.17    | ) |  |   | ($0.50    | )

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

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TrueTime, Inc.
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

|                                               |                                                                                           |                                                        |                                   |        |                   |       |                   |        |       |      |  
|---------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------ | --------------------------------- | ------ | ----------------- | ----- | ----------------- | ------ | ----- | ---- | -
|                                               |                                                                                           |                                                        |                                   |        | Nine months ended |       | Nine months ended
|                                               |                                                                                           |                                                        |                                   |        | June 30, 2001     |       | June 30, 2002    
|                                               |                                                                                           |                                                        |                                   |        |                   |       |                  
|Cash flows from operating activities:          |                                                                                           |                                                        |                                   |        |                   |       |                   |       
|                                               | Net loss                                                                                  |                                                        | $                                 | (986   | )                 |       | $                 | (3,004 | )    
|                                               | Adjustments to reconcile net loss to net cash
provided by (used in) operating activities: |                                                        |                                   |        |                   |       |                   |        |      
|                                               |                                                                                           | Deferred income taxes                                  |                                   |        | (194              | )     |                   |        | 1,147 |     
|                                               |                                                                                           | Depreciation and amortization                          |                                   |        | 504               |       |                   |        | 683   |     
|                                               |                                                                                           | Loss on disposal of property and equipment             |                                   |        | 5                 |       |                   |        | 10    |     
|                                               |                                                                                           | Compensation expense related to options
granted        |                                   |        | 6                 |       |                   |        | 5     |     
|                                               |                                                                                           | Effects of changes in operating assets and liabilities |                                   |        |                   |       |                   |        |       |     
|                                               |                                                                                           |                                                        | Trade accounts receivables, net   |        |                   | 1,507 |                   |        |       | (45  | )
|                                               |                                                                                           |                                                        | Inventories                       |        |                   | 522   |                   |        |       | 773  |  
|                                               |                                                                                           |                                                        | Prepaid expenses and other assets |        |                   | (689  | )                 |        |       | 90   |  
|                                               |                                                                                           |                                                        | Income taxes                      |        |                   |      |                   |        |       | 197  |  
|                                               |                                                                                           |                                                        | Trade accounts payable            |        |                   | (412  | )                 |        |       | 164  |  
|                                               |                                                                                           |                                                        | Accrued expenses                  |        |                   | (245  | )                 |        |       | (294 | )
|                                               |                                                                                           |                                                        | Lease loss accrual                |        |                   |      |                   |        |       | (381 | )
|                                               |                                                                                           |                                                        | Deferred revenue                  |        |                   | 120   |                   |        |       | 36   |  
|                                               |                                                                                           |                                                        |                                   |        |                   |       |                   |       
|                                               | Net cash provided by (used in) operating activities                                       |                                                        |                                   | 138    |                   |       |                   | (619   | )    
|                                               |                                                                                           |                                                        |                                   |        |                   |       |                   |       
|Cash flows from investing activities:          |                                                                                           |                                                        |                                   |        |                   |       |                   |       
|                                               | Proceeds from sale of equipment                                                           |                                                        |                                   | 752    |                   |       |                   |       |      
|                                               | Capital expenditures                                                                      |                                                        |                                   | (1,774 | )                 |       |                   | (360   | )    
|                                               |                                                                                           |                                                        |                                   |        |                   |       |                   |       
|                                               | Net cash used in investing activities                                                     |                                                        |                                   | (1,022 | )                 |       |                   | (360   | )    
|                                               |                                                                                           |                                                        |                                   |        |                   |       |                   |       
|Cash flows from financing activities:          |                                                                                           |                                                        |                                   |        |                   |       |                   |       
|                                               | Principal payments on capital lease                                                       |                                                        |                                   | (27    | )                 |       |                   | (128   | )    
|                                               |                                                                                           |                                                        |                                   |        |                   |       |                   |       
|                                               | Net cash used in financing activities                                                     |                                                        |                                   | (27    | )                 |       |                   | (128   | )    
|                                               |                                                                                           |                                                        |                                   |        |                   |       |                   |       
|Decrease in cash and cash equivalents          |                                                                                           |                                                        | (911                              | )      |                   |       | (1,107            | )     
|Cash and cash equivalents, beginning of period |                                                                                           |                                                        | 7,884                             |        |                   |       | 7,809             |       
|                                               |                                                                                           |                                                        |                                   |        |                   |       |                   |       
|Cash and cash equivalents, end of period       |                                                                                           | $                                                      | 6,973                             |        |                   | $     | 6,702             |       
|                                               |                                                                                           |                                                        |                                   |        |                   |       |                   |       
|Non-cash financing activities:                 |                                                                                           |                                                        |                                   |        |                   |       |                   |       
|                                               | Assets acquired under capital lease:                                                      |                                                        | $                                 | 752    |                   |       | $                 |       |      
|                                               |                                                                                           |                                                        |                                   |        |                   |       |                   |       

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

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TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The balance sheet of TrueTime, Inc. at September 30, 2001 has been derived from
the Companys audited financial statements at that date. The balance sheet at
June 30, 2002, the statements of operations for the three months and nine
months ended June 30, 2001 and 2002, and the statements of cash flows for the
nine months ended June 30, 2001 and 2002 have been prepared by the Company,
unaudited. In the opinion of management, all adjustments consisting of normal
recurring adjustments, necessary to present fairly the financial position,
results of operations and cash flows have been made. The results of operations
for the three months and nine months ended June 30, 2001 and 2002 are not
necessarily indicative of the operating results for a full year or for future
operations.

Certain information and footnote disclosures normally included in financial
statements presented in accordance with accounting principles generally
accepted in the United States of America have been omitted. The accompanying
financial statements should be read in conjunction with the financial
statements and notes thereto contained in the Companys Annual Report on Form
10-K for the year ended September 30, 2001.

Certain prior year amounts have been reclassified to conform to the 2002
financial statement presentation. The reclassifications have no impact on
previously reported 2001 net loss, total cash flows or stockholders equity.

2. LOSS PER COMMON SHARE

The following table summarizes the calculation of net loss and weighted average
common shares and common equivalent shares outstanding for purposes of the
computation of losses per share:

TrueTime, Inc.
LOSS PER COMMON SHARE

|                                                                        |  |               |           |               |  |               |           |               |  |   |           |   |  |   |           |  
|----------------------------------------------------------------------- |  | ------------- | --------- | ------------- |  | ------------- | --------- | ------------- |  | - | --------- | - |  | - | --------- | -
|                                                                        |  | Three months  |           | Nine months  
|                                                                        |  |               |           |              
|                                                                        |  | June 30, 2001 |           | June 30, 2002 |  | June 30, 2001 |           | June 30, 2002
|                                                                        |  |               |           |               |  |               |           |              
|Net loss available to common stockholders (in
thousands)                |  | $             | (525      | )             |  | $             | (1,921    | )             |  | $ | (986      | ) |  | $ | (3,004    | )
|                                                                        |  |               |           |               |  |               |           |               |  |   |           |   |  |   |           |  
|Weighted average common shares
outstanding                              |  |               | 5,950,000 |               |  |               | 5,950,000 |               |  |   | 5,950,000 |   |  |   | 5,950,000 |  
|Weighted average common share equivalents
outstanding*                  |  |               |          |               |  |               |          |               |  |   |          |   |  |   |          |  
|                                                                        |  |               |           |               |  |               |           |               |  |   |           |   |  |   |           |  
|Weighted average common shares and common share
equivalents outstanding |  |               | 5,950,000 |               |  |               | 5,950,000 |               |  |   | 5,950,000 |   |  |   | 5,950,000 |  
|                                                                        |  |               |           |               |  |               |           |               |  |   |           |   |  |   |           |  
|Basic loss per common share                                             |  | $             | (0.09     | )             |  | $             | (0.32     | )             |  | $ | (0.17     | ) |  | $ | (0.50     | )
|                                                                        |  |               |           |               |  |               |           |               |  |   |           |   |  |   |           |  
|Diluted loss per common share                                           |  | $             | (0.09     | )             |  | $             | (0.32     | )             |  | $ | (0.17     | ) |  | $ | (0.50     | )
|                                                                        |  |               |           |               |  |               |           |               |  |   |           |   |  |   |           |  



| |  | Due to their anti-dilutive effect, additional warrants and options totaling
1,034,700 shares equivalent for both the three and nine months ended June 30,
2001 and additional warrants and options totaling 828,000 and 911,409 shares
equivalent for the three and nine months ended June 30, 2002, respectively, are
excluded from the calculation above.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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3. INVENTORIES

Inventories consisted of the following (in thousands), net of reserves of $805
at September 30, 2001 and $357 at June 30, 2002:

|                |  |                    |       |               |  |   |       | 
|--------------- |  | ------------------ | ----- | ------------- |  | - | ----- | 
|                |  | September 30, 2001 |       | June 30, 2002
|                |  |                    |       |              
|Finished goods  |  | $                  | 820   |               |  | $ | 682   | 
|Work in process |  |                    | 737   |               |  |   | 647   | 
|Raw material    |  |                    | 3,839 |               |  |   | 3,294 | 
|                |  |                    |       |               |  |   |       | 
|                |  | $                  | 5,396 |               |  | $ | 4,623 | 
|                |  |                    |       |               |  |   |       | 

4. RECENT ACCOUNTING PRONOUNCEMENTS

Business Combinations and Goodwill and Other Intangible Assets

On June 29, 2001, the Financial Accounting Standards Board (FASB) announced
the issuance of Statement of Financial Accounting Standards (SFAS) No. 142
(SFAS 142), Goodwill and Other Intangible Assets. The Company has goodwill
for which amortization has been recorded against in prior periods. Amortization
of goodwill per quarter is $6,444; amortization of goodwill for the year would
be $25,776. Under the current guidelines, the Company will adopt the provisions
of SFAS 142 on October 1, 2002. Currently, the Company is evaluating the impact
of adopting SFAS 142. Goodwill is carried at $745,668, the net book value.

Accounting for the Impairment or Disposal of Long-Lived Assets

On October 3, 2001, the FASB issued SFAS No. 144 (SFAS 144), Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001
and interim periods within those fiscal years. Early application is
encouraged.

This statement supercedes:



| |  |  | SFAS No.121 (SFAS 121)
 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of; and                  
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Accounting Principles Board (APB) No. 30  Reporting the Results
of Operations  Reporting the Effects of Disposal of a Segment of a
Business.

SFAS No.144 (SFAS 144) sets forth that if the expected undiscounted cash
flows from an asset are insufficient to recover its carrying cost and if the
carrying cost exceeds its estimated market value, then an impairment must be
recognized.

SFAS 144 also develops one accounting model for long-lived assets that are to
be disposed of by sale, as well as addressing the principal implementation
issues.

SFAS 144 requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less cost to sell.
Additionally, SFAS 144 expands the scope of discontinued operations that can be
distinguished from the rest of the entity and will be eliminated from the
ongoing operations of the entity in a disposal transaction.

The Company is in the process of evaluating the effect of SFAS 142 and 144 on
its financial statements. The impact of adopting these standards is not known
at this time.

SFAS No. 145, Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13,
and Technical Corrections as of April 2002 This Statement rescinds FASB
Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and
an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB
Statement No. 44, Accounting for Intangible Assets of
Motor Carriers.

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This Statement amends FASB Statement No. 13, Accounting for Leases, to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The Company has reviewed this
pronouncement and will consider its impact on any relevant transactions.

SFAS N6. 146, Accounting for Costs Associated with Exit or Disposal
Activities.This Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring).

This Statement applies to costs associated with an exit activity that does not
involve an entity newly acquired in a business combination or with a disposal
activity covered by FASB Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Those costs include, but are not limited to,
the following:



| | a. |  | Termination benefits provided to current employees that are
involuntarily terminated under the terms of a benefit arrangement that,
in substance, is not an ongoing benefit arrangement or an individual
deferred compensation contract (hereinafter referred to as one-time
termination benefits)
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Costs to terminate a contract that is not a capital lease                                                                                                                                                                                                                                         
|
| | c. |  | Costs to consolidate facilities or relocate employees.                                                                                                                                                                                                                                            

This Statement does not apply to costs associated with the retirement of a
long-lived asset covered by FASB Statement No. 143, Accounting for Asset
Retirement Obligations. The impact of this pronouncement on the Companys
financial statements is not known at this time.

5. RESTRUCTURING COSTS

In July 2001, the Company adopted a restructuring plan which included the
abandonment and physical move from approximately 34,500 square feet of its
existing leased facility at Westwind Blvd. and as a result the Company recorded
a lease loss accrual of approximately $998,000 on September 30, 2001. The
accrual represents costs recognized pursuant to Emerging Issues Task Force
(EITF) No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred
in a Restructuring)and SAB No. 100, Restructuring
and Impairment Charges.
The Company committed to a sufficiently detailed plan that identified
significant actions to be taken and the activities that would not be continued
(including the method of disposition and location of such activities). The
expected date of completion of the plan was December 15, 2001; the Company
completed the plan on December 13, 2001. During the three months ended June
30, 2002, leasehold expenses in the amount of $173,382, which were associated
with the abandoned facility space were charged against the lease loss accrual.
Approximately $93,765 and $206,759 of this charge would have been recognized in
cost of goods sold and $79,617 and $173,563 would have been recognized in
operating expenses for the three months and nine months ended June 30, 2002,
respectively.

The following table summarizes the activity in the lease loss accrual (in
thousands) :

|                                         |                                 |   |     |     | 
|---------------------------------------- | ------------------------------- | - | --- | --- | 
|Lease loss accrual at September 30, 2001 |                                 | $ | 999 |    
|Less:                                    |                                 |   |     |    
|                                         | Lease payments                  |   |     | 343 | 
|                                         | Building utilities, maintenance |   |     | 38  | 
|                                         |                                 |   |     |    
|Lease loss accrual at June 30, 2002      |                                 | $ | 618 |    
|                                         |                                 |   |     |    

6. ACCOUNTING FOR INCOME TAXES

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The difference between the effective tax rate reflected in the total provision
for income taxes and the statutory federal rate of 34% relate primarily to
permanent differences, limitations on state net operating loss carryforwards,
tax credits, other adjustments, and recording a valuation allowance against our
net deferred tax asset.

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

|                                                  |                                 |       |                               |      |                    |       |               |       |      |   | 
|------------------------------------------------- | ------------------------------- | ----- | ----------------------------- | ---- | ------------------ | ----- | ------------- | ----- | ---- | - | 
|                                                  |                                 |       |                               |      | (in thousands)    
|                                                  |                                 |       |                               |      | September 30, 2001 |       | June 30, 2002
|                                                  |                                 |       |                               |      |                    |       |              
|Deferred income tax assets (current liabilities): |                                 |       |                               |      |                    |       |               |      
|                                                  | Allowance for doubtful accounts |       | $                             | 21   |                    |       | $             | 3     |     
|                                                  | Accrued product warranty        |       |                               | 16   |                    |       |               | 15    |     
|                                                  | Inventories                     |       |                               | 381  |                    |       |               | 152   |     
|                                                  | Accrued compensated absences    |       |                               | 102  |                    |       |               | 103   |     
|                                                  | NOL carryforward                |       |                               | 439  |                    |       |               | 1,435 |     
|                                                  | Lease loss accrual              |       |                               | 428  |                    |       |               | 264   |     
|                                                  | Other                           |       |                               | (135 | )                  |       |               | (105  | )   
|                                                  |                                 |       |                               |      |                    |       |               |      
|                                                  |                                 |       | 1,252                         |      |                    |       | 1,867         |      
|Deferred income tax liability:                    |                                 |       |                               |      |                    |       |               |      
|                                                  |                                 | Other |                               |      | (105               | )     |               |       | (117 | )
|                                                  |                                 |       |                               |      |                    |       |               |      
|Less valuation allowance                          |                                 |       |                              |      |                    |       | (1,750        | )    
|                                                  |                                 |       | Net deferred income tax asset |      | $                  | 1,147 |               |       | $    | 0 | 
|                                                  |                                 |       |                               |      |                    |       |               |      

At June 30, 2002, the Company had available net operating loss (NOL)
carryforwards of approximately $3.5 million and $2.7 million for federal and
state income tax purposes, respectively, expiring beginning in 2020 (federal)
and 2010 (state).
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. Realization is dependent on generating sufficient taxable income
prior to expiration of the loss carryforwards or the possibility of carrying
back current Federal losses to prior profitable years. While operating results
have improved significantly over the previous quarter, net operating losses
continued to increase this quarter as they have over the past six quarters.
These growing net operating losses, coupled with the Companys inability to
meet short term projected profit levels has prompted management to record a
100% valuation allowance against its net deferred tax asset because it is more
likely than not that some portion or all of this deferred tax asset will not be
realized.

7. OTHER EVENTS

On March 27, 2002, the Company publicly announced that it had entered into a
definitive merger agreement with Symmetricom, Inc. (Symmetricom) pursuant to
which Symmetricom will exchange 2.6 million shares of Symmetricom common stock
and $5 million in cash, subject to certain possible downward adjustments
relating to costs associated with the transaction, for all the outstanding
shares of TrueTime. The Company will become a wholly owned subsidiary of
Symmetricom under the outline of the definitive agreement. The consummation of
the merger is subject to customary conditions, including approval of the
stockholders of the Company. The proposed merger will be a taxable
transaction. The Company expensed fees related to the merger in the amount of
$0.175 million and $0.325 million during the three months ended June 30, 2002
and nine months ended June 30, 2002, respectively.

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ITEM 2:Managements Discussion and Analysis of Financial Condition and
Results of Operations

The following analysis of the financial condition and results of operations of
TrueTime, Inc. should be read in conjunction with the Financial Statements and
Notes related thereto included elsewhere in this Form 10-Q.

General

TrueTime designs, develops, manufactures, markets, sells and services
precision time and precision frequency 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                                          

TrueTime, Inc. began trading on the Nasdaq National Market on December 17,
1999, under the symbol TRUE.

Critical Accounting Policies

TrueTimes discussion and analysis of its financial condition and results
of operations are based upon TrueTimes financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the use
of estimates that affect the reported amounts of assets, liabilities, revenues
and expenses. TrueTime evaluates its estimates on an on-going basis, including
estimates for bad debts, inventories and warranties. TrueTime bases its
estimates on historical experience and on various other actual information and
assumptions that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions. TrueTime believes the following critical accounting policies
affect its more significant estimates used in the preparations of its financial
statements.

Inventory. TrueTime writes down its inventory for obsolete or
unmarketable inventory equal to the difference between the cost of inventory
and its estimated market value. These write-downs are based on assumptions
about future demand and market conditions. If actual market conditions change
from those projected by management, additional inventory write-downs may be
required

Lease Related Impairment Loss. As discussed in Note 5 of TrueTimes
condensed financial statements, in the fourth quarter of 2001 we recorded a
significant restructuring charge in connection with our abandonment of an
operating lease as part of a program to restructure our operations and related
facilities. Lease abandonment costs were estimated to include the impairment of
leasehold improvements and remaining lease liabilities and brokerage fees,
offset by estimated sublease income. Estimates related to sublease costs and
income are based on assumptions about the time period required to locate and
contract with suitable sub-lessees as well as the sublease rates that can be
achieved, as determined by using market trend information provided by a
commercial real estate brokerage we retained. We review these estimates each
reporting period; to the extent that these assumptions change due to market
conditions, the ultimate restructuring expenses for abandonment of this
facility could vary by material amounts.

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Bad Debts. TrueTime records allowances for doubtful accounts for
estimated losses resulting from the inability to collect on certain customer
accounts. We analyze specific accounts receivable, historical bad debts,
customer concentrations, customer credit-worthiness, current economic trends
and changes in our customer payment history when evaluating the adequacy of the
allowance for doubtful accounts. Changes in the above factors can have a
material impact on actual bad debts incurred. If the financial condition of
TrueTimes customers deteriorated, resulting in their inability to make further
payments on their accounts, additional allowances may be required.

Accounting for Income Taxes. In conjunction with preparing our condensed
financial statements, we must estimate our income taxes in each of the
jurisdictions in which we operate. This process involves estimating our actual
current tax expense together with assessing temporary differences resulting
from differing treatment of items for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which are included
in our condensed balance sheets. We must then assess the likelihood that our
deferred tax assets will be recovered from future taxable income and to the
extent we believe that recovery is not likely, we must establish a valuation
allowance. To the extent we establish a valuation allowance or increase this
allowance in a period, we must include an expense within the tax provision in
the statement of operations. Significant management judgment is required in
determining our provision for income taxes, our deferred tax assets and
liabilities and any valuation allowance recorded against our net deferred tax
assets. On June 30, 2002, a 100% valuation allowance was booked against our
deferred tax assets of $1.98 million and deferred tax liabilities of $0.23
million. While operating results have improved over the previous quarters, net
operating losses continued to increase this quarter as they have over the past
six quarters. These growing net operating losses, coupled with the Companys
inability to meet short term projected profit levels has prompted management to
record a 100% valuation allowance against our net deferred tax asset because it
is more likely than not that some portion or all of this deferred tax asset
will not be realized. A discussion of our income tax provision and the
components of our deferred tax assets and liabilities can be found in Note 6 to
our condensed financial statements.

Warranties. TrueTime records a provision for the estimated cost of
product warranties at the time the revenue is recognized. Although TrueTime
engages in product quality programs and processes and is ISO Certified,
TrueTimes product warranty obligation can be affected by failure rates,
material usage and service delivery costs incurred in correcting a product
failure. Should product failure rates change, revisions to the estimated
warranty liability would be required.

Long lived Assets. TrueTime is required to regularly review all of its
long-lived assets, including goodwill and other intangible assets, for
impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors we consider important which
could trigger an impairment review include, but are not limited to, significant
under-performance relative to historical or projected future operating results,
significant changes in the manner of use of the acquired assets or the strategy
for our overall business, significant negative industry or economic trends, a
significant decline in our stock price for a sustained period, and our market
capitalization relative to net book value. When we determine that an impairment
review is necessary based upon the existence of one or more of the above
indicators of impairment, we measure any impairment based on a projected
undiscounted cash flow method. Significant judgment is required in the
development of projected cash flows for these purposes including assumptions
regarding the appropriate level of aggregation of cash flows, their term as
well as the underlying forecasts of expected future revenue and expense. We
have not recorded significant impairment charges for goodwill and intangible
assets in the past. However, to the extent that events or circumstances cause
our assumptions to change, we may be required to record a charge which could be
material.

11



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Results of Operations

The following table sets forth for the three months and nine months ended
June 30, 2001 and 2002, the percentage of income statement items to total
sales:

|                         |                                     |                          |       |                    |      |                   |       |      |      |      |       |      |      |  |       |      |      | 
|------------------------ | ----------------------------------- | ------------------------ | ----- | ------------------ | ---- | ----------------- | ----- | ---- | ---- | ---- | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                         |                                     |                          |       | Three Months Ended |      | Nine Months Ended
|                         |                                     |                          |       | June 30,           |      | June 30,         
|                         |                                     |                          |       |                    |      |                  
|                         |                                     |                          |       | 2001               |      | 2002              |       | 2001 |      | 2002
|                         |                                     |                          |       |                    |      |                   |       |      |      |     
|Sales                    |                                     |                          | 100.0 | %                  |      |                   | 100.0 | %    |      |      | 100.0 | %    |      |  | 100.0 | %   
|Cost of sales            |                                     |                          | 60.9  |                    |      |                   | 54.3  |      |      |      | 54.1  |      |      |  | 57.1  |     
|Gross profit             |                                     |                          | 39.1  |                    |      |                   | 45.7  |      |      |      | 45.9  |      |      |  | 42.9  |     
|Operating expenses:      |                                     |                          |       |                    |      |                   |       |      |      |      |       |      |      |  |       |     
|                         | Selling, general and administrative |                          |       | 41.3               |      |                   |       | 29.2 |      |      |       | 41.2 |      |  |       | 35.1 |     
|                         | Research and development            |                          |       | 20.0               |      |                   |       | 16.5 |      |      |       | 18.6 |      |  |       | 18.9 |     
|                         | Acquisition expenses                |                          |       |                   |      |                   |       | 3.0  |      |      |       |     |      |  |       | 2.3  |     
|                         |                                     | Total operating expenses |       |                    | 61.3 |                   |       |      | 48.7 |      |       |      | 59.8 |  |       |      | 56.3 | 
|Loss from operations     |                                     |                          | (22.2 | )                  |      |                   | (3.0  | )    |      |      | (14.0 | )    |      |  | (13.5 | )   
|Interest income          |                                     |                          | 1.5   |                    |      |                   | 0.5   |      |      |      | 1.8   |      |      |  | 0.7   |     
|Interest expense         |                                     |                          | 0.2   |                    |      |                   | 0.2   |      |      |      | 0.1   |      |      |  | 0.3   |     
|Loss before income taxes |                                     |                          | (20.9 | )                  |      |                   | (2.7  | )    |      |      | (12.2 | )    |      |  | (13.0 | )   
|Income taxes             |                                     |                          | (9.3  | )                  |      |                   | (30.4 | )    |      |      | (5.2  | )    |      |  | (8.3  | )   
|Net loss                 |                                     |                          | (11.6 | )%                 |      |                   | (33.2 | )%   |      |      | (7.0  | )%   |      |  | (21.3 | )%  

Three Months and Nine Months Ended June 30, 2002 compared to Three Months and
Nine Months Ended June 30, 2001

Sales. Sales for the quarter ended June 30, 2002 were $5.8 million, an
increase of $1.3 million, or 28.9%, from $4.5 million for the quarter ended
June 30, 2001. The increase in sales from the comparable period of the prior
year is attributed to the timing of our shipments to our government customer
base, as well as an increase in orders as evidenced by our increased backlog
during the quarter. Sales to government and indirect government customers
totaled 63.5% of total sales for the quarter ended June 30, 2002 compared with
51.2% for the comparable period in 2001. International shipments for the three
months ended June 30, 2002, represented 9.8% of total sales compared with 14.1%
for the comparable period in 2001.

For the nine months ended June 30, 2002, sales were $14.1 million, an increase
of $0.1 million, or 0.7%, from $14.0 million for the nine months ended June 30,
2001. Higher sales were the result of the timing of shipments. Actual backlog
increased by $2.5 million from the period ending June 30, 2001. Sales to
government and indirect government customers totaled 55% of total sales for the
nine months ended June 30, 2002 compared with 47.3% for the comparable period
in 2001. International shipments for the nine months ended June 30, 2002
represented 15% of total sales compared with 16.3% for the comparable period in
2001.

Cost of Sales. Cost of sales for the three months ended June 30, 2002 was
$3.1 million, an increase of $0.3 million, or 10.7%, from $2.8 million for the
three months ended June 30, 2001. Cost of sales decreased as a percentage of
total sales to 54.3% in the three months ended June 30, 2002 from 60.9% in the
three months ended June 30, 2001. This percentage decrease is primarily
related to the following:



| |  |  | increased sales over the prior year resulted in lower volume
and labor variances. ($0.1 million or 33.3% of total decrease)                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | lower wages and benefits due to a planned reduction in
workforce in the manufacturing and procurement areas ($0.08 million
or 26.7% of decrease)                                           
|
| |  |  | lower facility costs in manufacturing due to the abandonment of
the 2nd floor of our building in December 2001 and recognition of
the lease loss accrual ($0.06 million or 20% of decrease)

12



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| |  |  |  lower outside engineering consultant costs for product
modifications ($0.05 million or 16% of decrease).
| |  |  | ----------------------------------------------------------------------------------------------------------

Cost of sales for the nine months ended June 30, 2002 was $8.0 million, an
increase of $0.4 million or 5.3% from $7.6 million in the nine months ended
June 30, 2001. Cost of sales as a percentage of total sales increased to 57.1%
of sales in the nine months ended June 30, 2002 from 54.1% in the nine months
ended June 30, 2001. This percentage increase is primarily related to the
following:



| |  |  | decreasing inventories and lower than planned sales resulted in
lower production volumes, hence labor and overhead were applied to
inventory at a rate lower than planned. This resulted in unabsorbed
manufacturing overhead expenses ($0.65 million )
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | increase in inventory obsolescence over prior year period
($0.04 million )                                                                                                                                                                             
|
| |  |  | offset by lower wages and benefit costs due to a planned
reduction in force ($0.2 million )                                                                                                                                                            
|
| |  |  | offset by decrease in facility costs in manufacturing for the
nine month period due abandonment of a portion of the building in
December, 2001 ($0.17 million)                                                                                         

Operating Expenses. There was minimal change in operating expenses for
the three months ended June 30, 2002 from expenses of $2.8 million for the
three months ended June 30, 2001. Operating expenses decreased as a percentage
of total sales to 48.7% in the three months ended June 30, 2002 from 61.3% in
the three months ended June 30, 2001. Changes in the components of the total
operating expense amount compared to the prior year are primarily related to
the following:



| |  |  | lower wages and benefits due to a planned reduction in
workforce ($0.3 million),                                  
| | - |  | ------------------------------------------------------------------------------------------------------------------
|
| |  |  | decreased facility costs due to the abandonment of a portion of
the building in December, 2001 ($0.12 million) and
|
| |  |  | lower administrative costs of being a public company due to
increased in-house efficiencies ($0.05 million),      
|
| |  |  | Offset by costs associated with our pending merger with a subsidiary of Symmetricom Inc. ($0.175 million),        
|
| |  |  | Increased consulting and advertising costs due to new product development ($0.25 million), and                    
|
| |  |  | higher commissions due to increased sales over the same period last
year ($0.08 million).                         

Operating expenses for the nine months ended June 30, 2002 were $7.9 million, a
decrease of $0.5 million, or 6.0% from $8.4 million for the nine months ended
June 30, 2001. Operating expenses decreased to 56.3% of sales in the nine
months ended June 30, 2002 from 59.8% in the nine months ended June 30, 2001.
Decreases in operating expenses compared to the same nine-month period last
year are primarily related to the following:



| |  |  | lower wages and benefits due to a planned reduction in
workforce ($0.55 million)                                                              
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | decreased facility costs due to the abandonment of a portion of
the building in December, 2001 and reallocation of floor space ($0.28
million)
|
| |  |  | lower administrative costs of being a public company due to
increased in-house efficiencies ($0.14 million)                                   
|
| |  |  | lower sales commissions for the year due to sales channel and
geographic mix ($0.1 million)                                                   
|
| |  |  | Off setting these decreases were costs associated with our
pending merger with a subsidiary of Symmetricom Inc. ($0.325
million), and         

13



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| |  |  |  Increased consulting and advertising costs due to new product
development ($0.36 million)
| |  |  | -------------------------------------------------------------------------------------------

Interest Income. Interest income for the three months ended June 30, 2002
was $0.03 million, a decrease of $0.04 million, or 57.1%, from $0.07 million
for the three months ended June 30, 2001. Interest income for the nine months
ended June 30, 2002 was $0.10 million, a decrease of $0.16 million, or 61.5%,
from $0.26 million for the nine months ended June 30, 2001. Such decreases are
the result of lower interest rates and a decrease in cash from the same periods
in the prior year.

Interest Expense.Interest expense for the three months and nine months
ended June 30, 2002 was $0.01 million and $0.04 million, respectively.
Interest expense for the three months and nine months ended June 30, 2001 was
$0.1 million. Interest expense was the result of the Company entering into a
$0.75 million sale leaseback transaction in April 2001.

Income Taxes. Income taxes for the three and nine months ended June 30,
2002 were impacted by $1.75 million, the result of booking of a 100% valuation
allowance against our net deferred tax asset.. The taxes include federal and
state income taxes and are included on an estimated basis for the current year.

On June 30, 2002, TrueTime has a gross deferred tax asset of $1.7 million for
which a full valuation allowance has been recorded against it. The ultimate
realization of this deferred tax asset depends on our ability to generate
sufficient taxable income in the future. For a number of years prior to the
second quarter of fiscal 2001, TrueTime had consistently generated profits on
both a quarterly and annual basis. In light of our recent unprofitable
quarters, we have decided to recognize a 100% allowance against this asset.

Currently, future pretax net income required to realize our net deferred tax
asset approximates $4.2 million in total during the net operating loss
carryforward period. Historically, our pretax net income has not materially
differed from our taxable income. Our effective tax rate has historically
approximated 40%, with reductions in recent quarters due to limitations in
utilization of state net operating losses, tax credits, permanent differences,
and the Company recording a full valuation allowance against its net deferred
tax asset.

At June 30, 2002, TrueTime had available net operating loss (NOL) carryforwards
of approximately $3.5 million and $2.7 million for federal and state income tax
purposes, respectively, expiring as follows:

|     |  |              |  |             
|---- |  | ------------ |  | ------------
|     |  | Federal      |  | State       
|2010 |  |              |  | $1.3 million
|2011 |  |              |  | 1.4 million 
|2020 |  | $1.3 million |  |             
|2021 |  | $2.2 million |  |             

Liquidity and Sources of Capital

At June 30, 2002, our cash and cash equivalents were $6.7 million compared
to $7.8 million on September 30, 2001.

For the nine month period ended June 30, 2002, operating activities used
$0.62 million. Net loss for the nine month period was $3.0 million which
includes a full valuation allowance against our net deferred tax asset of $1.75
million. Cash used by operating activities include $0.29 million in decreased
accrued expenses which included lower accrued sales commissions and lower
payroll accruals due to timing of payments, $0.38 million in decreased lease
loss accrual. The largest

14



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##### Table of Contents



contributors of cash include $0.77 million provided by a reduction in
inventories, $0.20 million provided by the reduction of income taxes
receivable, and $0.16 provided by decreased trade accounts payable.

For the nine month period ended June 30, 2002, investing activities used
$0.36 million, all for capital expenditures. These investments were primarily
used for the purchase of electronic test equipment. Anticipated capital
expenditures for the next three months are $0.15 million, primarily in the area
of electronic test equipment and enterprise software.

For the nine month period ended June 30, 2002, financing activities used
$0.13 million. The decrease was the result of the principal payments on the
sale leaseback transaction made in fiscal 2001.

Mergers and Acquisitions

On March 27, 2002, we publicly announced that we had entered into a
definitive merger agreement with Symmetricom, Inc. (Symmetricom) pursuant to
which Symmetricom will exchange 2.6 million shares of Symmetricom common stock
and $5 million in cash, subject to certain possible downward adjustments
relating to costs associated with the transaction, for all the outstanding
shares of TrueTime. TrueTime will become a wholly owned subsidiary of
Symmetricom under the outline of the definitive agreement. The consummation of
the merger is subject to customary conditions, including approval of the
stockholders of TrueTime. The proposed merger will be a taxable transaction.
Consummation of the merger is expected to take place in the latter part of the
fourth quarter of fiscal year 2002 or early in the first quarter of fiscal year
2003.

Recent Accounting Pronouncements

On June 29, 2001, the Financial Accounting Standards Board (FASB or the
Board) unanimously voted in favor of issuing Statement No. 142 (SFAS 142),
Goodwill and Other Intangible Assets.

SFAS 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition (i.e., the post-acquisition accounting).
SFAS 142 supercedes APB No.17, Intangible Assets.

The most significant changes made by SFAS 142 are:

| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | -  Goodwill and indefinite lived intangible assets will no longer be
amortized and will be tested for impairment at least annually.
|
| | -  Goodwill will be tested at least annually at the reporting unit
level.                                                          
|
| | -  The amortization period of intangible assets with finite lives is no
longer limited to forty years                              

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

The Company has goodwill for which amortization has been recorded against
in prior periods. Amortization of goodwill per quarter is $6,444; amortization
of goodwill for the year would be $25,776. Under the current guidelines, the
Company will adopt the provisions of SFAS 142 on October 1, 2002. At this time
the Companys management is evaluating the impact of adopting SFAS 142. The
impact of adopting this standard is not known at this time. Currently, goodwill
is carried at $745,668, the net book value.

On October 3, 2001, the FASB issued SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001
and interim periods within those fiscal years. Early application is
encouraged.

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This statement supercedes:



| |  |  | SFAS No. 121  Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of; and
| | - |  | --------------------------------------------------------------------------------------------------------------------
|
| |  |  | APB No. 30  Reporting the Results of Operations  Reporting the
Effects of Disposal of a Segment of a Business.  

SFAS 144 sets forth that if the expected undiscounted cash flows from an
asset are insufficient to recover its carrying cost and if the carrying cost
exceeds its estimated market value, then an impairment must be recognized.

SFAS 144 also develops one accounting model for long-lived assets that are
to be disposed of by sale, as well as addressing the principal implementation
issues.

SFAS 144 requires that long-lived assets that are to be disposed of by
sale be measured at the lower of book value or fair value less cost to sell.
Additionally, SFAS 144 expands the scope of discontinued operations that can be
distinguished from the rest of the entity and will be eliminated from the
ongoing operations of the entity in a disposal transaction. At this time the
Companys management is evaluating the impact of adopting SFAS 144. The impact
of adopting this standard is not known at this time.

SFAS No. 145, Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13,
and Technical Corrections as of April 2002 This Statement rescinds FASB
Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and
an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB
Statement No. 44, Accounting for Intangible Assets of
Motor Carriers. This
Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate
an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. This
Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The Company has reviewed this
pronouncement and will consider its impact on any relevant transactions.

SFAS N6. 146, Accounting for Costs Associated with Exit or Disposal
Activities.This Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring).

This Statement applies to costs associated with an exit activity that does not
involve an entity newly acquired in a business combination or with a disposal
activity covered by FASB Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Those costs include, but are not limited to,
the following:



| | a. |  | Termination benefits provided to current employees that are
involuntarily terminated under the terms of a benefit arrangement that,
in substance, is not an ongoing benefit arrangement or an individual
deferred compensation contract (hereinafter referred to as one-time
termination benefits)
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | Costs to terminate a contract that is not a capital lease                                                                                                                                                                                                                                         
|
| | c. |  | Costs to consolidate facilities or relocate employees.                                                                                                                                                                                                                                            

This Statement does not apply to costs associated with the retirement of a
long-lived asset covered by FASB Statement No. 143, Accounting for Asset
Retirement Obligations.The impact of this pronouncement on the Companys
financial statements is not known at this time.

Forward Looking Statements

Certain of the statements contained in this document and in documents
incorporated by reference herein, including those made under the caption
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

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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, objectives for future operations, and assessments of
our ability to realize in the future our tax deferred assets 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 and in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2001 filed with the Securities and Exchange
Commission, under the headings Forward Looking Statements and Risk Factors
and elsewhere. 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.

Risk Factors

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

Our business will suffer if we continue to experience a general economic
slowdown in the U.S., particularly as that slowdown affects technology markets.

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

Our business will suffer if we are unable to keep up with rapid
technological change and product obsolescence.

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

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

We rely on a limited number of suppliers for certain critical components,
and we use a single supplier for most of our GPS-based components, making us
subject to supply and quality control problems.

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

Currently, Trimble Navigation Limited provides most of our GPS receivers,
a key component for our older GPS-based products. In addition, Trimble has
begun competing in markets similar to our own. While there can be no assurances
that we can ensure continuous supply of these components, we have partially
mitigated this risk by developing and integrating our own proprietary GPS
receiver technology that is based upon widely available GPS chip sets. Further,
this technology has

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

We face the risk of litigation alleging our infringement of other peoples
intellectual property rights.

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

Our competitors may use their greater resources and broader product
offerings to increase competition and reduce our sales and profitability.

Many of our existing and potential competitors have substantially greater
marketing, financial and technical resources than we have. In addition, some of
our competitors have broader product offerings and manufacture internally
certain critical components of time and frequency products. Currently, we do
not have a complete offering of precise time and frequency products nor do we
manufacture internally certain critical components, placing us at a
disadvantage to some of our competitors. 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 95% of our orders come through our 31 domestic and worldwide
sales representative offices. Many of these representatives act as relationship
brokers and the loss of any key representatives could have a negative effect on
our revenue.

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We may be unable to attract and retain key employees, delaying product
development and manufacturing.

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

Many of our key customers are units of the U.S. government and entities
that are dependent upon U.S. government funding for purchases, therefore,
decreased government spending could adversely affect our business.

Our defense, military and aerospace based business depends largely on U.S.
government expenditures, whether directly with us or indirectly with our
customers who contract with the U.S. government. Sales to U.S. government
units and indirect government customers have accounted for approximately 28%,
36% and 53% of our annual revenues for fiscal years ended 1999, 2000 and 2001,
respectively. There can be no assurances as to whether future governmental
spending will adequately support our business in those areas, and substantial
decreases in government spending or loss of U.S. governmental customers could
materially and adversely affect our operations.

Our market is segmented into a limited number of customer groups, the loss
or change of which could significantly decrease our sales.

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

The failure of GPS and other time and frequency references would cause our
products to fail to perform to specification.

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

Our products could fail to perform according to specification or prove to
be unreliable, causing damage to our customer relationships and industry
reputation and resulting in loss of sales.

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

Fluctuations in quarterly performance can result in increases in our
inventory and related carrying costs, can diminish our operating results and
cash flow and can result in a lower TrueTime stock price.

Historically, the rate of incoming orders for our products has varied
substantially from quarter to quarter. In past fiscal years, our highest sales
quarter has been as much as 250% of our lowest sales quarter. This quarter to
quarter variation is not seasonal or predictable. We attempt to accurately
forecast orders for our products and commence purchasing and manufacturing
prior to the receipt of such orders. However, it is highly unlikely that we
will consistently accurately forecast the timing and rate of orders. The flow
of orders (or lack thereof) from governmental agencies has been particularly
difficult to forecast in recent periods. This aspect of our business makes our
planning inexact and, in turn, affects our shipments, costs, inventories,
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,
19Table of Contents

many of our products require significant manufacturing time, making it
difficult to increase production on short notice. If we are unable to satisfy
unexpected customer orders, our business and customer relationships could
suffer.

Carrying values of inventories of our products and components therefore
may be subject to periodic write-down, adversely affecting our operations.

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

Carrying values of intangible assets may be subject to periodic
write-down, adversely affecting our operations.

Goodwill and other intangible assets are reviewed for impairment whenever
an event or change in circumstances indicates that the carrying amount may not
be recoverable. If the carrying value of our intangible assets exceeds the
expected undiscounted future cash flows, a loss would be recognized to the
extent the carrying amount of assets exceeds their fair values. This loss may
negatively impact our results of operation. While the Company would not
experience a loss under current accounting standards, the Company may
experience an impairment write down upon the adoption of SFAS 142.

Failure to consummate the pending merger with a subsidiary of Symmetricom
Inc. could cause our stock price to decline.

In the event that our pending merger is not consummated, TrueTimes stock
would uncouple from the exchange ratio established in the merger agreement.
This uncoupling may negatively affect TrueTimes current market valuation and
stock price.




ITEM 3:Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks related to changes in interest rates in the
future. Our cash is invested in short-term financial instruments, the value of
which is subject to interest rate risk and could fall if interest rates rise.
These short-term instruments are in low-yield, high quality investments. The
decline in interest rates during the past year resulted in a decrease in
interest income on these investments of approximately $20,000 and $80,000 for
the three months and nine months ended June 30, 2002, respectively.
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.

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PART II: OTHER INFORMATION




ITEM 1.Legal Proceedings.

From time to time, the Company is a party to legal proceedings arising in
the ordinary course of business. The Company is not currently a party to any
litigation that it believes could have a material adverse effect on the results
of operations, financial condition, or cash flows of the Company.




ITEM 2.Changes in Securities and Use of Proceeds.

None.




ITEM 3.Defaults upon Senior Securities.

None.




ITEM 4.Submission of Matters to a Vote of Security Holders.

None




ITEM 5.Other Information.

None.




ITEM 6.Exhibits and Reports on Form 8-K.

(a)  Exhibits filed with this Quarterly Report.

|        |  |                                                                                                                                                             
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                             
|Number  |  | Description of Documents                                                                                                                                    
|        |  |                                                                                                                                                             
|2.1     |  | First Amendment, dated as of June 26, 2002, to the Agreement
and Plan of Merger by and among Symmetricom, Inc., TrueTime,
Inc. and SCO-TRT Acquisition, Inc.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

| |                |     |  |                                                                                         
| | -------------- | --- |  | ----------------------------------------------------------------------------------------
| | TRUETIME, INC.
|
| |                | By: |  | /s/ Elizabeth A. Withers                                                                
| |                |     |  |                                                                                         
| |                |     |  | Elizabeth A. Withers
President and Chief Executive Officer
(Principal Executive Officer)
|
| |                | By: |  | /s/ John E. Dutil                                                                       
| |                |     |  |                                                                                         
| |                |     |  | John E. Dutil
Chief Financial Officer
(Principal Financial and Accounting Officer)      

Date: August 13, 2002

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Informational Addendum to Report on Form 10-Q
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Not Filed Pursuant to the Securities Exchange Act of 1934

The undersigned Chief Executive Officer and Chief Financial Officer of TrueTime, Inc.
do hereby certify as follows:
Solely for the purpose of meeting the apparent requirements of Section 906 of
the Sarbanes-Oxley Act of 2002, and solely to the extent this certification may
be applicable to this Report on Form 10-Q, the undersigned hereby certify that
this Report on Form 10-Q fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and the information contained
in this Report on Form 10-Q fairly presents, in all material respects, the
financial condition and results of operations of TrueTime, Inc.

| |  |                                                               
| |  | --------------------------------------------------------------
| |  | /s/ Elizabeth A. Withers                                      
| |  |                                                               
| |  | Name:   Elizabeth A. WithersTitle:     Chief Executive Officer

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Informational
Addendum to Report on Form 10-Q
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Not Filed Pursuant to the Securities Exchange Act of 1934

The undersigned Chief Executive Officer and Chief Financial Officer of TrueTime, Inc.
do hereby certify as follows:
Solely for the purpose of meeting the apparent requirements of Section 906 of
the Sarbanes-Oxley Act of 2002, and solely to the extent this certification may
be applicable to this Report on Form 10-Q, the undersigned hereby certify that
this Report on Form 10-Q fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and the information contained
in this Report on Form 10-Q fairly presents, in all material respects, the
financial condition and results of operations of TrueTime, Inc.

| |  |                                   
| |  | ----------------------------------
| |  | /s/ John E. Dutil                 
| |  |                                   
| |  | Name:   John E. Dutil             
| |  | Title:     Chief Financial Officer

24