<PAGE>

================================================================================


                       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 DECEMBER 31, 2001

                                       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                                      94-3343279
          (STATE OF                                   (I.R.S. EMPLOYER
        INCORPORATION)                               IDENTIFICATION NO.)

                               3750 WESTWIND BLVD.

                          SANTA ROSA, CALIFORNIA 95403

                                 (707) 528-1230

                    (ADDRESS OF PRINCIPLE EXECUTIVE OFFICES)

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




     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 February 8, 2002.

================================================================================


                                       1
<PAGE>


                                 TRUETIME, INC.



<Table>
<Caption>
                                                                                                       PAGE
                                                                                                      NUMBER
                                                                                                      ------
<S>                                                                                                   <C>
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          8

   Item 3.  Quantitative and Qualitative Disclosure about Market Risk                                     15


PART II.  OTHER INFORMATION

   Item 1.  Legal Proceedings                                                                             16

   Item 2.  Changes in Securities and Use of Proceeds                                                     16

   Item 3.  Defaults Upon Senior Securities                                                               16

   Item 4.   Submission of Matters to a Vote of Security Holders                                          16

   Item 5.   Other Information                                                                            16

   Item 6.  Exhibits and Reports on Form 8-K                                                              16
</Table>


                                       2
<PAGE>


                          PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS AND NOTES

                                 TrueTime, Inc.
                                 BALANCE SHEETS
                                 (in thousands)

<Table>
<Caption>
                                                                                          September 30, 2001   December 31, 2001
                                                                                                                      (unaudited)
<S>                                                                                       <C>                  <C>
ASSETS
             Current assets:
                        Cash and cash equivalents .......................................           $  7,809            $  7,222
                        Trade accounts receivable, net of allowance of $49 and $24 ......              3,450               3,296
                        Inventories .....................................................              5,396               5,227
                        Prepaid expenses and other assets ...............................                569                 590
                        Income taxes receivable .........................................                635                 475
                        Deferred income tax .............................................              1,252               1,503
                                                                                                    --------            --------

                           Total current assets .........................................             19,111              18,313

             Property and equipment, net ................................................              4,094               3,932
             Prepaid expenses, non-current ..............................................                 53                  --
             Goodwill, net of accumulated amortization of $266 and $272 .................                765                 759
                                                                                                    --------            --------

                                          Total assets ..................................           $ 24,023            $ 23,004
                                                                                                    ========            ========

LIABILITIES AND STOCKHOLDERS' EQUITY
               Current liabilities:
                        Trade accounts payable ..........................................           $    724            $    580
                        Accrued expenses ................................................              1,165                 879
                        Capital lease, current ..........................................                172                 176
                        Deferred revenue ................................................                122                 146
                        Lease loss accrual ..............................................                578                 694
                                                                                                    --------            --------

                           Total current liabilities ....................................              2,761               2,475

               Non-Current liabilities:
                        Deferred income taxes ...........................................                105                  36
                        Capital lease ...................................................                512                 466
                        Deferred revenue ................................................                 66                  74
                        Lease loss accrual ..............................................                421                 271
                                                                                                    --------            --------

                           Total liabilities ............................................              3,865               3,322
                                                                                                    --------            --------

               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              12,907
                        Additional paid-in capital - warrants ...........................                455                 455
                        Retained earnings ...............................................              6,736               6,260
                                                                                                    --------            --------

                           Total stockholders' equity ...................................             20,158              19,682
                                                                                                    --------            --------

                                          Total liabilities and stockholders' equity ....           $ 24,023            $ 23,004
                                                                                                    ========            ========
</Table>

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


                                       3
<PAGE>


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



<Table>
<Caption>
                                                                    Three months ended
                                                          December 31, 2000   December 31, 2001
<S>                                                       <C>                 <C>
Net sales ........................................              $     4,942         $     3,896

Cost of sales ....................................                    2,400               2,297
                                                                -----------         -----------

Gross profit .....................................                    2,542               1,599

Selling, general and administrative expenses .....                    1,830               1,538
Research & development ...........................                      795                 865
                                                                -----------         -----------

Loss from operations .............................                      (83)               (804)

Interest income ..................................                      108                  41

Interest expense .................................                       --                  13
                                                                -----------         -----------

Income (loss) before taxes .......................                       25                (776)

Income taxes .....................................                       10                (300)
                                                                -----------         -----------

Net income (loss) ................................              $        15         $      (476)
                                                                ===========         ===========


Weighted average shares outstanding - Basic ......                5,950,000           5,950,000

Weighted average shares outstanding - Diluted ....                5,950,000           5,950,000

Basic earnings (loss) per share ..................              $      0.00         $     (0.08)

Diluted earnings (loss) per share ................              $      0.00         $     (0.08)
</Table>

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


                                       4
<PAGE>


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



<Table>
<Caption>
                                                                                    Three months ended     Three months ended
                                                                                     December 31, 2000      December 31, 2001
<S>                                                                                 <C>                    <C>
Cash flows from operating activities:
                      Net income (loss) ........................................              $     15               $   (476)
                      Adjustments to reconcile net income (loss) to net cash
                      provided by (used in) operating activities:
                                     Deferred income taxes .....................                    55                   (320)
                                     Depreciation and amortization .............                   151                    228
                                     Loss (gain) on disposal of property and
                                     equipment .................................                     2                     (3)
                                     Effects of changes in operating
                                     assets and liabilities
                                             Trade accounts receivables,net ....                  (184)                   154
                                             Inventories .......................                   205                    169
                                             Prepaid expenses and
                                             other assets ......................                   (34)                    32
                                             Income taxes ......................                    --                    160
                                             Trade accounts payable ............                   105                   (144)
                                             Accrued expenses ..................                  (267)                  (286)
                                             Lease loss accrual ................                    --                    (34)
                                             Deferred revenue ..................                    37                     34
                                                                                              --------               --------

                         Net cash provided by (used in) operating activities ...                    85                   (486)
                                                                                              --------               --------

Cash flows from investing activities:
                      Capital expenditures .....................................                  (891)                   (59)
                                                                                              --------               --------

                         Net cash used in investing activities .................                  (891)                   (59)
                                                                                              --------               --------

Cash flows from financing activities:
                      Principal payments on capital lease ......................                    --                    (42)
                                                                                              --------               --------

                         Net cash used in financing activities .................                    --                    (42)
                                                                                              --------               --------

Decrease in cash and cash equivalents ..........................................                  (806)                  (587)

Cash and cash equivalents, beginning of period .................................                 7,884                  7,809
                                                                                              --------               --------

Cash and cash equivalents, end of period .......................................              $  7,078               $  7,222
                                                                                              ========               ========
</Table>



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


                                       5
<PAGE>


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
December 31, 2001, the statements of operations, and the statements of cash
flows for the three months ended December 31, 2001 and 2000 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 ended December 31, 2001 and 2000 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 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, cash flows or stockholders' equity.


2.  EARNINGS (LOSS) PER COMMON SHARE

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

                                 TrueTime, Inc.
                        EARNINGS (LOSS) PER COMMON SHARE

<Table>
<Caption>
                                                                              Three months
                                                                  December 31, 2000   December 31, 2001
<S>                                                               <C>                 <C>
Net earnings (loss) available to common stockholders (in
thousands) .................................................           $         15        $       (476)
                                                                       ============        ============

Weighted average common shares outstanding .................              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
                                                                       ============        ============

Basic earnings (loss) per common share .....................           $       0.00        $      (0.08)
                                                                       ============        ============

Diluted earnings (loss) per common share ...................           $       0.00        $      (0.08)
                                                                       ============        ============
</Table>



* Due to their anti-dilutive effect, additional warrants and options of
1,095,500 and 1,028,700 shares equivalent for the three months ended December
31, 2000 and 2001, respectively, are excluded from the calculation above.


                                       6
<PAGE>


3.       INVENTORIES


Inventories consisted of the following (in thousands), net of reserves of $805
at September 30, 2001 and $275 at December 31, 2001:

<Table>
<Caption>
                                       September 30, 2001   December 31, 2001
<S>                                    <C>                  <C>
Finished goods.......................             $   820             $   687
Work in process......................                 737               1,063
Raw material.........................               3,839               3,477
                                                  -------             -------
                                                  $ 5,396             $ 5,227
                                                  =======             =======
</Table>


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 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 on October 1,
2002. The Company will likely have a write-down of goodwill upon adoption of
SFAS 142. At this time the actual write-down amount is unknown. Currently,
goodwill is carried at $758,556, the net book value.

Accounting for the Impairment or Disposal of Long-Lived Assets

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.

This statement supercedes:

    -   SFAS 121 - "Accounting for the Impairment of Long-Lived Assets and for
        Long-Lived Assets to be Disposed of"; and

    -   APB 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.

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

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 $998,204 lease loss accrual on September 30, 2001. The accrual represents
costs recognized pursuant to EITF 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring) and SAB 100, Restructuring and
Impairment Charges. The Company committed to a sufficiently


                                       7
<PAGE>


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 quarter,
leasehold expenses in the amount of $33,558, which were associated with the
abandoned facility space were charged against the lease loss accrual.
Approximately $19,229 of this charge would have been recognized in cost of goods
sold and $14,329 would have been recognized in operating expenses.


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


<Table>
<S>                                                                      <C>
Lease loss accrual at September 30, 2001............................     $ 998
Less:
        Lease payments..............................................        29
        Building  utilities, maintenance............................         4
                                                                         -----
Lease loss accrual at December 31, 2001.............................     $ 965
                                                                         =====
</Table>


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:

         o precise time and frequency products

         o computer plug-in cards with precise timing capabilities

         o computer network time servers

         o time code products

         o time displays

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


                                       8
<PAGE>


RESULTS OF OPERATIONS

     The following table sets forth for the three months ended December 31, 2000
and 2001, the percentage of income statement items to total sales:

<Table>
<Caption>
                                                  Three Months Ended
                                                     December 31,
                                                  2000          2001
                                                 ------        ------
<S>                                              <C>           <C>
Sales .....................................        100.0%       100.0%
Cost of sales .............................         48.6         59.0
Gross profit ..............................         51.4         41.0
Operating expenses:
    Selling, general and administrative ...         37.0         39.5
    Research and development ..............         16.1         22.2
        Total operating expenses ..........         53.1         61.7
Loss from operations ......................         (1.7)       (20.7)
Interest income ...........................          2.2          1.1
Interest expense ..........................           --           .3
Income (loss) before income taxes .........          0.5        (19.9)
Income taxes ..............................          0.2         (7.7)
Net income (loss) .........................          0.3%       (12.2)%
</Table>


Three Months Ended December 31, 2001 compared to Three Months Ended December 31,
2000


     Sales. Sales for the quarter ended December 31, 2001 were $3.9 million,
a decrease of $1.0 million, or 20.4%, from $4.9 million for the quarter ended
December 31, 2000. TrueTime has emphasized entering the computer networking and
telecommunications markets as part of its strategy. These markets have
experienced economic slowdowns, and in turn, TrueTime has also experienced a
slowdown with regards to order growth in these markets. While order growth in
these markets has slowed, actual orders in our other markets increased by
$180,000 over the comparable quarter a year ago. Lower sales were the result of
Government orders received late in the quarter that were unable to be shipped.
Sales to government and indirect government customers totaled 55.2% of total
sales for the quarter ended December 31, 2001 compared with 42.1% for the
comparable period in 2000. International shipments for the quarter ended
December 31, 2001 represented 16.9% of total sales compared with 15.0% for the
comparable period in 2000.


     Cost of Sales. Cost of sales for the quarter ended December 31, 2001
was $2.3 million, a decrease of $0.1 million from $2.4 million for the quarter
ended December 31, 2000. Cost of sales increased as a percentage of total sales
to 59% in the quarter ended December 31, 2001 from 48.6% in the quarter ended
December 31, 2000. This increase is primarily related to the following:

         o increased manufacturing overhead costs due to reorganization based on
           business strategy ($0.2 million or 50% or total increase);

         o decreasing inventories and lower than planned sales resulted in lower
           production volumes and hence labor and overhead were applied to
           inventory at a rate lower than planned resulting in an increase in
           unabsorbed manufacturing overhead expense ($ 0.1 million or 25% of
           total increase); and

         o increase in facility costs due to the move to a larger facility in
           January 2001 ($0.1 million or 25% of total increase).


                                       9
<PAGE>


     Operating Expenses. Operating expenses for the quarter ended December 31,
2001 were $2.4 million, a decrease of $0.2 million , or 7.7%, from $2.6 million
for the quarter ended December 31, 2000. Operating expenses increased as a
percentage of total sales to 61.7% in the quarter ended December 31, 2001 from
53.1% in the quarter ended December 31, 2000. Decreases in operating expenses
compared to the prior year are primarily related to lower sales commissions
($0.15 million) and decreased or deferred sales and marketing programs, due to
the result of the September 11th attacks ($0.08 million). Higher facility
overhead expenses of $0.05 million offset these decreases.

     Interest Income. Interest income for the quarter ended December 31, 2001
was $0.04 million, a decrease of $0.07 million from $0.11 million for the
quarter ended December 31, 2000. Such decreases are the result of a decrease in
cash and lower interest rates compared to the prior year.

     Interest Expense. Interest expense for the three months ended December 31,
2001 was $0.01 million. There was no interest expense in the three months ended
December 31, 2000. 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 quarter ended December 31, 2001 were
38.7% of the loss before tax compared to 40% of income before tax for the
quarter ended December 31, 2000. The taxes include federal and state income
taxes and are included on an estimated basis for the current year. The decrease
in the tax expense for the quarter ended December 31, 2001 is a result of the
estimated impact of tax credits and other accrual adjustments.


LIQUIDITY AND SOURCES OF CAPITAL

     At December 31, 2001, our cash and cash equivalents were $7.2 million
compared to $7.8 million on September 30, 2001.

     For the three month period ended December 31, 2001, operating activities
used $0.5 million. Net loss for the three month period was $0.5 million. The
largest contributors of cash include $0.15 million provided by a reduction in
trade receivables and $0.17 million provided by the reduction of inventories.
Cash used by operating activities include $0.28 million in decreased accrued
expenses which included lower accrued sales commissions and lower payroll
accruals due to timing of payments, $0.14 million in decreased trade payables
and accrued expenses, and $0.32 million in decreased federal and state deferred
taxes.

     For the three month period ended December 31, 2001, investing activities
used $0.06 million, all for capital expenditures. Of this amount, $0.05 million
was used for the purchase of electronic equipment and $0.01 million was used for
new computer equipment and software. Anticipated capital expenditures for the
next three months are $0.5 million, primarily in the area of electronic test,
and computer hardware and software.

     For the three month period ended December 31, 2001, financing activities
used $0.04 million. The decrease was the result of the principal payments on the
sale leaseback transaction made in fiscal 2001.


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).
FAS 142 supercedes APB 17, Intangible Assets.


     The most significant changes made by SFAS 142 are:

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


                                       10
<PAGE>


              - 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 on October 1, 2002. The Company will
likely have a write-down of goodwill upon adoption of SFAS 142. At this time the
actual write-down amount is unknown. Currently, goodwill is carried at $758,556,
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.

This statement supercedes:

     -  SFAS 121 - "Accounting for the Impairment of Long-Lived Assets and for
        Long-Lived Assets to be Disposed of"; and
     -  APB 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.


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 Securities Exchange Act of
1934. All statements other than statements of historical fact included herein,
including statements regarding potential future products and markets, the
Company's future financial position, business strategy and other plans and
objectives for future operations, are forward-looking statements. We can give no
assurance that such expectations will prove to have been correct. These
statements are subject to known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to differ
materially from the future results, performance or achievements expressed or
implied by such forward-looking statements. Important factors that could cause
actual results performance or achievements to differ materially from the
Company's expectations are disclosed below 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.


                                       11
<PAGE>


RISK FACTORS

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

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

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

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

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

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

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

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

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


                                       12
<PAGE>


     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.

     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


                                       13
<PAGE>


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, 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.


                                       14
<PAGE>


     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 believes it
could experience a loss under adoption of SFAS 142.



ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     We are exposed to market risks related to changes in interest rates in the
future. The unused proceeds from our Initial Public Offering are invested in
short-term financial instruments, the value of which is subject to interest rate
risk and could fall if interest rates rise. These short-term instruments are in
low-yield, high quality investments. The decline in interest rates during the
quarter ended December 31, 2001 resulted in a decrease in interest income on
these investments of approximately $20,000 for the quarter. 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.



                                       15
<PAGE>


                           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.

     The Company commenced the Initial Public Offering (the "Offering") of its
common stock on December 16, 1999 pursuant to a Registration Statement on Form
S-1 (Registration No. 333-90269), which was declared effective by the Securities
and Exchange Commission on December 16, 1999. The Offering was terminated upon
the sale of all of the securities covered by such Registration Statement. The
Company has used approximately $8,508,909 of the initial net proceeds of
$8,642,667 from the offering for day to day working capital requirements and
capital improvements. As of December 31, 2001, the Company had invested unused
net proceeds of the Offering in the amount of approximately $133,758 in
short-term money market investments.


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.

    None

(b)  Reports on Form 8-K.

    None.



                                       16
<PAGE>


                                   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: February 13, 2002



                                       17