SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    Form 10-Q

(X)     QUARTERLY  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
              SECURITIES  EXCHANGE  ACT  OF  1934

                  For the quarterly period ended June 30, 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                     0-20109
                      ----------------------------------------------------------
                               Kronos Incorporated
--------------------------------------------------------------------------------
                         (Exact name of registrant as specified in its charter)

              Massachusetts                               04-2640942
-------------------------------------           --------------------------------
     (State or other jurisdiction of                   (I.R.S. Employer
      incorporation or organization)                  Identification No.)

                       297 Billerica Road, Chelmsford,  MA                01824
--------------------------------------------------------------------------------
                    (Address of principal executive offices)          (Zip Code)

                                 (978) 250-9800
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)

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

        As of July 28, 2001, 12,579,925 shares of the registrant's Common Stock,
     $.01 par value, were outstanding.

<PAGE>

                               KRONOS INCORPORATED

                                      INDEX



PART I. FINANCIAL INFORMATION                                              Page
                                                                           ----

Item 1. Condensed Consolidated Financial Statements (Unaudited)

        Condensed Consolidated Statements of Income for the Three
           and Nine Months Ended June 30, 2001 and July 1, 2000              1

        Condensed Consolidated Balance Sheets at June 30, 2001
           and September 30, 2000                                            2

        Condensed Consolidated Statements of Cash Flows for the Nine
           Months Ended June 30, 2001 and July 1, 2000                       3

        Notes to Condensed Consolidated Financial Statements                 4

Item 2. Management's Discussion and Analysis of Financial Condition and
           Results of Operations                                             8

PART II. OTHER INFORMATION

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

Signatures

<PAGE>


PART I.  FINANCIAL INFORMATION

Item 1.     Condensed Consolidated Financial Statements (Unaudited)

                               KRONOS INCORPORATED
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
               (In thousands, except share and per share amounts)
                                    UNAUDITED
<TABLE>
<CAPTION>

                                                                    Three Months Ended                     Nine Months Ended
                                                             --------------------------------       -------------------------------
                                                               June 30,          July 1,              June 30,           July 1,
                                                                 2001              2000                 2001               2000
                                                             --------------   ---------------       -------------      ------------
<S>                                                          <C>                 <C>                <C>                <C>
Net revenues:
     Product ...........................................      $     39,524       $     38,602       $    105,614       $    106,845
     Service ...........................................            35,596             29,531            101,332             87,722
                                                              ------------       ------------       ------------       ------------
                                                                    75,120             68,133            206,946            194,567
Cost of sales:
     Product ...........................................             8,311              8,729             24,132             24,586
     Service ...........................................            19,194             17,813             56,663             51,068
                                                              ------------       ------------       ------------       ------------
                                                                    27,505             26,542             80,795             75,654
                                                              ------------       ------------       ------------       ------------
         Gross profit ..................................            47,615             41,591            126,151            118,913
Operating expenses and other income:
     Sales and marketing ...............................            25,974             24,147             72,837             68,492
     Engineering, research and development .............             9,107              7,245             25,443             21,834
     General and administrative ........................             4,954              4,409             13,570             12,853
     Amortization of intangible assets .................             1,860              1,704              5,447              4,842
     Other income, net .................................            (1,621)            (1,171)            (4,333)            (4,214)
     Special charge ....................................               698               --                3,689               --
                                                              ------------       ------------       ------------       ------------
                                                                    40,972             36,334            116,653            103,807

         Income before income taxes ....................             6,643              5,257              9,498             15,106
Income tax provision ...................................             2,325              1,945              3,324              5,589
                                                              ------------       ------------       ------------       ------------
         Net income ....................................      $      4,318       $      3,312       $      6,174       $      9,517
                                                              ============       ============       ============       ============


Net income per common share:
         Basic .........................................      $       0.35       $       0.27       $       0.50       $       0.76
                                                              ============       ============       ============       ============
                                                                                                    ============       ============
         Diluted .......................................      $       0.34       $       0.26       $       0.48       $       0.73
                                                              ============       ============       ============       ============

Average common and common equivalent shares outstanding:
         Basic .........................................        12,500,012         12,404,310         12,455,724         12,460,641
                                                              ============       ============       ============       ============
         Diluted .......................................        12,776,520         12,734,592         12,816,501         13,016,507
                                                              ============       ============       ============       ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

<PAGE>

                              KRONOS INCORP0RATED
                      CONDENSED CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and per share amounts)
                                    UNAUDITED
<TABLE>
<CAPTION>

                                                                                 June 30,       September 30,
                                                                                   2001             2000
                                                                               ------------    --------------
                                    ASSETS
<S>                                                                               <C>             <C>
Current assets:
   Cash and equivalents ....................................................      $  20,470       $  23,201
   Marketable securities ...................................................         31,310          10,788
   Accounts receivable, less allowances  of $7,305
      at June 30, 2001 and $6,986 at September 30, 2000 ....................         59,336          71,493
   Deferred income taxes ...................................................          5,991           5,916
   Other current assets ....................................................         17,373          13,750
                                                                                  ---------       ---------
          Total current assets .............................................        134,480         125,148

Property, plant and equipment, net .........................................         35,805          37,082
Marketable securities ......................................................         16,400          17,450
Excess of cost over net assets of businesses acquired, net .................         29,589          29,421
Deferred software development costs, net ...................................         16,023          13,788
Other assets ...............................................................         13,732          16,600
                                                                                  ---------       ---------
         Total assets ......................................................      $ 246,029       $ 239,489
                                                                                  =========       =========

                     LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable ........................................................      $   6,786       $   8,278
   Accrued compensation ....................................................         20,321          19,879
   Accrued expenses and other current liabilities ..........................         10,914          14,339
   Deferred professional service revenues ..................................         24,979          23,451
   Deferred maintenance revenues ...........................................         51,906          48,483
                                                                                  ---------       ---------
         Total current liabilities .........................................        114,906         114,430
Deferred maintenance revenues ..............................................         12,145          15,814
Other liabilities ..........................................................          1,747           1,455
Shareholders' equity:
   Preferred Stock, par value $1.00 per share:  authorized 1,000,000 shares,
      no shares issued and outstanding .....................................           --              --
   Common Stock, par value $.01 per share:  authorized 20,000,000 shares,
     12,634,728 shares issued at June 30, 2001 and September 30, 2000 ......            126             126
   Additional paid-in capital ..............................................         17,290          23,842
   Retained earnings .......................................................        104,018          97,844
   Accumulated other comprehensive loss ....................................         (1,385)         (1,366)
   Cost of Treasury Stock  (78,129 shares and 310,038
      shares at June 30, 2001 and September 30, 2000, respectively) ........         (2,818)        (12,656)
                                                                                  ---------       ---------
         Total shareholders' equity ........................................        117,231         107,790
                                                                                  ---------       ---------
         Total liabilities and shareholders' equity ........................      $ 246,029       $ 239,489
                                                                                  =========       =========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

<PAGE>

                               KRONOS INCORPORATED
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                    UNAUDITED
<TABLE>
<CAPTION>

                                                                                            Nine Months Ended
                                                                                      ---------------------------
                                                                                         June 30,       July 1,
                                                                                           2001           2000
                                                                                      ------------     ----------
<S>                                                                                     <C>            <C>
Operating activities:
     Net income ..................................................................      $  6,174       $  9,517
     Adjustments to reconcile net income to net cash and equivalents
         provided by operating activities:
             Depreciation ........................................................         5,986          5,826
             Amortization of excess of cost over net assets of businesses acquired         5,447          4,842
             Amortization of deferred software development costs .................         6,257          5,356
             Provision for deferred income taxes .................................         1,171         (3,808)
             Changes in certain operating assets and liabilities:
                Accounts receivable, net .........................................        11,979          2,685
                Deferred maintenance revenue .....................................        (1,978)         2,115
                Accounts payable, accrued compensation
                    and other liabilities ........................................        (3,452)        (5,543)
                Long term investment in leases ...................................         2,072          2,888
                Non cash portion of special charge ...............................         1,300           --
                Other ............................................................        (3,162)        (1,863)
             Tax benefit from exercise of stock options ..........................         2,528          4,645
                                                                                        --------       --------
                    Net cash and equivalents provided by operating activities ....        34,322         26,660

Investing activities:
     Purchase of property, plant and equipment ...................................        (4,606)       (16,959)
     Capitalization of software development costs ................................        (9,003)        (7,246)
     (Increase) decrease  in marketable securities ...............................       (19,470)        12,610
     Acquisitions of businesses, net of cash acquired ............................        (4,311)        (9,009)
                                                                                        --------       --------
                    Net cash and equivalents used in investing activities ........       (37,390)       (20,604)

Financing activities:
     Net proceeds from exercise of stock option and employee stock
         purchase plans ..........................................................         8,357          7,069
     Purchase of treasury stock ..................................................        (7,833)       (22,503)
     Proceeds from sale of put options ...........................................          --              169
                                                                                        --------       --------
                    Net cash and equivalents used in  financing activities .......           524        (15,265)

Effect of exchange rate changes on cash and equivalents ..........................          (187)          (285)
                                                                                        --------       --------
Decrease in cash and equivalents .................................................        (2,731)        (9,494)
Cash and equivalents at the beginning of the period ..............................        23,201         20,148
                                                                                        --------       --------
Cash and equivalents at the end of the period ....................................      $ 20,470       $ 10,654
                                                                                        ========       ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

<PAGE>


                               KRONOS INCORPORATED
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE A - General

     The accompanying  unaudited  condensed  consolidated  financial  statements
include all adjustments, consisting of normal recurring accruals that management
of  Kronos   Incorporated   (the "Company")   considers   necessary  for  a fair
presentation of the Company's financial position and results of operations as of
and for the interim periods  presented  pursuant to the rules and regulations of
the Securities and Exchange  Commission.  Certain footnote  disclosures normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations,  although the Company  believes the  disclosures in these financial
statements are adequate to make the information presented not misleading.  These
condensed  consolidated  financial statements should be read in conjunction with
the Company's audited  financial  statements for the fiscal year ended September
30, 2000. The results of operations for the three and nine months ended June 30,
2001 are not  necessarily  indicative  of the results  for a full  fiscal  year.
Certain  reclassifications  have  been  made  in the  accompanying  consolidated
financial statements in order to conform to the fiscal 2001 presentation.

Note B - Newly Issued Accounting Standards

     In June 2001, the Financial Accounting Standards Board issued Statements of
Financial  Accounting Standards No. 141, "Business  Combinations",  and No. 142,
"Goodwill and Other  Intangible  Assets",  effective for fiscal years  beginning
after December 15, 2001.  Under the new rules,  goodwill (and intangible  assets
deemed to have indefinite lives) will no longer be amortized but will be subject
to annual  impairment tests in accordance with the Statements.  Other intangible
assets will continue to be amortized over their useful lives.

     For  acquisitions  completed prior to June 30, 2001, the Company will apply
the new rules on  accounting  for business  combinations  and goodwill and other
intangible  assets  beginning  in the first  quarter of fiscal  year  2002.  For
acquisitions completed after June 30, 2001, the Company will apply the new rules
beginning  in the fourth  quarter of fiscal  year 2001.  The Company has not yet
determined the effect that the application of the non-amortization provisions of
the  Statements  will have on net income.  During fiscal year 2002,  the Company
will  perform  the first of the  required  impairment  tests of  goodwill  as of
October 1, 2001 and has not yet  determined  what the effect of these tests will
be on earnings and financial position of the Company.

<PAGE>


NOTE C  -  Fiscal Quarters

     The Company  utilizes a system of fiscal quarters.  Under this system,  the
first three quarters of each fiscal year end on a Saturday.  However, the fourth
quarter of each fiscal year will always end on  September  30.  Because of this,
the number of days in the first  quarter  (91 days in fiscal 2001 and 93 days in
fiscal  2000) and fourth  quarter  (92 days in fiscal 2001 and 91 days in fiscal
2000) of each  fiscal  year  varies  from  year to year.  The  second  and third
quarters of each fiscal year will be exactly  thirteen  weeks long.  This policy
does not have a material  effect on the  comparability  of results of operations
between quarters.


Note D - Special Charge

     A special  charge in the amount of $700,000  was  recorded in this  quarter
related to termination  costs from a reduction in workforce of  approximately 90
employees.  At June 30, 2001, the outstanding  liability  related to this charge
was  approximately  $100,000,  which is  anticipated  to be paid within the next
three months.

     During the second quarter of 2001,  the Company  commenced the shut down of
its Crosswinds  Technology Group operations  located in Santa Cruz,  California,
which resulted in a $3.0 million charge to operating income in that quarter. The
charge  included $1.6 million in termination  costs,  $1.3 million for the write
off of  intangible  assets,  and  $100,000  in  other  costs.  Approximately  19
employees were affected by this action. Of the $1.7 million  liability  recorded
in March 2001, $1.2 million remains outstanding as of June 30, 2001. The Company
expects to settle these liabilities within the next nine months.

The components of the liabilities related to the second and third quarter
special charges are listed below.

Accrual for special charges (in thousands):
<TABLE>
<CAPTION>

                     Balance at   Additional     Cash        Balance at
  Description        March 31,     Charges      Outlays        June 30,
  -----------          2001                                      2001
                     ----------   ----------    ---------    ----------
<S>                    <C>          <C>          <C>           <C>
Termination costs      $ 1,600      $   700      $(1,100)      $ 1,200
Other costs .....          100         --           --             100
                       -------      -------      -------       -------
Total accrual ...      $ 1,700      $   700      $(1,100)      $ 1,300
                       =======      =======      =======       =======
</TABLE>

<PAGE>


NOTE E - Comprehensive Income

For the three and nine months ended June 30, 2001 and July 1, 2000 comprehensive
income consisted of the following (in thousands):
<TABLE>
<CAPTION>

                                             Three Months Ended         Nine Months Ended
                                           -----------------------    -----------------------
                                           June 30,      July 1,       June 30,      July 1,
                                             2001         2000          2001           2000
                                           ---------    ----------    ---------      --------
<S>                                        <C>           <C>           <C>           <C>
Comprehensive income:
    Net income ......................      $ 4,318       $ 3,312       $ 6,174       $ 9,517
    Cumulative translation adjustment          216          (236)         (325)         (545)
    Unrealized (loss)gain
    on ..............................         (100)         (206)          306          (206)
    available-for-sale securities
                                           -------       -------       -------       -------
Total comprehensive income ..........      $ 4,434       $ 2,870       $ 6,155       $ 8,766
                                           =======       =======       =======       =======
</TABLE>


NOTE F - Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>

                                           Three Months Ended                 Nine Months Ended
                                      ----------------------------      ----------------------------
                                         June 30,        July 1,          June 30,         July 1,
                                           2001            2000             2001            2000
                                      -----------      -----------      -----------      -----------
<S>                                   <C>              <C>              <C>              <C>
Net income (in thousands) ......      $     4,318      $     3,312      $     6,174      $     9,517
                                      ===========      ===========      ===========      ===========


Weighted-average shares ........       12,500,012       12,404,310       12,455,724       12,460,641

Effect of dilutive securities:
   Put options .................             --               --               --             10,266
   Employee stock options ......          276,508          330,282          360,777          545,600
                                      -----------      -----------      -----------      -----------

Adjusted weighted-average shares
   and assumed conversions .....       12,776,520       12,734,592       12,816,501       13,016,507
                                      ===========      ===========      ===========      ===========

Basic earnings per share .......      $      0.35      $      0.27      $      0.50      $      0.76
                                      ===========      ===========      ===========      ===========

Diluted earnings per share .....      $      0.34      $      0.26      $      0.48      $      0.73
                                      ===========      ===========      ===========      ===========
</TABLE>
<PAGE>



G. Subsequent Event

     On July 1, 2001, the Company acquired  substantially all of the assets of a
competing  provider  of  labor  management  solutions  to  the  U.S.  healthcare
industry.  Cash held in escrow at June 30, 2001,  pending the completion of this
acquisition,  amounted  to $10.5  million  and  included  $1.5  million  for the
prepayment of certain account  receivable  balances.  This  acquisition  will be
accounted using the purchase method of accounting and will not materially impact
the Company's results of operations or financial condition.  As a result, no pro
forma information has been presented.

<PAGE>


     Item 2.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations

Forward Looking Statements

     This discussion includes certain  forward-looking  statements about Kronos'
business  and its  expectations,  including  statements  relating  to demand for
products and  services,  revenue  growth rates and gross  margin,  management of
dealer  channels,  future  acquisitions  and  available  cash,  investments  and
operating  cash flow.  Any such  statements are subject to risk that could cause
the  actual  results  to  vary  materially  from  expectations.  For  a  further
discussion  of  the  various  risks  that  may  affect   Kronos'   business  and
expectations,  see "Certain Factors That May Affect Future Operating Results" at
the end of  Management's  Discussion  and  Analysis of Financial  Condition  and
Results of Operations.

Results of Operations

     Revenues.  Revenues  for the three and nine months ended June 30, 2001 were
$75.1 million and $206.9 million, respectively, as compared to $68.1 million and
$194.6 million for the comparable  periods in the prior year.  Revenue growth in
the three and nine months ended June 30, 2001 were 10% and 6%, respectively,  as
compared to 1% and 7% growth in the  comparable  periods of the prior year.  The
revenue  growth rate  experienced  in the third  quarter of fiscal 2001 compares
favorably to the  comparable  quarter of the prior year  principally  due to the
unusually  low growth  rate  experienced  in the third  quarter of fiscal  2000.
Although the revenue growth rate  experienced in the first nine months of fiscal
2001 is  comparable  to the growth  rate  experienced  in the same period of the
prior year,  the  revenue  growth rate  experienced  from the second  quarter of
fiscal 2000 through the first quarter of fiscal 2001 was nominal due principally
to the transitory impact on demand for Kronos' products and services as a result
of Year 2000  compliance  efforts and the broad economic  downturn.  The revenue
growth rates  experienced  in the second and third  quarters of fiscal 2001 have
improved in comparison to the preceding four quarters, principally due to demand
for Kronos' services.  Management  believes that demand for Kronos' products and
services  continues to exist.  Although,  the revenue  growth rate in the fourth
quarter  is  anticipated  to be  positive,  uncertainty  exists  given the broad
economic  downturn  and  the  possibility  of  companies  postponing  technology
spending.

     Product revenues for the quarter  increased 2% to $39.5 million as compared
to $38.6  million and a product  revenue  decline of 12% in the third quarter of
fiscal 2000.  Product revenues for the first nine months of fiscal 2001 declined
1% to $105.6 million compared to $106.8 million and a product revenue decline of
9% in the  first  nine  months  of  fiscal  2000.  The  product  revenue  growth
experienced in the third quarter was  principally  the result of customer demand
in Kronos'  direct sales  channel.  Product  revenues  from Kronos'  independent
dealer  channel in the third quarter of fiscal 2001 were  comparable to revenues
in the same  quarter of the prior year.  Management  continues  to believe  that
given  the  increased   sophistication  of  Kronos'  products  and  the  related
heightened need for pre-sales technological support and other sales support, the
dealer  channel's sales cycle requires greater  management and  participation by
Kronos.  To  address  this  trend,   management  anticipates  expending  greater
resources to assist the dealer channel in the short term and increasing  Kronos'
emphasis on direct sales in the longer term.

     Service  revenues for the third  quarter of fiscal 2001  increased to $35.6
million  as  compared  to $29.5  million in the third  quarter  of fiscal  2000.
Service revenues for the first nine months of fiscal 2001 were $101.3 million as
compared to $87.7  million for the first nine months of the prior year.  Service
revenues  grew at a rate of 21% and 15% during the three and nine month  periods
ended June 30,  2001,  respectively.  The growth in  service  revenues  in these
periods reflects an increase in the level of professional services delivered due
to more effective  management of resources as compared to the same period in the
prior year.  The growth in service  revenues in the third quarter of fiscal 2001
also reflects an increase in maintenance revenue from expansion of the installed
base,  increased  level of services sold to the installed  base and, to a lesser
extent,  incremental  service revenues resulting from Kronos'  acquisitions over
the past four  quarters.  Service  revenues grew at a rate of 27% and 37% in the
three and nine month  periods  ended July 1, 2000,  respectively.  The unusually
high service revenue growth rate experienced in these periods is attributable to
an increase in  maintenance  revenue from expansion of the installed base due to
the  accelerated  product  revenue growth  experienced in fiscal 1999 because of
demand  for new  products  and  upgrades  resulting  from  customers'  Year 2000
compliance efforts. Also contributing to the growth in service revenues in these
periods were an increase in the level of maintenance  contracts and professional
services  accompanying  new  and  upgrade  sales  as  well  as  maintenance  and
professional service revenues resulting from Kronos' acquisitions, including the
acquisition of its largest dealer territory in June 1999.

     Gross  Profit.  Gross profit as a percentage of revenues was 63% and 61% in
the three and nine month periods ended June 30, 2001, respectively,  compared to
61% in each of the  comparable  periods in the prior year.  The  improvement  in
gross profit in the third quarter was  attributable to increases in both product
and service  gross  profit.  Product  gross  profit as a  percentage  of product
revenues  was 79% and 77% in the three and nine  month  periods  ended  June 30,
2001,  respectively,  compared to 77% in each of the  comparable  periods in the
prior year. The improvement in product gross profit is principally  attributable
to product  mix.  Software,  which  typically  generates  higher  gross  profit,
comprised a greater  proportion of product  revenues in the three and nine month
periods  ended June 30, 2001 as compared to the same  periods in the prior year.
However,  higher software  development  amortization and production costs due to
lower hardware sales volume  partially  offset the effect of this favorable mix.
Service gross profit as a percentage of service  revenues was 46% and 44% in the
three and nine month periods ended June 30, 2001, compared to 40% and 42% in the
comparable periods of the prior year. The improvement in service gross profit is
attributable  to  increased  productivity  in  the  service  organization  and a
reduction in  discretionary  spending.  The  improvement in  productivity is the
result of leveraging investments in service systems and processes coupled with a
reduction in headcount to better align costs with revenues.

     Net Operating Expenses.  Net operating expenses as a percentage of revenues
were 55% and 56% for the three  and nine  month  periods  ended  June 30,  2001,
respectively,  as compared to 53% for the comparable  periods in the prior year.
The increase in operating  expenses in fiscal 2001 as compared to fiscal 2000 is
principally  attributable to increased program and infrastructure costs incurred
to support increases in business volume and product  development  efforts.  Also
contributing  to the  increase  in  operating  expenses  was an  increase in the
amortization of intangible assets related to acquisitions and the recognition of
various  special charges related to termination of operations and a reduction in
workforce.  Sales and marketing expenses as a percentage of revenues were 35% in
the  three  and  nine  month  periods  ended  June 30,  2001  and July 1,  2000.
Engineering,  research and development expenses as a percentage of revenues were
12% in the three and nine month  periods  ended June 30, 2001 as compared to 11%
in the  comparable  periods  of the prior  year.  Engineering  expenses  of $9.1
million  and $7.2  million  in the  third  quarter  of  fiscal  2001  and  2000,
respectively,  are net of capitalized software development costs of $3.0 million
and $2.4 million, respectively.  Engineering expenses of $25.4 million and $21.8
million in the first nine months of fiscal 2001 and 2000, respectively,  are net
of  capitalized  software  development  costs of $8.4 million and $7.2  million,
respectively. The growth in engineering,  research and development expenses this
year resulted from the continuing  research,  design and development of software
and hardware  technology,  principally  related to the  Company's  Workforce 4.0
product  and  the  4500  Terminal.  General  and  administrative  expenses  as a
percentage  of revenues  were 7% in the three and nine month  periods ended June
30,  2001  and  6% and  7%  for  the  comparable  periods  of  the  prior  year.
Amortization  of intangible  assets as a percentage of revenues was 2% and 3% in
the three and nine  month  periods  ended June 30,  2001 and July 1,  2000.  The
increase in amortization  expense is principally related to various acquisitions
completed  in the past four  quarters.  Kronos  amortizes  these  costs over the
assets  estimated  remaining  economic lives.  Other income,  net is principally
attributable  to interest income earned from Kronos' cash as well as investments
in its marketable securities and lease portfolio.

     Special Charge.  A special charge in the amount of $700,000 was recorded in
the third quarter of fiscal 2001 related to  termination  costs from a reduction
in  workforce  of  approximately  90  employees.  The  charge  is the  result of
management's effort to streamline operations to better align costs with expected
revenues.  Kronos anticipates making cash outlays of less than $100,000 relating
to this action over the next three months.  In the second quarter of fiscal 2001
Kronos  recorded a special  charge in the amount of $3.0 million  related to the
termination  of  Kronos'  Crosswinds  Technology   operations.   The  Crosswinds
Technology  Group,  which was  purchased in May 1999,  was  responsible  for the
product  development,  marketing  and  sales  support  of  time  and  attendance
applications  that operated as a Microsoft  Outlook plug in product.  Lower than
anticipated sales of these  applications,  redundant  infrastructure and ongoing
operating losses resulted in the termination of the Crosswinds  Technology Group
as a  stand-alone  operating  unit.  The $3.0  million  charge  consists of $1.6
million in  termination  costs,  $1.3  million  for the write off of  intangible
assets and $100,000 in other costs.  Cash outlays of approximately  $1.2 million
relating to this action are  anticipated  to be paid over the next nine  months.
The  anticipated  pre-tax  savings  resulting  from  these  actions  is  a  cost
reduction, principally salaries, of approximately $1.9 million for the remainder
of fiscal 2001 and $7.5 million annually thereafter,  excluding  amortization of
$1.3 million over the next three years.

     Income  Taxes.  The  provision  for income taxes as a percentage  of pretax
income was income tax was 35% in the three and nine month periods ended June 30,
2001,  respectively,  as compared to 37% in the comparable  periods of the prior
year.  The lower  effective  income  tax rate  experienced  in  fiscal  2001 was
principally  attributable to tax benefits  resulting from Kronos' investment tax
credits.  Management anticipates the effective income tax rate for the remainder
of the fiscal year will be 35%.

     Newly Issued Accounting  Standards.  In June 2001, the Financial Accounting
Standards  Board issued  Statements of Financial  Accounting  Standards No. 141,
"Business  Combinations",  and No. 142, "Goodwill and Other Intangible  Assets",
effective  for fiscal years  beginning  after  December 15, 2001.  Under the new
rules,  goodwill (and intangible assets deemed to have indefinite lives) will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statements.  Other intangible assets will continue to be amortized over
their useful lives.

     For  acquisitions  completed prior to June 30, 2001, the Company will apply
the new rules on  accounting  for business  combinations  and goodwill and other
intangible  assets  beginning  in the first  quarter of fiscal  year  2002.  For
acquisitions completed after June 30, 2001, the Company will apply the new rules
beginning  in the fourth  quarter of fiscal  year 2001.  The Company has not yet
determined the effect that the application of the non-amortization provisions of
the  Statements  will have on net income.  During fiscal year 2002,  the Company
will  perform  the first of the  required  impairment  tests of  goodwill  as of
October 1, 2001 and has not yet  determined  what the effect of these tests will
be on earnings and financial position of the Company.


Liquidity and Capital Resources

     Working capital as of June 30, 2001,  amounted to $19.6 million as compared
to $10.7 million at September 30, 2000. During fiscal 2000,  working capital was
reduced as Kronos funded its investment in its corporate  headquarters  facility
and other  property,  plant and  equipment,  as well as the repurchase of common
shares under Kronos' stock repurchase program and, to a lesser extent,  payments
related to  acquisitions.  Cash,  cash  equivalents  and  marketable  securities
amounted to $68.2  million as of June 30, 2001 and $51.4 million as of September
30,  2000.  Included in the cash  balance as of June 30, 2001 was $10.5  million
that was held in escrow pending the completion of an acquisition in July 2001.

     Cash generated from operations  amounted to $34.3 million in the first nine
months of fiscal 2001 as  compared to $26.7  million in the first nine months of
fiscal 2000.  The increase in cash  generated  from  operations  is  principally
attributable to increased collection of accounts receivable as well as increased
accrued compensation,  partially offset by lower earnings and a smaller increase
in deferred  service  revenues  as  compared  to the prior  year.  Cash used for
property,  plant and  equipment  was $4.6  million in the first  nine  months of
fiscal 2001 compared to $17.0 million in the same period of fiscal 2000.  Fiscal
2000 investments in property,  plant and equipment were  principally  related to
the construction of Kronos' corporate headquarters campus as well as investments
in  information  systems and  infrastructure  to improve  and  support  expanded
operations.  Excess cash reserves not required for  operations,  investments  in
property,  plant and  equipment  or  acquisitions  are  invested  in  marketable
securities.  Marketable  securities  increased  by $19.5  million in fiscal 2001
compared to a decrease of $12.6 million in the first nine months of fiscal 2000.
Kronos' use of cash for the  acquisition  of businesses in the first nine months
of fiscal  year 2001 was  principally  related  to the  acquisition  of a dealer
territory  in  November  2000 and the  April  2001  acquisition  of a  competing
provider of labor management solutions located in Australia.  These acquisitions
did not have a material impact on revenues or results of operations in the three
and nine months ended June 30, 2001. Subsequent to June 30, 2001 Kronos acquired
substantially  all of the assets of a  competing  provider  of labor  management
solutions to the U.S. healthcare  industry.  Management does not anticipate that
this  acquisition  will  have a  material  impact  on  revenues  or  results  of
operations  in the  fourth  quarter.  Kronos is  assessing  several  acquisition
opportunities that may be completed over the next twelve months,  although there
can be no assurance that these acquisitions will be completed.

     Under Kronos' stock repurchase  program,  Kronos repurchased 171,000 common
shares in the first nine months of fiscal 2001 at a cost of $6 million  compared
to 494,000  common  shares at a cost of $21.4 million for the same period in the
prior year. The common shares repurchased under the program are used for Kronos'
employee stock option plans and employee  stock purchase plan.  Cash provided by
operations was more than sufficient to fund investments in capitalized  software
development costs, property,  plant and equipment and stock repurchases.  Kronos
believes it has adequate cash and  investments  and operating  cash flow to fund
its investments in property,  plant and equipment,  software  development costs,
cash  payments  related  to  acquisitions,  if  any,  and any  additional  stock
repurchases for the foreseeable future.

Certain Factors That May Affect Future Operating Results

     Except for  historical  matters,  the matters  discussed in this  Quarterly
Report on Form 10-Q are  "forward-looking  statements" within the meaning of the
Private Securities  Litigation Reform Act of 1995 (the "Act"). Kronos desires to
take  advantage of the safe harbor  provisions of the Act and is including  this
statement for the express  purpose of availing  itself of the  protection of the
safe harbor with respect to all forward  looking  statements  that involve risks
and uncertainties.

     Kronos' actual operating results may differ from those indicated by forward
looking  statements  made in this  Quarterly  Report on Form 10-Q and  presented
elsewhere  by  management  from  time to time  because  of a number  of  factors
including the potential fluctuations in quarterly results, timing and acceptance
of new  product  introductions  by Kronos and its  competitors,  the  ability to
attract and retain sufficient technical personnel, competitive pricing pressure,
the dependence on Kronos' time and  attendance  product line, and the dependence
on alternate  distribution  channels and on key  vendors,  as further  described
below  and in  Kronos'  Annual  Report on Form 10-K for the  fiscal  year  ended
September 30, 2000, which are specifically incorporated by reference herein.

     Potential  Fluctuations in Quarterly Results.  Kronos' quarterly  operating
results  may  fluctuate  as a result  of a variety  of  factors,  including  the
purchasing  patterns of its  customers,  mix of products and services  sold, the
timing of the  introduction  of new products and product  enhancements by Kronos
and its  competitors,  market  acceptance of new products,  competitive  pricing
pressure and general  economic  conditions.  Kronos  historically has realized a
relatively  larger  percentage of its annual  revenues and profits in the fourth
quarter and a relatively  smaller percentage in the first quarter of each fiscal
year,  although there can be no assurance  that this pattern will  continue.  In
addition, while Kronos has contracts to supply systems to certain customers over
an extended  period of time,  substantially  all of Kronos'  product revenue and
profits  in each  quarter  result  from  orders  received  in that  quarter.  If
near-term  demand for Kronos'  products  weakens or if  significant  anticipated
sales in any  quarter  do not close when  expected,  Kronos'  revenues  for that
quarter will be adversely  affected.  Kronos believes that its operating results
for any one  period are not  necessarily  indicative  of results  for any future
period.

     Product  Development  and  Technological   Change.   Continual  change  and
improvement  in computer  software  and  hardware  technology  characterize  the
markets for frontline  labor  management  systems.  Kronos'  future success will
depend  largely on its  ability to enhance the  capabilities  and  increase  the
performance of its existing  products and to develop new products and interfaces
to third party products on a timely basis to meet the increasingly sophisticated
needs of its  customers.  Although  Kronos is  continually  seeking  to  further
enhance its product offerings and to develop new products and interfaces,  there
can be no assurance  that these  efforts will succeed,  or that, if  successful,
such  product  enhancements  or new  products  will  achieve  widespread  market
acceptance,  or that Kronos'  competitors  will not develop and market  products
which are superior to Kronos' products or achieve greater market acceptance.

     Dependence on Time and Attendance  Product Line. To date,  more than 90% of
the Kronos'  revenues  have been  attributable  to sales of time and  attendance
systems and related  services  and Kronos  expects  that to continue in the next
fiscal year. Competitive pressures or other factors could cause Kronos' time and
attendance  products to lose market  acceptance or experience  significant price
erosion, adversely affecting the results of Kronos' operations.

     Dependence on Alternate Distribution Channels. Kronos markets and sells its
products through its direct sales organization, independent dealers and OEMs. In
the first nine months of fiscal 2001,  approximately  13% of Kronos' revenue was
generated through sales to dealers and OEMs. A reduction in the sales efforts of
Kronos'  major  dealers  and/or  OEMs,  the  termination  or  changes  in  their
relationships  with  Kronos,  or the failure of Kronos to monitor and incent its
independent  dealers  and OEMs,  could  have a  material  adverse  affect on the
results of Kronos' operations.

     Attracting  and  Retaining   Sufficient  Technical  Personnel  for  Product
Development,  Support and Sales.  Kronos has encountered intense competition for
experienced  technical personnel for product development,  technical support and
sales and expects such  competition to continue in the future.  Any inability to
attract and retain a sufficient  number of qualified  technical  personnel could
adversely  affect  Kronos'  ability to produce,  support and sell  products in a
timely manner.

     Competition. The frontline labor management industry is highly competitive.
Technological  changes such as those  allowing for increased use of the Internet
may also create the potential for new entrants.  Although Kronos believes it has
core  competencies  that are not easily  obtainable by competitors,  maintaining
Kronos'  technological  and  other  advantages  over  competitors  will  require
continued  investment  by Kronos in research and  development  and marketing and
sales  programs.  There can be no  assurance  that Kronos  will have  sufficient
resources  to make such  investments  or be able to  achieve  the  technological
advances necessary to maintain its competitive advantages. Increased competition
could adversely affect Kronos' operating results through price reductions and/or
loss of market share.

<PAGE>

PART II.            OTHER INFORMATION

Item 5.    Other Information

           None

Item 6.    Exhibits and Reports on Form 8-K

(a)        Exhibits

           None

(b)        Reports on Form 8-K

           There were no reports on Form 8-K filed during the fiscal quarter
           ended June 30, 2001.


<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 thereunto duly authorized.

                                                   KRONOS INCORPORATED



                                                By       /s/ Paul A. Lacy
                                                           Paul A. Lacy
                                                Vice President of Finance
                                                    and Administration
                                               (Duly Authorized Officer and
                                                Principal Financial Officer)


August 10, 2001