TRUETIME INC, 424B1, 1999-12-17

TRUETIME INC
424B1, 1999-12-17
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

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<PAGE> 1

FILED PURSUANT TO RULE 424(B)(1)
REGISTRATION NO. 333-90269
PROSPECTUS

3,000,000 SHARES

[TRUETIME LOGO]

COMMON STOCK
---------------------

This is the initial public offering of TrueTime, Inc. We are offering 1,500,000
shares of our common stock and the selling stockholder is offering 1,500,000
shares of our common stock for resale.

The shares being offered have been approved for quotation on the Nasdaq National
Market under the symbol "TRUE."
---------------------

THIS INVESTMENT INVOLVES SUBSTANTIAL RISK. SEE "RISK FACTORS" BEGINNING ON PAGE
5.
---------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- -----------
<S> <C> <C>
Public offering price...................................... $5.00 $15,000,000
Underwriting discounts..................................... $0.35 $ 1,050,000
Proceeds, before expenses, to TrueTime..................... $4.65 $ 6,975,000
Proceeds, before expenses, to selling stockholder.......... $4.65 $ 6,975,000
</TABLE>

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

TrueTime has granted the underwriters a 30-day option to purchase up to 450,000
additional shares to cover over-allotments.

TrueTime has, as additional underwriting compensation, agreed to issue to C.E.
Unterberg, Towbin warrants to purchase up to 200,000 shares of common stock at
an initial exercise price for each share equal to 110% of the offering price.
---------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------

The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on December 22, 1999.
---------------------

C.E. UNTERBERG, TOWBIN

CRUTTENDEN ROTH
INCORPORATED

PENNSYLVANIA MERCHANT GROUP

December 16, 1999
<PAGE> 2

The TrueTime logo in block print, "TrueTime" and "Products" directly
underneath it. Five pictures of TrueTime's products.

The picture of each product also contains a description of what each
product is. The products and descriptions in order from top to bottom are "time
displays," "computer network time servers," "computer plug-in cards," "time code
products," and "precise time and frequency products."
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements........... 11
Use of Proceeds............................................. 12
Dividend Policy............................................. 12
Capitalization.............................................. 13
Dilution.................................................... 14
Selected Financial Data..................................... 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Business.................................................... 22
Management.................................................. 32
Relationship with OYO Japan and Related Transactions........ 39
Security Ownership of Management and Principal and Selling
Stockholder............................................... 41
Description of Capital Stock................................ 43
Shares Eligible for Future Sale............................. 48
Underwriting................................................ 50
Legal Matters............................................... 53
Experts..................................................... 53
Where You Can Find Additional Information................... 53
Index to Financial Statements............................... F-i
</TABLE>
<PAGE> 4

PROSPECTUS SUMMARY

In the following summary, we will try to provide clear and concise
information which will help you decide whether you wish to buy our common stock.
However, the summary may not contain all the information that is important to
you and we therefore encourage you to read the entire prospectus and our
consolidated financial statements and the notes to those statements before
making your decision.

TRUETIME, INC.

OUR BUSINESS

TrueTime designs, develops, manufactures and markets precision time and
precision electrical signal-generating products that are essential components
used in many technology-based 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. The signals our products produce are commonly
referred to as frequencies. We offer a wide variety of products, which can be
divided into the following broad categories:

- precise time and frequency products

- computer plug-in cards with precise timing capabilities

- computer network time servers

- time code products

- time displays

Our customers are businesses and government agencies that have
sophisticated and demanding needs for timing with greater accuracy and
resolution than available from conventional time measuring devices. A
substantial portion of our sales is made to numerous, and usually repeat,
customers who purchase small quantities of multiple types of products and who
often have custom or semi-custom specifications. Representative of typical
customers are some of the best-known enterprises engaged in

- telecommunications

- computer networking

- e-commerce

- power utilities

- aerospace

- national defense

- television broadcasting

In fiscal year 1999, we sold our products to more than 1,000 customers. We
believe that the size and diversity of our customer base reduces the business
risk inherent in dependence on a small number of large-volume customers.

In the fiscal year ended September 30, 1999, we achieved sales of $20.6
million, an increase of 26.7% over the prior fiscal year, resulting in net
income of $2.3 million, an increase of 40.0% over the same period.

OUR INDUSTRY AND MARKET

Time and frequency products like ours are important to expanding
communications systems of wireline, wireless, satellite and computer network
technologies. We believe that the current trend of wireline, wireless and
computer network systems coming together in unified operations and the

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<PAGE> 5

wide-spread growth of the Internet and e-commerce will lead to increased demand
for precision time and frequency products.

Our products use the highly accurate external time reference available from
GPS U.S. Department of Defense to maintain required accuracy. At least two
marketing research firms that follow the industry provide forecasts for industry
growth by segments, including timing products using GPS as a timing reference.
According to forecast data from their reports,

- the aggregate North American market for GPS related timing products is
projected to grow from $209 million to $368 million during the five-year
period from 2000 through 2004, reflecting a compound annual growth rate
of approximately 15% during such period (Source: Frost & Sullivan) and

- for the same five-year period, the aggregate U.S. market for GPS related
timing products is projected to grow from $238 million to $383 million,
reflecting a compound annual growth rate of approximately 13% during such
period (Source: Allied Business Intelligence).

OUR STRATEGY

We have already established name-recognition in the time and frequency
industry. Our investments in new technology have given us the capability to
enter new segments of the timing market and allow us to reduce the time needed
to market new products. Now, our goals are to

- introduce new products

- form strategic relationships with other enterprises in related
industries

- continue to gain market share in our existing markets

CORPORATE INFORMATION

In 1991, OYO Corporation U.S.A., a Texas corporation and wholly-owned
subsidiary of OYO Corporation, a Japanese corporation, acquired our business as
part of its acquisition of Kinemetrics, Inc., which manufactures and sells
earthquake monitoring instrumentation. Shortly after acquiring Kinemetrics, OYO
U.S.A. established a new California corporation named TrueTime, Inc., and
transferred the ownership of the Kinemetrics/TrueTime business to the newly
established corporation. In November 1999, we were reincorporated in Delaware.
We are located at 2835 Duke Court, Santa Rosa, California 95407. Our telephone
number is (707) 528-1230.

2
<PAGE> 6

THE OFFERING

Common stock offered by TrueTime........ 1,500,000 shares

Common stock offered by the selling
stockholder............................. 1,500,000 shares

Common stock to be outstanding after
this offering........................... 5,500,000 shares(1)(2)

Use of proceeds......................... We plan to use the proceeds from
this offering for general corporate
purposes, including working
capital, expansion into new
technologies and markets, increased
marketing, sales and operations
capabilities and possible
acquisitions of complementary
businesses or technologies. We will
not receive any proceeds from the
sale of the shares of common stock
offered by the selling stockholder.
See "Use of Proceeds."

Nasdaq National Market symbol........... TRUE
- ---------------------

(1) Assumes no exercise of the underwriters' over-allotment option. Unless we
specifically state otherwise, the information in this prospectus does not
take into account the issuance of up to 450,000 shares of common stock that
the underwriters have the option to purchase solely to cover
over-allotments. If the underwriters exercise their over-allotment option in
full, 5,950,000 shares of our common stock will be outstanding after this
offering.

(2) Excludes 1,650,000 shares of common stock reserved for issuance under our
stock option plans, of which up to 810,000 shares of common stock will be
issuable upon exercise of options that the board of directors intends to
grant to the directors, advisors, officers and certain key employees on or
about the date of this offering. These options will be exercisable at the
offering price. Also, excludes 200,000 shares issuable upon exercise of
warrants to be issued to the underwriters in connection with this offering.
For information on these warrants, see "Underwriting."

All information in this prospectus relating to the number of shares of our
common stock and options and warrants to purchase our common stock has been
adjusted to reflect the initial issuance of our common stock to our sole
stockholder on November 1, 1999, in connection with the reincorporation of our
predecessor, a California corporation of the same name, in Delaware.

3
<PAGE> 7

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1997 1998 1999
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales..................................................... $13,894 $16,297 $20,645
Cost of sales............................................. 5,783 7,537 9,076
------- ------- -------
Gross profit.............................................. 8,111 8,760 11,569
Operating expenses:
Selling, general and administrative..................... 3,906 4,395 5,905
Research and development................................ 1,855 1,873 2,155
------- ------- -------
Total operating expenses........................ 5,761 6,268 8,060
------- ------- -------
Income from operations.................................... 2,350 2,492 3,509
Interest and other income (expense), net.................. 10 249 305
------- ------- -------
Income before income taxes................................ 2,360 2,741 3,814
Provision for income taxes................................ 964 1,122 1,547
------- ------- -------
Net income................................................ $ 1,396 $ 1,619 $ 2,267
======= ======= =======
Earnings per share -- basic and diluted................... $ 0.35 $ 0.40 $ 0.57
Weighted average shares outstanding as adjusted for
reincorporation -- basic and diluted.................... 4,000 4,000 4,000
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
AS
HISTORICAL ADJUSTED(1)
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents(2)................................ $ 3,539 $10,014
Working capital............................................. 10,808 17,283
Total assets................................................ 15,491 21,966
Stockholders' equity........................................ 12,753 19,228
</TABLE>

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

(1) As adjusted to reflect this offering and the application of the net proceeds
therefrom.

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

4
<PAGE> 8

RISK FACTORS

An investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the financial and other information contained in this prospectus, before
you decide whether to buy our common stock.

RISKS RELATED TO OUR BUSINESS

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

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

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

WE RELY ON A LIMITED NUMBER OF SUPPLIERS FOR CERTAIN CRITICAL COMPONENTS, AND WE
USE A SINGLE SUPPLIER FOR VIRTUALLY ALL OF ONE 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, including some such disruptions in recent
periods. To date, these delays and disruptions have not materially adversely
affected our business. 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 virtually all of a key
component for our GPS-based products. In addition, we believe that Trimble has
begun competing in markets similar to our own. While we have attempted to
address this single-supplier risk by entering into purchase agreements with
Trimble that will secure our supply of the components for the next year or so,
by attempting to establish alternative supply arrangements and by taking steps
to develop our own proprietary products in this area, there can be no assurances
that we will be able to obtain adequate supplies of this component in the
future. If we are unable to obtain adequate supplies of this component for any
reason, we will likely experience delays or reductions in production and
increased expenses while we redesign our GPS-based products or accelerate the
introduction of new GPS-based products that do not use this component. 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 filed patents to protect our intellectual
property. While we hope our intellectual property is adequately protected by our
confidential trade-secret protection plans and programs, we cannot be sure that
our competitors will be prevented from gaining access to our proprietary and
confidential technologies. Furthermore, although we have applied for a patent
related to a computer network timing product, we can offer no assurances that a
patent will be issued for this patent application

5
<PAGE> 9

or other future applications and, if issued, that any patents 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, giving cost advantages to our
competitors.

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 PRODUCTS AND SOFTWARE MAY NOT BE Y2K COMPLIANT AND CUSTOMERS MAY MAKE CLAIMS
AGAINST US.

We sell products and software that could fail at the transition between
December 31, 1999 and January 1, 2000, leading to claims against us by our
customers. At the Y2K transition date, certain computers and information
technology equipment may not continue to work properly. Although the latest
versions of our software are designed to be Y2K compliant, it is not possible to
determine with complete accuracy that all Y2K problems affecting our products
have been identified or corrected due to their complexity and the fact that
these products interact with other third party vendor products and operate on or
with computer systems that are not under our control.

A small number of customers who had older TrueTime products and had not
checked their equipment for Y2K compliance reported product failure following
August 21, 1999, the date when the GPS counter rolled over from 1024 to 0000, as
it was designed to do. While these customers had not had their products updated
and the costs of servicing the customers were not material, this could be
indicative of claims by customers having older TrueTime products on January 1,
2000. A significant number of operational inconveniences and inefficiencies may
result from the Y2K event and divert our time and attention and financial and
human resources from our ordinary activities. While we do not believe it likely,
serious system failures and customer claims may result from the Y2K issue.

Y2K ISSUES MAY ADVERSELY IMPACT OUR NEAR-TERM SALES.

While we have not to date experienced any declines in orders nor have our
customers advised us of any intentions in that regard, other companies in
technology-related industries have recently reported some decreases in sales and
orders and have attributed those decreases to the postponement of purchases
until after the Y2K event. There can, however, be no assurances that we will not
be adversely affected by any such decisions by our customers.

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 precision 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

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<PAGE> 10

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. While we do not disagree with the overall market growth forecasts
cited in this prospectus from Frost & Sullivan and Allied Business Intelligence
reports, we did not participate in making such forecasts or in developing the
assumptions upon which they are based or the methodology used in developing
necessary data. Accordingly, we cannot assure you that such forecasted growth
can be achieved or that assumptions upon which such forecasts are based will
prove to be accurate. As is the case with all forward-looking information
contained in this prospectus, actual events or results may differ materially
from forecasted data. Moreover, even if our industry grows as forecast, 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 80% of our orders come through our 26 domestic and worldwide
sales representative organizations. Many of these representatives act as
relationship brokers and the loss of any key representatives could have a
negative effect on our sales.

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

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

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

Our defense, military and aerospace based business depends largely on U.S.
government expenditures, whether directly with us or indirectly with our
customers who contract with the U.S. government. In recent years, units of the
U.S. government have collectively accounted for approximately 21% to 28% of our
annual revenues. There can be no assurances as to whether future governmental
spending will adequately support our business in those areas, and substantial
decreases in government spending or loss of U.S. governmental customers could
materially and adversely affect our operations.

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

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

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<PAGE> 11

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

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

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

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

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

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

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

To meet our goals for future growth, we plan to move into new, larger
manufacturing and office facilities in the first half of 2000, using a portion
of our working capital to build out and equip the new facilities. The additional
manufacturing capacity provided by the new facilities and equipment will allow
us to more than double our output given sufficient market demand. However, after
increasing our production capacity, we may find that demand for our products
does not remain sufficiently high for us to realize a satisfactory return on the
capital we have spent to increase capacity.

OYO U.S.A. WILL BE IN A POSITION TO CONTROL MATTERS REQUIRING A STOCKHOLDER
VOTE, WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK OR PREVENT
OUR STOCKHOLDERS FROM REALIZING A PREMIUM ON THEIR SHARES.

Upon completion of this offering, OYO U.S.A. and its parent corporation,
OYO Corporation, will beneficially own 45.5% of our outstanding common stock
(42.0% if the underwriters exercise their over-allotment option in full). As a
practical matter, with this substantial ownership, OYO U.S.A. will have
sufficient voting power to control our management, as well as the outcome of
matters submitted to our stockholders for approval, including the election of
directors and any merger, consolidation or sale of substantially all our assets.
The concentration of ownership of our common stock could delay or prevent proxy
contests, mergers, tender offers, open-market purchase programs or other
purchases of our common stock that could give you the opportunity to realize a
premium over the then-prevailing market price for our common stock.

Several members of our board of directors also serve as officers or
directors of the selling stockholder and its parent company. Satoru Ohya, who
will be appointed as a member of our board of directors immediately prior to the
closing of this offering, is the President of OYO Corporation, as well as a
director
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of various of its affiliates. Katsuhiko Kobayashi, the chairman of our board of
directors, is a managing director of OYO Corporation and a director and officer
of OYO U.S.A. and serves in various other director and officer positions with
respect to other subsidiaries of OYO U.S.A. Charles H. Still, who will be
appointed as a member of our board of directors immediately prior to the closing
of this offering and currently serves as our corporate secretary, is the
corporate secretary of OYO U.S.A. and of various of its other subsidiaries and,
through his law firm, serves as regular legal counsel to OYO Corporation, OYO
U.S.A. and various of their other affiliates. While no specific conflicts of
interest are known to exist at present, it is possible that conflicts of
interest may arise in the future with respect to the relationship between OYO
Corporation or OYO U.S.A. and us. Future conflicts could include differences in
views as to mergers and acquisitions, transactions involving a change in control
of TrueTime and other strategic matters.

FOLLOWING THIS OFFERING, WE WILL NOT BE ABLE TO OBTAIN FINANCIAL ASSISTANCE FROM
OYO U.S.A. OR OYO CORPORATION.

Prior to this offering, we have operated as a wholly owned subsidiary of
OYO U.S.A. We have been a participant in various financing, cash management and
service arrangements provided by OYO U.S.A. to us and to its other subsidiaries
and have relied on the financial strength of OYO U.S.A. and OYO Corporation to
assist us if financing needs arose. In the past, we have not needed to call upon
OYO U.S.A. for direct financial assistance. However, we cannot be sure that
additional financing will not be required in the future, and if required, we may
find that financing is not available on terms that we consider acceptable. As a
result of this offering, OYO U.S.A.'s stockholdings in TrueTime will be reduced
from 100% to 45.5% or less, and we will no longer rely on OYO U.S.A. or OYO
Corporation for financial support.

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. 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.

WE MAY FAIL TO EFFECTIVELY INTEGRATE FUTURE ACQUISITIONS, IF ANY, THEREBY
DISRUPTING OUR BUSINESS, DILUTING SHAREHOLDER VALUE AND CAUSING FINANCIAL
LOSSES.

We may acquire other businesses in the future, which may complicate our
management tasks. These acquisitions may be in the precise timing industry or
other business areas that, although complimentary to our business, may be in
areas in which we currently do not compete and may not have prior management or
operating experience. We may need to integrate entirely new operations and
distinct corporate cultures. Such integration efforts may not succeed or may
distract our management from operating our existing business. Our failure to
manage future acquisitions successfully could seriously harm our operating
results. Further, our shareholders' equity could be diluted if we finance the
acquisitions by issuing equity securities.

9
<PAGE> 13

WE MAY VIOLATE EXISTING OR FUTURE GOVERNMENT REGULATIONS, CAUSING INTERRUPTIONS
TO OUR OPERATIONS AND FINANCIAL LOSSES.

Our operations are subject to a variety of federal, state and local
environmental regulations related to the storage, use, discharge and disposal of
toxic or other hazardous substances used in our manufacturing process. Our
failure to comply with current or future regulations could result in the
imposition of substantial fines, suspension of production, alteration of our
manufacturing processes or cessation of operations. We could also be required to
undertake expensive remediation efforts. The imposition of liabilities or
penalties from noncompliance with environmental regulations will increase our
expenses and diminish our cash flows.

RISKS RELATED TO THIS OFFERING AND SECURITIES MARKETS

A SIGNIFICANT AMOUNT OF THE NET PROCEEDS OF THIS OFFERING ARE UNALLOCATED, AND
WE MAY NOT ULTIMATELY USE THESE PROCEEDS IN A MANNER THAT INCREASES OR MAINTAINS
STOCKHOLDER VALUE.

We have not designated any specific uses for a significant portion of our
net proceeds from this offering other than general working capital purposes.
Therefore, we will have broad discretion in how we use these net proceeds. While
we intend to use the remaining net proceeds for working capital in anticipation
of expanded business, we may ultimately use the proceeds for business expansion
in other ways and for other general corporate purposes. Investors will,
therefore, be relying on the judgment of our management regarding the
application of our net proceeds from this offering.

SINCE WE DO NOT CURRENTLY INTEND TO PAY DIVIDENDS, YOU WILL NOT HAVE ON-GOING
CASH FLOW FROM YOUR INVESTMENT.

We do not anticipate declaring or paying dividends on our common stock in
the foreseeable future because we plan to retain the cash generated from our
operations to support the cash demands which may be required to expand our
company. Investors who anticipate a need for regular cash flow from their
investments should not purchase shares of our common stock.

ANTI-TAKEOVER PROVISIONS IN OUR GOVERNING DOCUMENTS AND DELAWARE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL OF OUR COMPANY, POSSIBLY REDUCING YOUR
OPPORTUNITY TO SELL YOUR SHARES AT A PREMIUM, SHOULD ONE BE OFFERED.

Our governing documents contain provisions that make it more difficult to
implement certain corporate actions and may delay, deter or prevent a change in
control. You might consider a change in control in your best interest because
you might receive a premium for your common stock. Examples of these provisions
include

- a vote of more than two-thirds of the outstanding voting stock is
required for stockholders to amend specified provisions of our
certificate of incorporation and bylaws;

- our board of directors is divided into three classes, each serving
three-year terms; and

- members of our board of directors may be removed only for cause.

Our board of directors has the ability, without stockholder action, to
issue shares of common and preferred stock and rights to acquire such shares
that could, depending on the terms of preferred stock or rights to acquire
common or preferred stock, delay, discourage or prevent a change in control of
TrueTime. In addition, the Delaware General Corporation Law, under which we are
incorporated, contains provisions that impose restrictions on business
combinations, such as mergers, between us and a holder of 15% or more of our
voting stock. You should read "Description of Capital Stock" for a more complete
description of these provisions.

10
<PAGE> 14

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements relate to future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "likely" or
"continue" or the negative of such terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined under "Risk Factors." These factors may
cause our actual results to differ materially from any forward-looking
statement.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements, and you are encouraged to exercise
caution in considering such forward-looking statements. Moreover, neither we nor
any other person assumes responsibility for the accuracy and completeness of
these statements. We are not under any duty to update any of the
forwarding-looking statements after the date of this prospectus to conform these
statements to actual results.

11
<PAGE> 15

USE OF PROCEEDS

We estimate the net proceeds from the sale of the 1,500,000 shares of
common stock offered by us will be approximately $6.5 million after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. Our net proceeds from this offering are estimated to be $8.6 million
if the underwriters' over-allotment option is exercised in full. We will receive
no proceeds from the sale of the 1,500,000 shares of common stock offered by the
selling stockholder.

We plan to use the proceeds from this offering together with our existing
funds, for general corporate purposes, including working capital, expansion of
new technologies and markets, increased marketing, sales and operations
capabilities and possible acquisitions of complementary businesses or
technologies. Approximately $1.0 million of our working capital will be used to
build out and equip a new office and manufacturing facility that we plan to
occupy under a long-term lease in the first half of 2000. Pending these uses, we
will invest the net proceeds of this offering in U.S. government securities or
investment grade, interest-bearing securities. In addition, we anticipate that
this offering will create a public market for our common stock to facilitate our
future access to public capital markets and permit the creation of equity
incentives for our employees through stock plans tied to publicly traded
securities.

DIVIDEND POLICY

We currently intend to retain all available funds and any future earnings
for use in the operation and expansion of our business and do not anticipate
paying any cash dividends in the foreseeable future.

12
<PAGE> 16

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 1999:

- on an actual basis to reflect our capitalization as of September 30,
1999, with adjustments for the reincorporation of the company in Delaware
on November 1, 1999, and our resulting new certificate of incorporation,
providing for an authorized capital stock of 20,000,000 shares of common
stock and 1,000,000 shares of undesignated preferred stock, and a
conversion of all the outstanding common stock of our predecessor into
4,000,000 outstanding shares of our common stock upon such
reincorporation; and

- on an as adjusted basis to reflect our capitalization as of September 30,
1999, with the preceding adjustments reflected on the "actual" basis plus
the receipt of the estimated net proceeds from our sale of 1,500,000
shares of common stock.

None of the columns reflects (1) 1,650,000 shares of common stock reserved
for issuance under our stock-based award plans, of which approximately 810,000
shares are subject to options estimated to be outstanding immediately upon
consummation of this offering, (2) up to 200,000 shares which C.E. Unterberg,
Towbin may purchase at 110% of the offering price upon exercise of warrants to
be issued in connection with this offering or (3) 450,000 shares of common stock
that the underwriters have the option to purchase solely to cover
over-allotments.

The table below should be read in conjunction with our balance sheet as of
September 30, 1999, and the related notes, which are included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
---------------------------------
AS
ACTUAL ADJUSTED
---------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Cash and cash equivalents(1)................................ $ 3,539 $10,014
======= =======
Stockholders' equity:
Preferred stock, Actual and As Adjusted -- $.01 par value,
1,000,000 shares authorized, no shares issued and
outstanding............................................ -- --
Common stock and additional paid-in capital,
Actual -- $.01 par value, 20,000,000 shares authorized,
4,000,000 shares issued and outstanding; As
Adjusted -- 20,000,000 shares authorized, 5,500,000
shares issued and outstanding.......................... $ 4,730 $11,205
Retained earnings......................................... 8,023 8,023
------- -------
Total stockholders' equity........................ 12,753 19,228
------- -------
Total capitalization.............................. $12,753 $19,228
======= =======
</TABLE>

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

13
<PAGE> 17

DILUTION

Our net tangible book value as of September 30, 1999, was approximately
$11.9 million, or $2.98 per share after giving effect to the reincorporation in
Delaware on November 1, 1999. Net tangible book value per share represents the
amount of our total tangible assets at September 30, 1999, reduced by the amount
of our total liabilities and divided by the total number of shares of common
stock outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after the completion of this offering. After giving
effect to the sale of 1,500,000 shares of common stock offered by us after
deducting the underwriting discount and estimated offering expenses payable by
us, our pro forma net tangible book value at September 30, 1999, would have been
approximately $18.4 million or $3.35 per share of common stock. This represents
an immediate increase in pro forma net tangible book value of $0.37 per share to
the existing stockholder and an immediate dilution of $1.65 per share to new
investors of common stock. The following table illustrates this dilution on a
per share basis:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $5.00

Net tangible book value per share before offering......... $2.98

Increase per share attributable to new investors.......... 0.37
-----

Pro forma net tangible book value per share after this
offering.................................................. 3.35
-----

Dilution per share to new investors......................... $1.65
=====
</TABLE>

14
<PAGE> 18

SELECTED FINANCIAL DATA

The following statement of operations data for the years ended September
30, 1997, 1998 and 1999, and the balance sheet data as of September 30, 1998 and
1999, are derived from our audited financial statements appearing elsewhere in
this prospectus. The selected financial data shown below as of September 30,
1995, 1996 and 1997, and for the years ended September 30, 1995 and 1996, are
derived from our unaudited financial statements. In our opinion, such unaudited
financial information includes all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of our results of
operations for the periods then ended and our financial position as of such
date. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and the related notes thereto included elsewhere in
this prospectus.

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales................................ $11,260 $11,292 $13,894 $16,297 $20,645
Cost of sales........................ 4,978 5,111 5,783 7,537 9,076
------- ------- ------- ------- -------
Gross profit......................... 6,282 6,181 8,111 8,760 11,569
Operating expenses:
Selling, general and
administrative.................. 2,960 2,960 3,906 4,395 5,905
Research and development........... 1,480 1,840 1,855 1,873 2,155
------- ------- ------- ------- -------
Total operating expenses... 4,440 4,800 5,761 6,268 8,060
------- ------- ------- ------- -------
Income from operations............... 1,842 1,381 2,350 2,492 3,509
Interest and other income (expense),
net................................ (5) 37 10 249 305
------- ------- ------- ------- -------
Income before income taxes........... 1,837 1,418 2,360 2,741 3,814
Provision for income taxes........... 754 588 964 1,122 1,547
------- ------- ------- ------- -------
Net income........................... $ 1,083 $ 830 $ 1,396 $ 1,619 $ 2,267
======= ======= ======= ======= =======
Earnings per share -- basic and
diluted............................ $ 0.27 $ 0.21 $ 0.35 $ 0.40 $ 0.57
Weighted average shares outstanding
as adjusted for
reincorporation -- basic and
diluted............................ 4,000 4,000 4,000 4,000 4,000
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents.......... $ -- $ -- $ -- $ 38 $ 3,539(1)
Working capital.................... 3,981 6,030 7,381 8,641 10,808
Total assets....................... 6,701 9,071 11,018 12,160 15,491
Stockholders' equity............... 5,405 7,471 8,867 10,486 12,753
</TABLE>

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

15
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our financial
statements and the related notes that appear elsewhere in this prospectus.

OVERVIEW

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

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

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

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

We have developed and introduced products for these and other markets that
have contributed to increased sales. As a result, sales have increased from
$11.3 million in the fiscal year 1995 to $20.6 million in the fiscal year 1999.

We generate revenues primarily from sales of our products. We also receive
small amounts of revenue, which are included in sales, from service and
non-recurring engineering charges. We record sales when a product ships and
title passes. In fiscal 1999, our sales came from over 1,000 different customers
and we sold dozens of different products.

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

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

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

Net income has increased from $1.1 million in fiscal year 1995 to $2.3
million in fiscal year 1999.

16
<PAGE> 20

RESULTS OF OPERATIONS

The following table sets forth for fiscal 1997, 1998 and 1999, the
percentage of income statement items to total sales:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Sales.................................................. 100.0% 100.0% 100.0%
Cost of sales.......................................... 41.6 46.2 44.0
----- ----- -----
Gross profit........................................... 58.4 53.8 56.0
Operating expenses:
Selling, general and administrative.................. 28.1 27.0 28.6
Research and development............................. 13.4 11.5 10.4
----- ----- -----
Total operating expenses.......................... 41.5 38.5 39.0
----- ----- -----
Income from operations................................. 16.9 15.3 17.0
Interest and other income, net......................... 0.1 1.5 1.5
----- ----- -----
Income before income taxes............................. 17.0 16.8 18.5
Provision for income taxes............................. 7.0 6.9 7.5
----- ----- -----
Net income............................................. 10.0% 9.9% 11.0%
===== ===== =====
</TABLE>

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

Sales. Sales for fiscal 1999 were $20.6 million, an increase of $4.3
million, or 26.7%, from $16.3 million in fiscal 1998. The increase in sales is
attributable to increased demand for our products, the introduction of new
products and an increased number of customers purchasing our products during the
year.

Cost of Sales. Cost of sales for fiscal 1999 was $9.1 million, and increase
of $1.5 million, or 20.4%, from $7.5 million in fiscal 1998. Cost of sales
decreased as a percentage of total sales to 44.0% in fiscal 1999 from 46.2% in
fiscal 1998. Such percentage decrease is the result of decreased material, labor
and overhead costs as a percentage of sales resulting from economies of scale.

Operating Expenses. Operating expenses for fiscal 1999 were $8.1 million,
an increase of $1.8 million, or 28.6%, from $6.3 million in fiscal 1998.
Operating expenses increased as a percentage of total sales to 39.0% in fiscal
1999 from 38.5% in fiscal 1998. Selling, general and administrative expenses for
fiscal 1999 were $5.9 million, an increase of $1.5 million, or 34.4%, from $4.4
million in fiscal 1998. Selling, general and administrative expenses increased
as a percentage of total sales to 28.6% in fiscal 1999 from 27.0% in fiscal 1998
because we increased our sales, customer service and administration teams to
support further growth. Research and development expenses for fiscal 1999 were
$2.2 million, an increase of $300,000, or 15.1%, from $1.9 million in fiscal
1998. Research and development expenses decreased as a percentage of total sales
to 10.4% in fiscal 1999 from 11.5% in fiscal 1998 because we did not increase
research and development expenses as fast as we increased sales.

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

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

17
<PAGE> 21

YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997

Sales. Sales for fiscal 1998 were $16.3 million, an increase of $2.4
million, or 17.3%, from $13.9 million in fiscal 1997. The increase in sales is
attributable to increased demand for our products, increased numbers of
customers and increased purchases per customer.

Cost of Sales. Cost of sales for fiscal 1998 was $7.5 million, an increase
of $1.8 million, or 30.3%, from $5.8 million in fiscal 1997. Cost of sales
increased as a percentage of total sales to 46.2% in fiscal 1998 from 41.6% in
fiscal 1997. Such percentage increase is the result of change in product mix and
manufacturing overhead costs including increased engineering costs to support
customer-specific applications.

Operating Expenses. Operating expenses for fiscal 1998 were $6.3 million,
an increase of $500,000, or 8.8%, from $5.8 million in fiscal 1997. Operating
expenses decreased as a percentage of total sales to 38.5% in fiscal 1998 from
41.5% in fiscal 1997. Selling, general and administrative expenses for fiscal
1998 were $4.4 million, an increase of $500,000, or 12.5%, from $3.9 million in
fiscal 1997. Selling, general and administrative expenses decreased as a
percentage of total sales to 27.0% in fiscal 1998 from 28.1% in fiscal 1997
because of lower relative sales and commission costs. Research and development
expenses for fiscal 1998 were $1.9 million, an increase of $19,000, or 1.0%,
from $1.9 million in fiscal 1997. Research and development expenses decreased as
a percentage of total sales to 11.5% in fiscal 1998 from 13.4% in fiscal 1997
because research and development expenses increased only slightly while sales
increased 17.3%.

Interest and Other Income (Expense), Net. Interest and other income
(expense), net for fiscal 1998 was $249,000, an increase of $239,000 from
$10,000 in fiscal 1997. This income was earned on our cash deposits held in OYO
U.S.A.'s central cash management system. The increase is attributable to the
implementation of OYO U.S.A.'s policy in fiscal 1998, effective October 1, 1997,
of allocating the earnings on cash deposits from investments and borrowings made
to other OYO U.S.A. subsidiaries to those subsidiaries that maintain positive
cash balances in the central cash management system.

Income Taxes. TrueTime's effective income tax rate for the year ended
September 30, 1998 was 40.9% compared to 40.8% for fiscal 1997. Our effective
income tax rate differs from the statutory federal rate of 34% primarily as a
result of the effect of state income taxes.

TERMINATION OF CASH MANAGEMENT AND COST SHARING ARRANGEMENTS

As a wholly-owned subsidiary of OYO U.S.A., we have historically
participated in OYO U.S.A.'s central cash management system and have received an
allocation of investment earnings on our cash deposits held by OYO U.S.A. In
addition, we have been allocated our share of certain costs from OYO U.S.A.
related primarily to accounting, tax and employee benefit matters. In connection
with this offering, we will terminate all such arrangements with OYO U.S.A. and
operate as a stand-alone entity. The investment earnings and shared costs
allocated to us by OYO U.S.A. have not been materially different from the
investment earnings and costs that we would have earned and incurred as a
stand-alone entity. We do not expect that the termination of these arrangements
will have a material impact on our net sales or income from operations or cause
a material change in the relationship between costs and sales.

LIQUIDITY AND SOURCES OF CAPITAL

Historically, we have financed our operations through operating cash flow.
Cash provided by operating activities was $1.6 million in fiscal 1999 as
compared to $900,000 in fiscal 1998. The net increase of $700,000 is primarily
the result of an increase in net income of $600,000 during fiscal 1999, as
adjusted to include an increase in depreciation and amortization of $100,000
from investments made in machinery and equipment, an increase in the change in
operating assets in the amount of $1.5 million principally resulting from
accounts receivable and inventories related to increased sales, and an increase
in the change in operating liabilities of $1.5 million principally resulting
from trade accounts payable related to the increase in inventories and accrued
expenses related to an increase in employees. Cash provided by operating
activities was $900,000 in fiscal 1998 as compared to $100,000 in fiscal 1997.
The increase of $800,000 is

18
<PAGE> 22

the result of the increase in net income of $200,000 during fiscal 1998, as
adjusted to include an increase in depreciation and amortization of $100,000
from investments made in machinery and equipment, and a reduction in the net
increase in net operating assets of $500,000 related primarily to a small
increase in accounts receivable during fiscal 1998 as compared to fiscal 1997 as
a result of the timing of sales and related collections.

We currently participate in OYO U.S.A.'s central cash management system in
which the net cash provided or used by our operations is transferred to or from
OYO U.S.A. on a daily basis. We have a receivable from OYO U.S.A. for the
cumulative amount by which the cash provided by operating activities, including
current income taxes allocated from OYO U.S.A., has exceeded our working capital
and capital expenditure requirements. The change in this receivable is an
investing cash flow activity. The receivable was $433,000 at September 30, 1999
as compared to $2.7 million at September 30, 1998. The decrease resulted from
the collection of $3.5 million from OYO U.S.A. in September 1999 for the
preliminary and partial settlement of our receivable balance. The receivable was
$2.7 million at September 30, 1998 as compared to $2.5 million at September 30,
1997. The increase resulted from the excess of operating cash flows generated in
fiscal 1998 over capital expenditures. As soon as practical following the
closing of this offering, we will separate from OYO U.S.A.'s central cash
management system and the remaining receivable at that date will be collected in
cash. Beginning October 1, 1997, OYO U.S.A. implemented a policy of crediting
interest on the receivable balance, excluding the reduction in the receivable
balance for allocated current income taxes. Interest credited and added to the
receivable balance was $305,000 for fiscal 1999 and $249,000 for fiscal 1998.

In October 1999, we transferred $3.5 million to OYO U.S.A. subject to the
terms of a trust agreement with OYO U.S.A. Under the terms of the trust
agreement, OYO U.S.A. acknowledged and agreed that it held $3.5 million, plus
the investment income earned thereon, for our benefit and would manage the trust
assets as part of its other cash management activities. This action was taken to
maximize the return on our assets available for the investment until such time
that we have established our own short-term investment program. On December 1,
1999, the trust was terminated and the trust assets (consisting of cash and cash
equivalents) were distributed to us.

Other investing activities consist principally of capital expenditures in
the amount of $442,000 for fiscal 1999, $632,000 for fiscal 1998 and $245,000
for fiscal 1997 for investments in machinery and equipment. We are negotiating a
long-term lease agreement on a new larger manufacturing and office facility of
approximately 50,000 - 75,000 square feet, into which we intend to move in the
first half of calendar year 2000. We intend to use approximately $1.0 million of
our working capital to build out and equip the new manufacturing and office
facility. We also intend to retain an option to purchase the building. We expect
to incur $1.0 million in fiscal 2000 on other capital expenditures. A portion of
our working capital expected to be used to finance these planned capital
expenditures. Other than the use of the net proceeds of this offering for
planned capital expenditures or for other working capital purposes, we expect to
invest the net proceeds of this offering in U.S. governmental securities or
investment grade, interest-bearing securities until suitable uses are
determined.

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

We sell on open account with terms that usually require payment within 30
days of invoice. Many customers pay later than the agreed-upon terms allow, but
generally not later than 30 days after the original due date. We had no
write-offs for bad debt in fiscal years 1997 and 1999, and $14,000 in fiscal
1998. We have included the effects of anticipated increased accounts receivable
in our plans for future working capital requirements.

Cash and cash equivalents were $3.5 million at September 30, 1999 as
compared to less than $100,000 at September 30, 1998. The increase reflects a
$3.5 million collection from OYO U.S.A. in September 1999 related to the
preliminary and partial settlement of our receivable from OYO U.S.A. Cash
equivalents are invested on a short-term basis with a major bank. We expect that
the combination of
19
<PAGE> 23

cash and cash equivalents, cash flow from operations and the proceeds of this
offering should provide us with sufficient capital resources and liquidity to
fund our operations during fiscal 2000 and support our expansion and acquisition
strategy as described elsewhere in this prospectus.

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

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We will be exposed to market risks related to changes in interest rates in
the future. Proceeds from this offering will be invested short term in financial
instruments, the value of which will be subject to interest rate risk and could
fall if interest rates rise. Additionally, while we have no plans for future
borrowings, any future borrowings will likely have a variable rate component
that will fluctuate as interest rates change. If market interest rates were to
increase immediately and uniformly by 10%, there would not be a material effect
on the results of operations or on our balance sheet because we currently have
no debt.

YEAR 2000 READINESS ISSUES

At the transition between December 31, 1999 and January 1, 2000, certain
computers and information technology equipment may not continue to work
properly. In particular, this may occur when programs and data that use
six-digit dates such as 12/31/99 should convert to 01/01/00, but fail to do so
or fail to properly process the date data. Similar problems were suspected at
the GPS Week Number Roll-Over (WNRO) which occurred August 21, 1999 when the GPS
week counter rolled over from 1024 to 0000 as it was designed to do; on
September 9, 1999 which was a common program test date; and on February 29, 2000
which is an unusual leap day. Most century years such as 1800, 1900 and 2100 do
not have leap days. These groups of problems are known collectively as Y2K.

GPS WNRO. No significant problems were found with the GPS WNRO. A small
number of customers who had older TrueTime products and had not checked their
equipment did later report their products failed to report the proper date and
have contacted TrueTime to have their products updated. There were no claims
against us and the costs of servicing the customers was not material.

9/9/99 Test Date. No problems have been reported related to the 9/9/99 test
date.

State of Readiness. We have completed extensive efforts related to
operations and products for Y2K.

Products. Our Y2K product effort has included the purchase of a GPS
simulator, the staffing of dedicated test program, testing of new and old
products, notification on the Internet of the status of each of our products,
and the modification and upgrade of products as appropriate. In some cases, we
provide modifications and upgrades at no charge. In other cases, a modest charge
for the modifications and upgrades is made to the customer. We have been
conducting our Y2K product program since November 1997 and believe all
significant products have been tested and the results have been reported.
Modifications and upgrades to old products will continue into the fiscal year
2000.

Product Costs. We have spent approximately $200,000 in each of fiscal years
1998 and 1999 on our Y2K product efforts. We estimate that we will spend
$200,000 in fiscal year 2000 on our Y2K product efforts. Such costs are
accounted for in the selling, general and administrative costs.

Insurance. We have reviewed our guarantee and warranty provisions and
determined that our exposure is limited to the original purchase prices of
equipment bought by our customers. We have specifically declined to indemnify,
hold harmless or be responsible for consequential damages when requested by
customers. We have evaluated our liability insurance and determined that Y2K
liability is explicitly excluded from insurance coverage and cannot be
reasonably added to our insurance coverages.

Operations. Our Y2K operations efforts have included supplier assessments,
internal information technology, or IT assessments and modifications and
upgrades, IT vendor assessments, and internal systems assessments.

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We have surveyed key suppliers and have received assurances that we will
continue to receive our uninterrupted supplies of goods and services.

We have, or have had, evaluated our internal information systems, including
network hardware and software and user hardware and software. Numerous
components were found to be non-Y2K compliant. We have purchased and installed
upgrades, modifications and replacements. A small number of non-critical work
stations were planned for replacement. The hardware has been purchased and the
installation is now complete.

IT vendors such as our value added reseller that provides electronic data
interchange services, its Internet service provider and payroll processing
provider have been surveyed and assure us that we will continue to receive
uninterrupted services.

Internal systems including heating, ventilation and air conditioning, alarm
system and process controls have been evaluated and found not to have Y2K
problems. The compliance of test equipment was completely evaluated during
October 1999.

We maintain a disaster recovery program, including tape back-up on IT
systems and other measures, that is applicable to any Y2K problems or other
disaster. We believe the program is adequate to prevent unrecoverable losses
from any disaster.

Operations Costs. We estimate we have spent about $100,000 in the fiscal
year 1998 and $200,000 in the fiscal year 1999 on our Y2K operations efforts. We
estimate that we will spend less than $100,000 in the fiscal year 2000 on our
Y2K operations efforts. The costs of our Y2K operations efforts are accounted
for in selling, general and administrative costs.

International Risks. We have about 15% of our installed base in
international locations and receive approximately 5% of our materials directly
from international locations. From our evaluations, the risks in the
international locations are similar to those in domestic locations because our
customers in these areas have up-to-date equipment and we do not have many
international vendors.

Risks. Should we not fully complete our efforts related to operations and
products, the results could include disruptions in business, lost revenue,
increased operating costs, loss of customers and other business interruptions,
any of which could have a material adverse effect on our business, financial
condition and results of operations.

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BUSINESS

TRUETIME

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

- precise time and frequency products

- computer plug-in cards with precise timing capabilities

- computer network time servers

- time code products

- time displays

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

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

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

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

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

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

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

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

TrueTime is recognized in the industries we serve for our commitment to
customer satisfaction, broad product offerings and advanced technical
capabilities. We are recognized by our community and employees for stable
employment and a corporate culture that provides leadership, opportunity and a
shared commitment to success.

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MARKET OVERVIEW

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

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

Two marketing research firms that follow the GPS industry are Frost &
Sullivan and Allied Business Intelligence. These firms provide forecasts for
industry growth by segments, including forecasts in the growth in timing
products using GPS as a timing reference. Their forecasts for future growth of
the timing product segment are consistent, but not identical.

According to forecast data from a Frost & Sullivan report we obtained, the
aggregate North American market for GPS related timing products is projected to
grow from $209 million to $368 million during the five-year period from 2000
through 2004, reflecting a compound annual growth rate of approximately 15%
during such period.

According to forecast data from an Allied Business Intelligence report we
obtained, covering the same five-year period, the aggregate U.S. market for GPS
related timing products is projected to grow from $238 million to $383 million,
reflecting a compound annual growth rate of approximately 13% during such
period.

According to Frost and Sullivan, the European GPS timing market is trailing
the North American market in terms of total revenue, with the 2000 revenue
forecast in European markets being $11.2 million. However, the compound annual
growth rate for GPS timing products in Europe from 2000 through 2004 is forecast
to be 20%, as compared to 15% in North American markets. The strong growth
forecast for the GPS timing market reflects the strong growth of the
applications for which timing products are sold.

TECHNOLOGY OVERVIEW

THE PRECISION CLOCK

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

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

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IMPROVING ON THE PRECISION CLOCK

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

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

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

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

- GPS

- Internet/network clocks

- AM radio broadcasts

- Dial-up phone connections

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

GPS AS A TIME REFERENCE

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

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

A significant advantage offered by GPS compared to any other time reference
is the worldwide availability of the signals. GPS satellites continuously orbit
the earth broadcasting the coded signals. Provided the GPS antenna on the
receiving device can receive the signals, precise synchronization to UTC is
possible anywhere on the planet. This facilitates an accurate and common time
base to synchronize systems across a country or around the world. Events on one
continent can be very closely correlated with

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events on others. Similarly, widely distributed networks such as the
Synchronized Optical Network, or SONET, that carries most of the long haul voice
traffic in the U.S., can be precisely synchronized to improve efficiency and
bandwidth use.

OUTPUTS OF THE PRECISION CLOCK

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

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

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

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

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

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

TRUETIME'S SOLUTIONS

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

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

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

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

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

OUR STRATEGY

-- Introduce new products by

- targeting the growing telecommunications, e-commerce, computer
networking and digital wireless market segments,

- increasing our research and development budget and capabilities, and

- applying core technologies in new markets.

-- Form strategic relationships by

- developing alliances with companies that offer complementary products
and technologies, and

- exploring opportunities to acquire companies with technologies that
will enhance our product lines, add new related products or add
economies of scale to our existing operations.

-- Continue to gain market share by

- developing, manufacturing and marketing the highest quality precision
time and frequency products,

- applying new technology to current applications,

- increasing international sales through increased marketing activities
abroad, and

- improving distribution channels.

TRUETIME'S PRODUCTS AND SERVICES

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

PRECISE TIME AND FREQUENCY PRODUCTS -- We manufacture precision time
products that allow our customers to keep accurate time within
40 billionths of a second. In many ways, our precise time products are
similar to clocks and stopwatches -- our clocks tell us the time of day and
allow us to

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measure the time interval between when an event starts and when it stops.
The difference between conventional time measuring devices and our precise
time products lies in the accuracy of the measurements. To place the
accuracy of our clocks in perspective, a clock which accumulates a 40
billionths of a second time error over a 24 hour period will require more
than 500,000 years to accumulate an error of one second.

In the last three fiscal years, more than 75% of our revenues were
from the sale of our timing products that use GPS as a timing reference for
continuously disciplining our oscillators, the fundamental component that
determines the accuracy of our time and frequency products. A schematic
illustrating how a TrueTime GPS synchronized timing device operates is
shown below.

THE ARCHITECTURE OF A PRECISION TIMING DEVICE

[SCHEMATIC]

Quartz-based clocks are subject to numerous physical factors that
affect the overall clock accuracy and stability, including temperature
changes and aging. We rely upon GPS as a reference for continuously
disciplining our oscillators. GPS provides 24 hour worldwide coverage that
is not affected by weather conditions. The coverage of the 24 satellites in
six near-polar orbits together with numerous ground monitoring/verifying
stations produces a readily available and highly accurate timing reference
with state-of-the-art reliability and performance. However, GPS navigation
receivers tend to deliver compromised results when used as a time and
frequency receiver. To overcome this shortcoming in a standard GPS
receiver, we have developed a product line which implements a suite of
operations that extract optimal accuracy and stability from the clock
measurements provided by the GPS core receiver. We believe our products
provide superior oscillator discipline and enable us to offer the most
accurate quartz oscillator timing products in the industry.

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

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

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

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

TRUETIME'S CUSTOMERS

TELECOMMUNICATION COMPANIES -- Telecommunication companies are
continually seeking to deliver greater bandwidth and connectivity to
transmit data reliably at faster speeds. Wireline telephone companies that
transmit audio, video and other data over wires encounter many problems if
timing or synchronization is not precise. These problems include unreadable
facsimiles and corrupted or lost data as well as frozen images on video
conference screens. Similarly, wireless telephone carriers using cellular
or satellite communication need precise time and synchronization to avoid
static and blocked calls.

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

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

E-COMMERCE -- The amount of data being transmitted over the Internet
is expanding rapidly because of the growing number of users and the
increasing range of data-intensive activities for which the Internet is
used. Businesses increasingly enhance their reach to customers and
suppliers with applications such as electronic commerce, supply chain
management, global marketing and customer support via the Internet.
Consumers use the Internet to communicate, collect and publish information,
make retail purchases and access online entertainment. These network-based
businesses and consumer activities require the transmission of increasingly
large amounts of data quickly and reliably. As a result, broadband access
is becoming increasingly important, and this creates a growing need for our
precise time and frequency products.

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

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

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In fiscal year 1999, we sold our products to more than 1,000 customers. Our
customers include companies that order a large number of very similar products,
as well as customers that order a small number of special order products. The
majority of our sales are made to numerous and usually repeat, customers who
purchase small quantities of multiple types of products and who often have
custom or semi-custom specifications. For larger orders, we often deliver
multiple types of products to multiple locations. The diversity of our customers
requires significant customer support, flexible manufacturing and a wide array
of product inventory. Our engineering and manufacturing operations and business
systems have been adapted for fast-turn, customer-specific product variations.
We believe that the size and diversity of our customer base reduces the business
risk inherent in dependence on a small number of large-volume customers. While
the large number of our customers results in many customers generating
relatively small amounts of sales, typical customers are some of the best-known
enterprises engaged in

- telecommunications -- Lucent Technologies, PanAmSat Corporation and
companies which were part of the old AT&T system,

- computer networking -- Novell, Inc., Lucent Technologies and Cisco
Systems, Inc.,

- e-commerce -- NYSE, Nasdaq Stock Market, Chicago Mercantile Exchange,
Chicago Board of Trade and Ameritrade Information Service,

- power utilities -- PG&E Corporation and Bonneville Power Administration,

- aerospace -- The Boeing Company, Northrup Grumman Corporation, FAA and
Allied Signal Aerospace,

- national defense -- separate purchasing arms of the Department of Defense
and Hughes Network Systems, Lockheed Martin Corporation, Motorola, Inc.,
Raytheon Systems Company, Litton Denro (a subsidiary of Litton
Industries, Inc.) and NASA, and

- television broadcasting -- CNN, Westwood One and WHDTV, the
high-definition television model station.

Among our largest customers during the last three fiscal years have been
separate purchasing arms of the U.S. military services and Hughes Network
Systems, Lockheed Martin Corporation, Motorola, Inc., Raytheon Systems Company,
Litton Denro and NASA. Generally, our largest customers tend to change or rotate
from year to year, although U.S. governmental units are consistently among our
largest customers. During fiscal years 1998 and 1999, purchases by the U.S. Army
comprised approximately 10% and 18%, respectively, of our sales. Similarly,
during fiscal years 1997 and 1998, purchases by Hughes Network Systems accounted
for 10% of our sales each year. Sales to the U.S. government, as a whole,
comprised 21%, 23% and 28% of our sales during fiscal years 1997, 1998 and 1999,
respectively.

SALES AND MARKETING

In fiscal years 1997, 1998 and 1999, approximately 19%, 18% and 16%,
respectively, of our sales have been in international markets, but we are
attempting to increase our international marketing efforts. We market and sell
our products through three primary channels:

SALES REPRESENTATIVES -- More than 80% of our orders come through our
26 domestic and worldwide sales representative organizations. These
representatives are independent firms, each assigned a geographical area
for promoting and selling TrueTime products. Representatives covering our
domestic sales areas receive commissions on the sales generated in their
areas, but TrueTime actually confirms and invoices the sale to the
customer. Our arrangements with our international representatives are
different in that these representatives buy our products at a discount and
then resell the products to their customers at prices dictated by their
local market conditions.

DIRECT CONTACT BY TRUETIME EMPLOYEES -- We have 25 employees in our
Sales and Marketing Department, including our customer service personnel.
Six of these employees are Regional Managers and are in direct contact with
our customers. Most of the other employees work in customer service. We
place special emphasis on making sure our products are performing within
specifications and our customers are satisfied doing business with
TrueTime.

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SALES AND MARKETING VIA INTERNET -- We have established an Internet
website for extending the reach of our marketing and sales efforts.
Although customers are not yet able to order our products over the
Internet, our website provides added convenience for our customers who are
increasingly using the Internet for choosing products which meet their
needs. Because of the growing importance of our Internet link to customers,
we are committed to the continual enhancement of our website and
improvement of our procedures for responding to customer inquiries received
through our website.

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

TRUETIME'S COMPETITION

The development, manufacture and sale of precise time and frequency
products is an intensely competitive industry. According to the previously noted
Frost & Sullivan report, there are more than 20 companies offering products in
the GPS timing field. These companies range from separate timing divisions in
very large companies to small stand alone companies with revenues of less than
$1 million annually. Our principal competitors are Bancomm/Timing (a division of
Datum, Inc.), Odetics Telecom (an Odetics, Inc. division), Trak Systems, Inc. (a
Tech-Sym Corporation subsidiary) and Brandywine Communications, Inc. In
addition, more than a dozen companies produce products that are sold into the
time and frequency markets as indirect competition. These competitors consist
primarily of component suppliers or integrated system suppliers. As we continue
to grow, we will likely encounter these firms as more direct competitors. In
general, most of our competitors have more financial resources than we do, and
may be capable of offering more attractive packages for retaining and recruiting
employees.

INTELLECTUAL PROPERTY

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

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

No single patent, trademark or group thereof is considered essential to the
success of TrueTime. If we resort to legal proceedings to enforce our
intellectual property rights, the proceedings could be burdensome and costly,
even if we were to prevail. There are no proceedings currently pending relating
to our intellectual property.

REGULATORY MATTERS

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

Upon completion of this offering, we will no longer be a wholly owned
indirect subsidiary of OYO Japan. Therefore, TrueTime may enjoy some benefits by
no longer being considered a foreign-owned

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<PAGE> 34

corporation for certain regulatory purposes such as access to certain defense
contracts and government purchases of TrueTime products by system integrators.

MANUFACTURING OPERATIONS AND FACILITIES

We currently manufacture and service our products at our single leased
facility of about 25,000 square feet in Santa Rosa, California. We are
negotiating a long-term lease agreement on a new larger manufacturing and office
facility of approximately 50,000 - 75,000 square feet, into which we intend to
move in the first half of year 2000. Since the lease on our current facilities
does not expire until 2008, we plan to sublease the facility upon moving our
operations. In addition, we anticipate that the new lease agreement will provide
us with an option to purchase the new facility, which the board of directors may
choose to exercise in the future if it concludes that ownership of our facility
is an economic use of our general corporate funds. We plan to use approximately
$1.0 million of our working capital to build out and equip our new office and
manufacturing facility.

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

RESEARCH AND DEVELOPMENT

In fiscal 1999, we spent $2.2 million developing network time servers,
network interface features and higher levels of integration and capabilities in
GPS and real time operating systems. In fiscal 1998, we spent $1.9 million
building the research and development organization and developing the core
technology platform for new products. In fiscal 1997, we spent $1.9 million
developing high end data rate clock and distribution system products, updating
our GPS products and increasing the options offered in GPS products.

SUPPLIERS

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

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

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

EMPLOYEES

As of November 27, 1999, we employed 120 people on a full-time basis, all
of whom work at our facility in Santa Rosa, California. We have never
experienced a work stoppage and none of our employees is unionized. Over one
half of our employees have scientific and technical backgrounds.

LEGAL PROCEEDINGS

From time to time, we may be a party to litigation and proceedings that may
be considered part of the ordinary course of our business. Since our
incorporation in 1991, we have not been a defendant in any lawsuit.

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<PAGE> 35

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

In connection with this offering, the board of directors of TrueTime will
be set at six positions. Our certificate of incorporation provides for the
classification of the board into three classes of directors (Class I, Class II
and Class III), with the term of each class expiring at successive annual
stockholders' meetings. Beginning with the annual meeting of stockholders
following the fiscal year ending September 30, 2000, all nominees of the class
standing for election will be elected for three-year terms. The directors named
below, other than Mr. Hall, will constitute the board of TrueTime at the time of
the consummation of this offering.

<TABLE>
<CAPTION>
CLASS/YEAR
TERM AS DIRECTOR
NAME AGE POSITION WILL EXPIRE(1)
- ---- --- -------- ----------------
<S> <C> <C> <C>
Satoru Ohya(2)......................... 67 Director Class III / 2002
Katsuhiko Kobayashi(3)(4).............. 54 Chairman of the Board and Director Class III / 2002
Elizabeth A. Withers................... 40 President and Chief Executive Officer Class II / 2001
and Director
Haresh C. Patnaik...................... 57 Senior Vice President and Chief
Technical Officer
Donald H. Mitchell..................... 64 Vice President and Director of Sales
and Marketing
Michael P. Von der Porten.............. 43 Vice President and Chief Financial
Officer
Ernest M. Hall, Jr.(5)................. 74 Director (retiring prior to the
closing of this offering)
Charles J. Abbe(2)(3)(4)............... 58 Director Class I / 2000
Charles H. Still(2)(3)................. 57 Director Class II / 2001
A. Robert Towbin(2)(3)(4).............. 64 Director Class I / 2000
</TABLE>

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

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

(2) To be elected as a director immediately prior to the closing of this
offering.

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

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

(5) Mr. Hall will resign as a member of the board of directors immediately prior
to the effectiveness of the registration statement relating to this
offering.

Satoru Ohya will be elected, and has consented to serve, as a director of
TrueTime immediately prior to the closing of this offering. He has been
President of OYO Corporation since 1993. For over 40 years, Mr. Ohya has been an
employee, officer or director of OYO Corporation and various of its
subsidiaries. He is a director of OYO Geospace Corporation.

Katsuhiko Kobayashi joined OYO Corporation in 1995 and has been a Managing
Director since March 1999. Mr. Kobayashi is responsible for OYO Corporation's
international business activities. From 1996 to 1999, he served as Treasurer of
TrueTime's predecessor and he has served as a director thereof since 1999. From
1973 to 1995 he was employed by Sanwa Bank in its international banking area,
where he last held the position of general manager of the International Credit
Administration Department from 1993 to 1995. He is a director of OYO Geospace
Corporation.

Elizabeth A. Withers joined TrueTime in 1991. She has been a director and
President and Chief Executive Officer of TrueTime since September 1999. From
November 1998 until her appointment as

32
<PAGE> 36

President and Chief Executive Officer, Ms. Withers served as Vice President of
Operations. She has also held the positions of Operations Manager and Materials
Supervisor. Ms. Withers was formerly Manufacturing Manager at Asea Brown Boveri,
Production Manager at Delphian Corporation and Field Engineering Supervisor at
Fortune Systems. She holds a B.S. degree in Organizational Behavior from the
University of San Francisco and the CPIM certification from the American
Production and Inventory Control Society (APICS). Ms. Withers filed a personal
bankruptcy proceeding under federal laws in 1995.

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

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

Michael P. Von der Porten joined True Time in 1990 and has been Vice
President and Chief Financial Officer since September 1999. He served as Vice
President of Finance and Administration from November 1998 until September 1999.
He served as Controller and Manager of Administrative Services from June 1994
until November 1998. He served as Manager of Administrative Services from May
1991 until 1994. He has also held the position of Manufacturing Manager. Before
joining TrueTime, Mr. Von der Porten was the Director of Operations and
Secretary at Laser Scanning Products, Inc. and Materials Manager, Production
Manager and Program Manager at Microsource, Inc. Prior to that, he was
Headquarters Sales Manager and a Financial Analyst at Advanced Micro Devices.
Mr. Von der Porten holds an M.B.A. with concentrations in marketing and
production and operations management from the University of Chicago and a B.S.
in Engineering from Harvey Mudd College.

Ernest M. Hall, Jr. has been a director since the formation of TrueTime and
its predecessors in 1991. From August 1994 until his retirement in September,
1999, Mr. Hall was the President of TrueTime. He will retire as a director of
TrueTime immediately prior to the effectiveness of the registration statement
relating to this offering. He has held various positions with the OYO group of
companies since 1980. He was President of OYO U.S.A. from 1985 until 1995, and
from 1997 to the present. From 1980 to 1985, Mr. Hall served as a consultant to
OYO U.S.A. He is a director of OYO Geospace Corporation. Following the offering,
Mr. Hall will continue to serve as President of OYO U.S.A. and will be an
advisor to our management and Board.

Charles J. Abbe will be elected, and has consented to serve, as a director
of TrueTime immediately prior to the closing of this offering. Mr. Abbe has been
a director of Optical Coating Laboratory, Inc. (OCLI) since 1997, President
since November 1997 and Chief Executive Officer since April 1998. He served as
Vice President and General Manager of OCLI's Santa Rosa Division from April 1996
through October 1997 when he was appointed President, Chief Operating Officer
and director. Prior to joining

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<PAGE> 37

OCLI, Mr. Abbe held various senior management positions with Raychem Corporation
from 1989 to 1996. From 1971 to 1989, he was employed at McKinsey & Company,
Inc.

Charles H. Still will be elected, and has consented to serve, as a director
of TrueTime immediately prior to the closing of this offering and has been
corporate secretary of TrueTime since the formation of our predecessor in 1991.
He has been a partner in the law firm of Fulbright & Jaworski L.L.P., which
serves as legal counsel to OYO Corporation, OYO U.S.A. and TrueTime in various
matters, since 1975. He is a director of OYO Geospace Corporation.

A. Robert Towbin will be elected, and has consented to serve, as a director
of TrueTime immediately prior to the closing of this offering. Mr. Towbin has
served as Co-Chairman of C.E. Unterberg, Towbin since November 1999. From
December 1995 until November 1999, Mr. Towbin served as Senior Managing Director
of C.E. Unterberg, Towbin. He was President and Chief Executive Officer of the
Russian-American Enterprise Fund from January 1994 to August 1995. From 1987
until 1993, he was a Managing Director at Lehman Brothers Inc. He is a director
of Bradley Real Estate Inc., Gerber Scientific, Inc., Globalstar
Telecommunications Ltd., Globecomm Systems Inc. and K&F Industries, Inc.

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

BOARD COMMITTEES

Our board of directors has established an audit committee and a
compensation committee. The audit committee is charged with recommending to the
board of directors the appointment of our independent auditors, reviewing the
compensation of such auditors and reviewing with such auditors the plans for and
the results and scope of their auditing engagement. The compensation committee
reviews the performance and compensation of officers and makes recommendations
to the board of directors with respect thereto. It also administers our 1999
Employee Stock Plan. See "-- Employee Stock Option Plan."

DIRECTOR COMPENSATION

Directors of TrueTime currently are not compensated for their services as
directors. All directors of the Company are reimbursed, however, for ordinary
and necessary expenses incurred in attending board or committee meetings. We
intend to begin compensating non-employee directors and board advisors for their
services at a rate of $12,000 per year (plus expenses) and an initial grant of
options to purchase 10,000 shares of common stock pursuant to the 1999
Non-Employee Director Stock Plan at an exercise price equal to the initial
public offering price as set forth on the cover page of the prospectus. In
addition, we will annually grant additional stock options to such directors and
advisors for the purchase of shares of common stock pursuant to the terms of
that plan.

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<PAGE> 38

EXECUTIVE COMPENSATION

The following table provides information about the current President and
Chief Executive Officer of TrueTime, the former President and Chief Executive
Officer of TrueTime and the three other executive officers of TrueTime who
received salary and bonus in the year ended September 30, 1999, that exceeded
$100,000, these persons being collectively referred to as "named executive
officers." The following compensation data includes bonuses awarded in fiscal
2000 for performance in fiscal 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
YEAR ENDED SEPTEMBER 30, 1999
--------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Elizabeth A. Withers
President and Chief Executive Officer(1)............. $ 98,077(2) $ 71,546 $4,617(3)
Ernest M. Hall, Jr.
Former President(1)(4)............................... -- -- --
Haresh C. Patnaik
Senior Vice President and Chief Technical Officer.... 135,193(2) 71,546 4,980(3)
Donald H. Mitchell
Vice President and Director of Sales and Marketing... 83,429(2) 207,272(5) 6,473(3)
Michael P. Von der Porten
Vice President and Chief Financial Officer........... 102,268(2) 71,546 4,764(3)
</TABLE>

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

(1) Mr. Hall retired from the office of President effective September 15, 1999.
Ms. Withers was appointed to that office effective the same date. Following
this offering, Mr. Hall will continue to serve as an advisor to TrueTime
management and our board.

(2) Beginning October 1, 1999, Ms. Withers' base annual salary is $160,000. Her
compensation for fiscal 1999 related to her position as Vice President of
Operations until September 15, 1999. In addition, effective October 1, 1999,
Messrs. Patnaik's, Mitchell's and Von der Porten's base annual salaries were
$155,000, $150,000 and $140,000, respectively.

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

(4) Mr. Hall did not receive compensation from TrueTime for his services as
President. He was compensated by OYO U.S.A. for his services to OYO U.S.A.
and its subsidiaries, including TrueTime, since his duties were primarily
limited to overseeing the interests of OYO U.S.A. in TrueTime, and have not
included active involvement in our daily activities.

(5) Includes commissions from sales and bonuses.

EMPLOYEE STOCK OPTION PLAN

Our Board has established an incentive stock option and restricted stock
plan, the TrueTime, Inc. 1999 Employee Stock Plan (the Employee Plan), pursuant
to which options to purchase shares of common stock and awards of restricted
shares of common stock will be available for future grant to officers,
employees, consultants and advisors of TrueTime. The Employee Plan is designed
to provide selected employees, consultants and advisors, including officers,
with additional incentives to promote the success of our business and to enhance
our ability to attract and retain the services of qualified persons.

The Employee Plan will be administered by a committee of no less than two
persons appointed by the board. Under the Employee Plan, options to purchase
common stock and restricted stock awards up to an aggregate of 1,500,000 shares
of common stock may be granted by the committee. The exercise price of an option
granted pursuant to the Employee Plan may not be less than the fair market value
of the common stock on the date of grant and is determined by the committee on
the date the option is granted. In the case of a grant of an option designated
in the Employee Plan as an "incentive option" (which qualifies for special
treatment under federal tax law) to an employee who owns ten percent or more of
the outstanding shares of common stock (a 10% stockholder), the exercise price
of each such option under the Employee

35
<PAGE> 39

Plan may not be less than 110% of the fair market value of the common stock on
the date of the grant. No option may be granted under the Employee Plan for a
period of more than ten years. In the case of a 10% stockholder, no option
designated as an incentive option may be granted for a period of more than five
years. Options designated as incentive options under the Employee Plan may not
be granted to the extent the aggregate fair market value of the stock, valued as
of the date of the grant, with respect to which options first are exercisable by
the option holder in any calendar year, under the Employee Plan or any other
incentive stock option plan of TrueTime, exceeds $100,000. Under the Employee
Plan, the committee may issue shares of restricted stock to employees for no
payment by the employee or for a payment below the fair market value on the date
of grant. The restricted stock is subject to certain restrictions described in
the Employee Plan, with no restrictions continuing for more than ten years from
the date of the award.

To date the Board has not granted any options or restricted stock awards
under the Employee Plan. In connection with this offering, however, the board
intends to grant options for shares of common stock to certain officers and
employees, exercisable at the initial public offering price.

The following table provides information on stock options to be granted on
or about the closing date of this offering to our named executive officers.

<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EXERCISE EXPIRATION
NAME GRANTED EMPLOYEES PRICE DATE
- ---- ------------------ ------------- -------- ----------
<S> <C> <C> <C> <C>
Elizabeth A. Withers......................... 105,000 14% (1) (2)
Haresh C. Patnaik............................ 90,000 12% (1) (2)
Donald H. Mitchell........................... 90,000 12% (1) (2)
Michael P. Von der Porten.................... 90,000 12% (1) (2)
</TABLE>

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

(1) Exercise price will be equal to the initial public offering price.

(2) Options will expire ten years from date of grant.

In the 1993 Omnibus Budget Reconciliation Act, Congress generally limited
to $1 million per year the tax deduction available to public companies for
certain compensation paid to designated executives. These executives include the
President and Chief Executive Officer and the next four highest compensated
officers of TrueTime. An exception is provided from this deduction limitation
for "performance-based" compensation if specified statutory requirements are
satisfied. The Employee Plan is generally designed to satisfy these statutory
requirements for stock options. We anticipate being entitled to deduct an amount
equal to the ordinary income reportable by an optionee on exercise of
nonqualified options and the early disposition of shares of stock acquired by
exercise of incentive stock options. Restricted stock awards become vested based
on service to TrueTime, and generally will not be exempt from the $1 million
deduction cap. Because of special transition rules applicable to companies which
first become public in an initial public offering, we do not anticipate that
application of this deduction cap will have a material impact on awards issued
under the Employee Plan.

The Employee Plan may be amended by the board of directors without any
requirement of stockholder approval, except as required by the incentive option
rules of the Internal Revenue Code of 1986.

DIRECTOR STOCK PLAN

Our board of directors has also established the 1999 Non-Employee Director
Plan (the Director Plan), pursuant to which options to purchase shares of common
stock will be available for future grant to non-employee directors and advisors
based on the fair market value thereof, as determined under the Director Plan,
at the date of grant. The Director Plan is designed to enhance our ability to
attract and retain the services of qualified persons as directors and to provide
such directors with a direct proprietary interest in our success. The Director
Plan will be administered by the board of directors. Under the

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<PAGE> 40

Director Plan, an aggregate of 150,000 shares of common stock will be available
for grant of options to purchase common stock and, possibly in the future, for
issuance in partial payment of directors' annual fees. The exercise price of an
option granted pursuant to the Director Plan may not be less than the fair
market value of the common stock on the date of grant and is determined by the
board on the date the option is granted. No option may be granted under such
Plan for a period of more than ten years. Shares issued to directors in payment
of part of their annual fees, if any, shall be issued based on the fair market
value thereof on the date of issuance.

To date the board has not granted options under the Director Plan and no
shares have been issued under such plan in respect of director fees. In
connection with this offering, however, the board intends to grant options to
each non-employee director and Mr. Hall, as an advisor to our board of
directors, to acquire 10,000 shares of common stock at an exercise price equal
to the initial public offering price as set forth on the cover page of this
prospectus. Thereafter, the Director Plan provides for the grant of an option to
acquire 10,000 shares to any newly elected member of the board of directors and
an annual grant of an option to acquire 3,000 shares of common stock to those
non-employee directors who are serving on the board and certain advisors to the
board following each annual meeting of the stockholders. The Director Plan
generally may be amended by the board of directors without any requirement of
stockholder approval except to the extent required by Rule 16b-3.

401(k) PLAN

We have adopted a 401(k) Plan, effective as of the closing of this
offering, under which substantially all employees of TrueTime and its
subsidiaries who have completed at least six months of service will be eligible
to participate. The TrueTime 401(k) Plan permits eligible employees to
contribute up to 17% of their annual compensation up to a maximum dollar amount
established in accordance with Section 401(k) of the Internal Revenue Code of
1986. We may, in our discretion, make matching contributions of up to 50 percent
of the employees' deferrals of up to six percent of their compensation, or other
amounts as approved by the board of directors. During the fiscal year ended
September 30, 1999, our predecessor made matching contributions under a 401(k)
plan sponsored by OYO U.S.A. in an aggregate amount of approximately $19,000 for
Ms. Withers and Messrs. Patnaik, Mitchell and Von der Porten.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

Our certificate of incorporation provides that the liability of the
directors for monetary damages shall be limited to the fullest extent
permissible under Delaware law.

Our bylaws provide that we indemnify our directors and officers to the
fullest extent possible under Delaware law. These indemnification provisions
require us to indemnify such persons against certain liabilities and expenses to
which they may become subject by reason of their service as a director or
officer of TrueTime or any of our affiliated enterprises. The provisions also
set forth certain procedures, including the advancement of expenses, that apply
in the event of a claim for indemnification. We also intend to enter into
indemnification agreements with each of our officers and directors pursuant to
which we will indemnify each such person to the fullest extent permitted by law.
Further, we intend to obtain insurance to protect our officers and directors
from liability.

EMPLOYMENT AGREEMENTS

We plan to enter into an employment agreement with each of Ms. Withers and
Messrs. Patnaik, Von der Porten and Mitchell effective as of October 1, 1999,
subject to the consummation of this offering. These employment agreements will
set Ms. Withers' base annual salary at $160,000, Mr. Patnaik's base annual
salary at $155,000, Mr. Mitchell's base annual salary at $150,000 and Mr. Von
der Porten's base annual salary at $140,000, in each case subject to adjustment
by our Board. Each of these employees will also be entitled to participate in
our 401(k) Plan and any bonus plan we adopt and to receive certain employee
benefits and vacation.

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<PAGE> 41

Each employment agreement will provide that Ms. Withers and Messrs.
Patnaik, Von der Porten and Mitchell receive the severance benefits described
below upon termination of his or her employment unless the termination (a)
results from the death, disability or retirement of such employee, (b) is by
TrueTime for Cause (as defined in the employment agreement) or (c) is by such
employee other than for Good Reason (as defined in the employment agreement).
Under these employment agreements, "Cause" is defined to mean the employee's
willful and continued failure to perform his or her duties after a demand for
such performance or the employee's willfully engaging in gross misconduct
materially and demonstrably injurious to TrueTime. Under these employment
agreements, "Good Reason" is defined to mean a demotion, a reduction in base
salary, a relocation of the employee's base location of employment, the
discontinuation of any employee benefit without comparable substitution, the
failure of any successor of TrueTime to assume the employment agreement or a
purported termination not in compliance with the employment agreement. The
severance benefits to which Ms. Withers or Messrs. Patnaik, Mitchell or Von der
Porten would be entitled include (i) his or her salary through the date of
termination, (ii) his or her base salary and pro-rated bonus for the fiscal year
of termination multiplied by one and one-half, (iii) any relocation and
indemnity payments to which he or she is entitled and any costs and legal fees
incurred in connection with any dispute over the employment agreement and (iv) a
gross-up for any applicable "excess parachute payment" tax imposed on the
employee by the Internal Revenue Code of 1986.

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

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<PAGE> 42

RELATIONSHIP WITH OYO CORPORATION AND RELATED TRANSACTIONS

OFFICER AND DIRECTOR POSITIONS WITH OYO AFFILIATES

We are a wholly owned subsidiary of OYO U.S.A., which in turn is a wholly
owned subsidiary of OYO Corporation, a Japanese corporation. Mr. Kobayashi, the
chairman of our board of directors, is Managing Director of OYO Corporation. He
also holds offices with other of its subsidiaries. Mr. Ohya, who is to become a
director of the Company in conjunction with the consummation of this offering,
is president of OYO Corporation. Mr. Still is also to become a director of the
Company in conjunction with the consummation of this offering. Mr. Still serves
as the corporate secretary of TrueTime, OYO U.S.A. and most of the subsidiaries
of OYO U.S.A. In addition, Mr. Still is a partner in the law firm of Fulbright &
Jaworski L.L.P., which regularly acts as legal counsel to the OYO group of
companies, including TrueTime, in various matters and receives customary fees
for its services. Messrs. Ohya, Kobayashi and Still are also directors of OYO
Geospace Corporation, a majority-owned subsidiary of OYO U.S.A.

TRANSITION SERVICES AGREEMENT

To effect a complete separation of the administrative operation of TrueTime
from OYO Corporation, OYO U.S.A. and their affiliates, we have entered into a
transition services agreement with OYO U.S.A. Under this agreement, OYO U.S.A.
and TrueTime have each agreed to compensate the other for use of the other's
personnel for up to one year following the consummation of this offering. We
anticipate that the transition services will primarily be used for accounting,
tax and employee benefit matters. Under the agreement, no employee of either
party will be required to provide more than 50 hours per month in service for
the benefit of the other party. Our 401(k) Plan has been administered with
affiliated companies under OYO U.S.A.'s control. We have paid our proportionate
share of related costs (administration fees to third parties). Upon the
consummation of this offering, we will contract for all services on our own
behalf.

TAX SEPARATION AGREEMENT

We also intend to enter into a tax separation agreement with OYO U.S.A.
Under the agreement

- any tax liability, assessments, adjustments or refunds relating to our
income, gains, losses, deductions or credits utilized or reflected or to
be utilized or reflected in OYO U.S.A.'s consolidated, combined, or
unitary returns for the current year or for any period which includes all
or any portion of the taxable period ended as of the closing date of this
offering will be allocated between us and OYO U.S.A.

- any tax assessments, adjustments or refunds relating to our tax
attributes reflected or utilized in OYO U.S.A.'s consolidated, combined
or unitary returns as a result of an audit by a taxing authority will be
allocated between us and OYO U.S.A.

CASH MANAGEMENT SYSTEM AND TRUST AGREEMENT

We currently participate in the central cash management system of OYO
U.S.A. in which the net cash provided or used by our operations is transferred
to or from OYO U.S.A. on a daily basis. We have a receivable from OYO U.S.A. for
the cumulative amount by which the cash provided by operating activities,
including current income taxes allocated from OYO U.S.A., has exceeded our
working capital and capital expenditure requirements. The receivable was
approximately $433,000 at September 30, 1999. This amount reflects a collection
of $3.5 million from OYO U.S.A. in September 1999 for the preliminary and
partial settlement of the receivable balance. To the extent not already done, as
soon as practical following the closing of this offering, we will separate from
OYO U.S.A.'s central cash management system and the remaining receivable at that
date will be collected in cash. Beginning October 1, 1997, OYO U.S.A.
implemented a policy of crediting interest on the receivable balance, excluding
the reduction in the receivable balance for allocated current income taxes.
Interest credited and added to the receivable balance was $305,000 for fiscal
1999.

39
<PAGE> 43

In October 1999, we transferred $3.5 million to OYO U.S.A. subject to the
terms of a trust agreement with OYO U.S.A. Under the terms of the trust
agreement, OYO U.S.A. acknowledged and agreed that it held $3.5 million, plus
the investment income earned thereon, for our benefit and would manage the trust
assets as part of its other cash management activities. This action was taken to
maximize the return on our assets available for investment until such time that
we have established our own short-term investment program. On December 1, 1999,
the trust was terminated and the cash and cash equivalents held in trust were
distributed to us.

OYO U.S.A. REGISTRATION RIGHTS AGREEMENT

In connection with this offering, we have entered into a registration
rights agreement pursuant to which we granted to OYO U.S.A. piggy-back and
demand registration rights for shares of our common stock owned by OYO U.S.A.
after the consummation of this offering. We are not obligated to effect a
registration if securities for which registration is demanded can be sold within
a single 90-day period pursuant to Rule 144 under the Securities Act of 1933. In
general, we will bear all registration expenses incurred in connection with
these registrations, but OYO U.S.A. will pay all underwriting discounts and
commissions applicable to the sale of securities sold by it. OYO U.S.A. has
entered into a lock-up agreement pursuant to which it has agreed not to offer or
sell shares of our common stock held by it for a period of one year from the
date of this prospectus without the prior written consent of C.E. Unterberg,
Towbin on behalf of the underwriters. OYO U.S.A. has advised us that it has no
plans at present to sell additional shares of our common stock following the
consummation of this offering, but it will not be restricted in doing so except
during the lock-up period pursuant to the lock-up agreement with the
underwriters.

40
<PAGE> 44

SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL AND SELLING STOCKHOLDER

Of the shares of common stock being offered hereby, 1,500,000 are being
offered by OYO U.S.A., the selling stockholder. Prior to this offering, TrueTime
has been a wholly owned subsidiary of the selling stockholder, which held
4,000,000 shares. The selling stockholder is a wholly owned subsidiary of OYO
Corporation, a Japanese corporation. See "Relationship with OYO Corporation and
Related Transactions." Following this offering, the selling stockholder will
hold 2,500,000 shares of common stock. TrueTime and the selling stockholder will
proportionately share the underwriting discount and the expenses of this
offering.

Prior to this offering, our members of management owned no shares of our
common stock. Contemporaneously with this offering, members of management will
be issued options to acquire shares of common stock, as set forth below,
pursuant to the Employee Plan. See "Management -- Employee Stock Plan." The
following table sets forth as of the closing of this offering the beneficial
ownership of shares of common stock, and as a percentage of outstanding common
stock, of each of our directors, each named executive officer, each beneficial
owner of more than 5% of our outstanding common stock and all our directors and
executive officers as a group. Each person named has sole voting and investment
power with respect to the shares indicated except as otherwise stated in the
notes to the table.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AFTER OFFERING
-------------------------------------------
PERCENTAGE
-------------------------------
IF UNDERWRITER IF UNDERWRITER
OVER-ALLOTMENT OVER-ALLOTMENT
OPTION IS NOT OPTION IS
NAME OF BENEFICIAL OWNER SHARES EXERCISED EXERCISED
- ------------------------ --------- -------------- --------------
<S> <C> <C> <C>
OYO Corporation(1)...................................... 2,500,000 45.5% 42.0%
Ichigaya Building
4-2-6 Kudan Kita
Chiyoda-ku, Tokyo 102
Japan
OYO Corporation U.S.A................................... 2,500,000 45.5% 42.0%
7334 N. Gessner Road
Houston, Texas 77040
Satoru Ohya(2)(6)....................................... 2,510,000 45.6% 42.0%
2-42-10 Takinagara
Kita-ku, Tokyo 114
Japan
Katsuhiko Kobayashi(3)(6)............................... 10,000 * *
Elizabeth A. Withers.................................... -- -- --
Haresh C. Patnaik....................................... -- -- --
Donald H. Mitchell...................................... -- -- --
Michael P. Von der Porten............................... -- -- --
Ernest M. Hall, Jr.(4).................................. 10,000 * *
Charles J. Abbe(5)(6)................................... 10,000 * *
Charles H. Still(5)(6).................................. 10,000 * *
A. Robert Towbin(5)(6).................................. 10,000 * *
Executive officers and directors as a group (9
people)(7)............................................ 2,550,000 45.9% 42.5%
</TABLE>

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

* Less than one percent.

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

(2) The shares indicated as beneficially owned by Mr. Ohya are owned directly by
OYO U.S.A. and are included because Mr. Ohya is an affiliate of OYO
Corporation. Mr. Ohya disclaims beneficial ownership of the shares of common
stock owned by OYO U.S.A. within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934. Mr. Ohya owns 298,800 ordinary shares of

41
<PAGE> 45

OYO Corporation, and his wife and children collectively own 19,741 shares of
OYO Corporation. Mr. Ohya disclaims beneficial ownership of the shares of
OYO Corporation owned by his children within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934.

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

(4) Mr. Hall will resign as a member of the board of directors immediately prior
to the effectiveness of the registration statement relating to this
offering.

(5) To be elected as a director immediately prior to the closing of this
offering.

(6) Represents options to purchase 10,000 shares to be granted in connection
with this offering, which vest immediately.

(7) Does not include shares beneficially owned by Mr. Hall, who is retiring
prior to the closing of this offering.

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<PAGE> 46

DESCRIPTION OF CAPITAL STOCK

The following is a summary description of the material terms of our capital
stock. This summary is not intended to be complete. Since the terms of our
capital stock must comply with the provisions of our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus is a part, as well as the General Corporation
Law of the State of Delaware, you should read those two exhibit documents
carefully.

We have the authority to issue up to 20,000,000 shares of common stock, par
value $.01 per share, and 1,000,000 shares of preferred stock, par value $.01
per share.

COMMON STOCK

Subject to preferences that may be applicable to any preferred stock
outstanding at any time, if any, the holders of outstanding shares of common
stock are entitled to receive dividends out of assets legally available therefor
at such times and in such amounts as our board of directors from time to time
may determine. Holders of common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders. Cumulative voting for
the election of directors is not authorized by our certificate of incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon our
liquidation, dissolution or winding-up the assets legally available for
distribution to stockholders would be distributable ratably among the holders of
our common stock after payment of liquidation preferences, if any, on any
outstanding preferred stock and payment of our creditors. Each outstanding share
of our common stock is, and all shares of our common stock to be outstanding
upon completion of this offering will be upon payment therefor, duly and validly
issued, fully paid and nonassessable.

PREFERRED STOCK

Our board of directors is authorized, subject to any limitations under
Delaware law that may apply, to issue shares of preferred stock in one or more
series. The board can fix the rights, preferences and privileges of the shares
of each series and any qualifications, limitations or restrictions thereon.

Our board may authorize the issuance of shares of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of our common stock. The issuance of shares of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of TrueTime. We have no current plan
to issue any shares of preferred stock.

DELAWARE ANTI-TAKEOVER LAW

We are subject to the provisions of Section 203 of the Delaware General
Corporation law regulating corporate takeovers. This statute prevents Delaware
corporations like us from engaging, under certain circumstances, in a business
combination, which includes a merger or sale of more than 10% of the
corporation's assets, with any interested stockholder, or a stockholder who owns
15% or more of the corporation's outstanding voting stock, as well as affiliates
and associates of any such persons, for three years following the date that such
stockholder became an "interested stockholder" unless

- the transaction in which such stockholder became an interested
stockholder is approved by the board of directors prior to the date the
interested stockholder attained such status;

- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transactions commenced, excluding those shares owned by persons who
are directors and also officers and, under certain circumstances, shares
held in employee stock plans; or

43
<PAGE> 47

- the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock
not owned by the interested stockholder.

Under some circumstances, Section 203 makes it more difficult for a person
who would be an "interested stockholder" to effect various business combinations
with a corporation for a three-year period, although the stockholders may elect
to exclude a corporation from the restrictions imposed under Section 203. Our
certificate of incorporation does not exclude us from the restrictions imposed
under Section 203. It is anticipated that the provisions of Section 203 may
encourage companies interested in acquiring us to negotiate in advance with our
board of directors since the stockholder approval requirement would be avoided
if a majority of the directors then in office approves, prior to the date on
which a stockholder becomes an interested stockholder, either the business
combination or the transaction which results in the stockholder becoming an
interested stockholder.

CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS

The summary below describes provisions of our certificate of incorporation
and bylaws. The provisions of our certificate of incorporation and bylaws
discussed below may have the effect, either alone or in combination with the
provisions of Section 203 discussed above, of making more difficult or
discouraging a tender offer, proxy contest or other takeover attempt that is
opposed by our board of directors but that you might consider to be in your best
interest. Those provisions include

- restrictions on the rights of stockholders to remove directors;

- prohibitions against stockholders calling a special meeting of
stockholders or acting by unanimous written consent in lieu of a meeting;
and

- requirements for advance notice of actions proposed by stockholders for
consideration at meetings of the stockholders.

CLASSIFIED BOARD OF DIRECTORS; REMOVAL; NUMBER OF DIRECTORS; FILLING VACANCIES

Our certificate of incorporation and bylaws provide that the Board shall be
divided into three classes of directors, designated Class I, Class II and Class
III, with the classes to be as nearly equal in number as possible. The term of
office of each class shall expire at the third annual meeting of stockholders
for the election of directors following the election of such class. See
"Management -- Directors and Officers" for identification of the directors in
each class. Each director is to hold office until his or her successor is duly
elected and qualified, or until his or her earlier resignation or removal.

Our certificate of incorporation provides that the number of directors will
be fixed from time to time by a resolution adopted by the board of directors;
provided that the number so fixed shall not be more than nine nor less than
three directors. Our certificate of incorporation also provides that any
vacancies will be filled only by the affirmative vote of two-thirds of the
remaining directors, even if less than a quorum. Accordingly, absent an
amendment to the certificate of incorporation, our board could prevent any
stockholder from enlarging the board and filling the new directorships with such
stockholder's own nominees. Moreover, our certificate of incorporation and
bylaws provide that directors may be removed only for cause and only upon the
affirmative vote of holders of at least a majority of our outstanding voting
stock at a special meeting of stockholders called expressly for that purpose.

The classification of directors could have the effect of making it more
difficult for stockholders to change the composition of the board of directors.
At least two annual meetings of stockholders, instead of one, would generally be
required to effect a change in a majority of the board. Such a delay may help
ensure that our directors, if confronted by a holder attempting to force a proxy
contest, a tender or exchange offer, or an extraordinary corporate transaction,
would have sufficient time to review the proposal as well as any available
alternatives to the proposal and to act in what they believe to be the best
interest of the stockholders. The classification provisions will apply to every
election of directors, however,

44
<PAGE> 48

regardless of whether a change in the composition of the board would be
beneficial to us and our stockholders and whether or not a majority of our
stockholders believe that such a change would be desirable.

The classification provisions could also have the effect to discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of us, even though such an attempt might be
beneficial to us and our stockholders. The classification of the board of
directors could thus increase the likelihood that incumbent directors will
retain their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of our stock by purchasers whose
objective is to take control of us and remove a majority of the board, the
classification of the board could tend to reduce the likelihood of increases in
the market price of our common stock that might result from accumulations of
large blocks. Accordingly, you could be deprived of opportunities to sell your
shares of our common stock at a higher market price than might otherwise be the
case.

NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS

Our certificate of incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders and stockholder
action may not be taken by written consent in lieu of a meeting. Special
meetings of stockholders can be called only by our board of directors by a
resolution adopted by two-thirds of the members of the board, or by the chairman
of the board or the Chief Executive Officer. Moreover, the business permitted to
be conducted at any special meeting of stockholders is limited to the business
brought before the meeting under the notice of meeting given by us.

The provisions of our certificate of incorporation prohibiting stockholder
action by written consent and permitting special meetings to be called only by
the chairman of the board of directors or the Chief Executive Officer, or at the
request of two thirds of the members of the board, may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting.
The provisions would also prevent the holders of a majority of our voting stock
from unilaterally using the written consent procedure to take stockholder
action. Moreover, a stockholder could not force stockholder consideration of a
proposal over the opposition of the chairman or President or two thirds of the
members of the board by calling a special meeting of stockholders prior to the
time such parties believe such consideration to be appropriate.

ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER
PROPOSALS

Our bylaws establish an advance notice procedure for stockholders to
nominate candidates for election as directors or bring other business before an
annual meeting of stockholders.

The stockholder notice procedure provides that only persons who are
nominated by, or at the direction of, the board of directors, or by a
stockholder who has given timely notice containing specified information to our
corporate secretary prior to the meeting at which directors are to be elected,
will be eligible for election as our directors. The stockholder notice procedure
also provides that at an annual meeting only business that has been brought
before the meeting by, or at the direction of, the board of directors or by a
stockholder who has given timely written notice containing specified information
to our corporate secretary may be conducted. For notice of stockholder
nominations or proposals to be made at an annual meeting to be timely, the
notice must be received by us not less than 90 days nor more than 180 days in
advance of the meeting. However, in the event that less than 100 days notice or
prior public disclosure of the date of the meeting of stockholders is given or
made to the stockholders, to be timely, notice of a nomination or proposal
delivered by the stockholder must be received by our corporate secretary not
later than the close of business on the tenth day following the day on which
notice of the date of the meeting of stockholders was mailed or such public
disclosure was made to the stockholders. If the board or, alternatively, the
presiding officer at a meeting (in the case of a stockholder proposal) or the
chairman of the meeting (in the case of a stockholder nomination to the board)
determines at or prior to the meeting that business was not brought before the
meeting, or a person was not nominated, in accordance with the stockholder
notice procedure, that business will not be conducted at the meeting, or that
person will not be eligible for election as a director.

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<PAGE> 49

By requiring advance notice of nominations by stockholders, the stockholder
notice procedure will afford our board of directors an opportunity to consider
the qualifications of the proposed nominees and, to the extent considered
necessary or desirable by the board, to inform stockholders about such
qualifications. By requiring advance notice of other proposed business, the
stockholder notice procedure will also provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent considered
necessary or desirable by the board, will provide the board with an opportunity
to inform stockholders, prior to such meetings, of any business proposed to be
conducted at such meetings, together with any recommendations as to the board's
position regarding action to be taken regarding such business, so that
stockholders can better decide whether to attend such a meeting or to grant a
proxy regarding the disposition of any such business.

Although our bylaws do not give the board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper procedures
are not followed and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to us and our stockholders.

AMENDMENTS

Our certificate of incorporation provides that we reserve the right to
amend, alter, change or repeal any provision contained in our certificate of
incorporation, and all rights conferred to stockholders are granted subject to
such reservation. The affirmative vote of holders of not less than two-thirds of
our voting stock, voting together as a single class, is required to alter,
amend, adopt any provision inconsistent with or repeal specified provisions of
our certificate of incorporation, including certain provisions discussed in this
section. In addition, our certificate of incorporation provides that
stockholders may only adopt, amend or repeal our bylaws by the affirmative vote
of holders of not less than a majority of our voting stock, voting together as a
single class. Our bylaws may also be amended by our board of directors.

RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY

Our certificate of incorporation authorizes the board of directors to
create and issue rights, warrants and options entitling the holders of them to
purchase from us shares of any class or classes of our capital stock or other
securities or property on such terms and conditions as the board of directors
may deem advisable.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation and bylaws provide that we will indemnify our directors and
officers to the fullest extent permitted by Delaware law. We have also entered
into separate indemnification agreements with our directors and officers that
provide them indemnification protection to the maximum extent permitted by law
in the event our certificate of incorporation is subsequently amended or we are
taken over and also to provide for certain procedural matters for our directors
that safeguard or enhance their indemnity rights. The form of the indemnity
agreements is included as an exhibit to the registration statement of which this
prospectus is a part and you should read that document carefully, together with
our certificate of incorporation and bylaws, which are also included as
exhibits, if you want further information as to our indemnity arrangements
relating to directors and officers.

Our certificate of incorporation and bylaws provide that we will indemnify
officers and directors against losses that they may incur in investigations and
legal proceedings resulting from their services to us, which may include
services in connection with takeover defense measures. Such provisions may have
the effect of preventing changes in our management.

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<PAGE> 50

LISTING

Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "TRUE."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company. They can be reached at 40 Wall Street, New York, New
York 10005, and their telephone number at that location is (212) 936-5100.

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<PAGE> 51

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.

After this offering, 5,500,000 shares of our common stock will be
outstanding (5,950,000 shares if the underwriters exercise their over-allotment
option from us in full), and there are 810,000 estimated shares of common stock
issuable upon the exercise of authorized and outstanding options under our stock
plans (see "Management"), and 200,000 shares issuable under warrants issued to
the underwriters in connection with this offering (see "Underwriting"). Of these
shares, the 3,000,000 shares (3,450,000 shares if the underwriters exercise
their over-allotment options in full) sold in this offering will be freely
tradable without restrictions under the Securities Act, except for any shares
purchased by any of our affiliates, defined as any person that, directly or
indirectly, controls, or is controlled by, or is under common control with,
TrueTime. The remaining 2,500,000 shares (not including shares issuable under
options, warrants or pursuant to restricted stock awards as to which special
restrictions apply) are restricted securities, defined as

- securities acquired directly or indirectly from us, or from an affiliate
of ours, or in a transaction or chain of transactions not involving any
public offering; and

- securities acquired from us that are subject to the resale limitations
under the Securities Act.

Restricted securities generally may not be sold unless they are registered under
the Securities Act or are sold pursuant to an exemption from registration, such
as the exemption provided by Rule 144 under the Securities Act.

Our officers and directors and the selling stockholder have entered into
lock-up agreements pursuant to which they have agreed not to offer or sell any
shares of common stock for a period of one year after the date of this
prospectus without the prior written consent of C.E. Unterberg, Towbin, which
may, at any time and without notice, waive any of the terms of these lock-up
agreements. These shares will not be eligible for sale in the public market
without registration under the Securities Act unless such sales meet the
conditions and restrictions of Rule 144 as described below.

In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (1)
1% of the then-outstanding shares of common stock and (2) the average weekly
trading volume of the common stock during the four calendar weeks immediately
preceding the date on which the notice of such sale on Form 144 is filed with
the SEC. Sales under Rule 144 are also subject to certain provisions relating to
notice and manner of sale and the availability of current public information
about the Company. In addition, a person (or persons whose shares are
aggregated) who has not been an affiliate of the Company at any time during the
90 days immediately preceding a sale of our common stock, and who has
beneficially owned the shares for at least two years, would be entitled to sell
shares owned thereby under Rule 144(k) without regard to the volume limitation
and other conditions described above. The foregoing summary of Rule 144 is not
intended to be a complete description.

As soon as practicable following the consummation of this offering, we
intend to file a registration statement under the Securities Act to register the
shares of our common stock available for issuance under our stock plans. Shares
issued under these plans and warrants generally will be available for sale in
the open market when options or warrants or exercised or restricted stock awards
vest, subject to the expiration of the one-year lock-up period.

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<PAGE> 52

We will grant C.E. Unterberg, Towbin registration rights covering the
200,000 shares of our common stock they may acquire upon exercise of the
warrants to be issued to them in connection with this offering. We intend to
grant OYO U.S.A. piggyback and demand registration rights covering the 2,500,000
shares of common stock it will own after this offering.

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<PAGE> 53

UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
among us and the underwriters, each of the underwriters named below, C.E.
Unterberg, Towbin, Cruttenden Roth Incorporated and Pennsylvania Merchant Group,
has severally agreed to purchase from us the number of shares of common stock
set forth below:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
C.E. Unterberg, Towbin...................................... 1,800,000
Cruttenden Roth Incorporated................................ 600,000
Pennsylvania Merchant Group................................. 600,000
---------
Total............................................. 3,000,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions. The nature of the underwriters'
obligations is that they are committed to purchase and pay for all of the above
shares of common stock if any are purchased.

PUBLIC OFFERING PRICE AND DEALERS CONCESSION

The underwriters propose initially to offer the shares of common stock
offered by this prospectus to the public at the public offering price per share
set forth on the cover page of this prospectus and to certain dealers at that
price less a concession not in excess of $0.21 per share. The underwriters may
allow, and these dealers may re-allow, a discount not in excess of $0.10 per
share on sales to certain other dealers. After commencement of this offering,
the offering price, discount price and re-allowance may be changed by the
underwriters. No such change will alter the amount of proceeds to be received by
us as set forth on the cover page of this prospectus.

OVER-ALLOTMENT OPTION

We have granted the underwriters an option, which may be exercised within
30 days after the date of this prospectus, to purchase up to 450,000 additional
shares of common stock to cover over-allotments, if any, at the initial public
offering price, less the underwriting discount set forth on the cover page of
this prospectus. If the underwriters exercise their over-allotment option to
purchase any of these additional 450,000 shares of common stock, these
additional shares will be sold by the underwriters on the same terms as those on
which the shares offered by this prospectus are being sold. We will be
obligated, pursuant to the over-allotment option, to sell shares to the
underwriters if the underwriters exercise their over-allotment option. The
underwriters may exercise their over-allotment option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered by this prospectus.

UNDERWRITING COMPENSATION

The following table summarizes the compensation to be paid to the
underwriters by us and the selling stockholder in connection with this offering:

<TABLE>
<CAPTION>
TOTAL
-------------------------------
PER WITHOUT WITH
SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts paid by us................. $0.35 $ 525,000 $ 682,500
Underwriting discounts paid by the selling
stockholder..................................... $0.35 $ 525,000 $ 525,000
----- ---------- ----------
Total................................... $0.35 $1,050,000 $1,207,500
</TABLE>

As additional underwriting compensation, we will issue C.E. Unterberg,
Towbin, for its own account, warrants covering an aggregate of up to 200,000
shares of common stock exercisable at the price per share equal to 110% of the
initial public offering price. C.E. Unterberg, Towbin may exercise these
warrants as to all or any lesser number of the underlying shares of common stock
commencing on the first anniversary of the date of this offering until the fifth
anniversary of the date of this offering. The terms of the warrants

50
<PAGE> 54

require us to register the common stock for which the warrants are exercisable
within one year from the effective date of the registration statement.

For one year from the effective date of this offering, the warrants will be
restricted from sale, transfer, pledge, assignment or hypothecation, except to
officers or partners of C.E. Unterberg, Towbin. The exercise price of the
warrants and the number of shares of common stock for which the warrants are
exercisable are subject to adjustment to protect the warrant holder against
dilution in certain events.

INDEMNIFICATION OF UNDERWRITERS

We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in connection with these
liabilities.

LOCK-UP AGREEMENTS

We, the selling stockholder and all of our directors and officers have
agreed to a "lock-up" arrangement for a period of one year after the date of
this prospectus, subject to certain exceptions. Under this lock-up arrangement,
we may not, without the prior written consent of C.E. Unterberg, Towbin, enter
into or effect certain transactions involving the capital stock of TrueTime or
any securities convertible into or exchangeable for our capital stock. For
example, we and they may not offer, sell, pledge or otherwise dispose of, file a
registration statement with the SEC relating to any shares of our capital stock.

STABILIZATION AND OTHER TRANSACTIONS

In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the common stock. These transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M under the Exchange Act,
pursuant to which the underwriters may bid for, or purchase, common stock for
the purpose of stabilizing the market price. The underwriters also may create a
short position by selling more common stock in connection with this offering
than they are committed to purchase from us, and in such case may purchase
common stock in the open market following completion of this offering to cover
all or a portion of such short position. In addition, the underwriters may
impose "penalty bids" whereby they may reclaim from a dealer participating in
this offering, the selling concession with respect to the common stock that it
distributed in this offering, but which was subsequently purchased for the
accounts of the underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
common stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in the paragraph is required, and, if
they are undertaken, they may be discontinued at any time.

At our request, the Underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares of common stock offered by this
prospectus for sale to our officers, directors, employees and their family
members friends and to business associates of TrueTime, including, customers,
sales representatives, suppliers and other friends. These persons must commit to
purchase after the registration statement has become effective but before the
open of business on the following business day. The number of shares available
for sale to the general public will be reduced to the extent these persons
purchase the reserved shares.

DISCRETIONARY ACCOUNTS

The underwriters have informed us that they do not intend to confirm sales
to any account over which they exercise discretionary authority.

DETERMINATION OF OFFERING PRICE

Prior to this offering, there has been no market for our common stock.
Accordingly, the initial public offering price for the common stock was
determined by negotiation between us and the underwriters.

51
<PAGE> 55

Among the factors considered in determining the initial public offering price
were our results of operations, our current financial condition, our future
prospects, the state of the markets for our services, the experience of our
management, the economics of the precision timing industry in general, the
general condition of the equity securities market and the demand for similar
securities of companies considered comparable to us.

52
<PAGE> 56

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for us by Fulbright & Jaworski L.L.P., Houston, Texas. Charles H. Still, a
partner in such firm, will become a member of our board of directors immediately
prior to the consummation of this offering and will be granted options to
purchase 10,000 shares of common stock under the 1999 Director Plan at the
offering price. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P.

EXPERTS

The financial statements as of September 30, 1998 and 1999, and for each of
the three years in the period ended September 30, 1999, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of our
common stock being sold in this offering. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits
filed with the registration statement. For further information with respect to
TrueTime and our common stock, we refer you to the registration statement and
the exhibits filed with the registration statement. Statements contained in this
prospectus regarding the contents of any contract or any other document filed as
an exhibit are not necessarily complete, and, in each instance, we refer you to
the copy of such contract or other document filed as an exhibit to the
registration statement and each such statement is qualified in all respects by
the contract or other document in question. A copy of the registration statement
and the exhibits and schedules filed with the registration statement may be
inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60611 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from these offices upon the payment
of the fees charged by the SEC. You may obtain information on the operation of
the SEC's public reference facilities by calling 1-800-SEC-0330. The SEC also
maintains a World Wide Web site that contains registration statements, reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. The address of the site is
http://www.sec.gov. We maintain a website at www.truetime.com.

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU WRITTEN
INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO MATTERS
NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SHARES OF COMMON STOCK OR OUR
SOLICITATION OF YOUR OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY
JURISDICTION WHERE IT WOULD NOT BE PERMITTED OR LEGAL. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS CURRENT ONLY AS OF THE DATE OF THIS PROSPECTUS. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER AFTER THE DATE OF
THIS PROSPECTUS SHALL CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN OR THE AFFAIRS OF TRUETIME, INC. HAVE NOT CHANGED SINCE THE DATE OF THIS
PROSPECTUS.

53
<PAGE> 57

TRUETIME, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-1
Balance Sheets as of September 30, 1998 and 1999............ F-2
Statements of Operations for the Years Ended September 30,
1997, 1998 and 1999....................................... F-3
Statements of Changes in Stockholder's Equity for the Years
Ended September 30, 1997, 1998 and 1999................... F-4
Statements of Cash Flows for the Years Ended September 30,
1997, 1998 and 1999....................................... F-5
Notes to Financial Statements............................... F-6
</TABLE>

F-i
<PAGE> 58

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
TrueTime, Inc.:

In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholder's equity and cash flows present fairly, in
all material respects, the financial position of TrueTime, Inc. (a wholly owned
subsidiary of OYO Corporation U.S.A.) at September 30, 1998 and 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with accounting principles generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Houston, Texas
November 2, 1999, except for Note 8, as
to which the date is December 1, 1999

F-1
<PAGE> 59

TRUETIME, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 38,348 $ 3,538,851
Receivables:
Trade accounts, net of allowance of $10,000 at each
date.................................................. 2,945,038 4,270,985
Affiliates............................................. 3,171 42,760
Receivable from Parent.................................... 2,741,589 432,608
Inventories............................................... 4,217,828 5,064,779
Prepaid expenses and other current assets................. 148,655 23,753
Deferred income tax....................................... 220,151 172,791
----------- -----------
Total current assets.............................. 10,314,780 13,546,527
Property and equipment, net................................. 1,003,205 1,128,275
Goodwill, net of accumulated amortization of $188,906 and
$214,682.................................................. 842,327 816,552
----------- -----------
Total assets...................................... $12,160,312 $15,491,354
=========== ===========

LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
Trade accounts payable.................................... $ 436,547 $ 767,337
Accrued expenses.......................................... 1,237,362 1,971,066
----------- -----------
Total current liabilities......................... 1,673,909 2,738,403
Commitments and contingencies
Stockholder's equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 4,000,000 shares issued and outstanding.... 40,000 40,000
Additional paid-in capital................................ 4,689,838 4,689,838
Retained earnings......................................... 5,756,565 8,023,113
----------- -----------
Total stockholder's equity........................ 10,486,403 12,752,951
----------- -----------
Total liabilities and stockholder's equity........ $12,160,312 $15,491,354
=========== ===========
</TABLE>

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

F-2
<PAGE> 60

TRUETIME, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Sales................................................. $13,893,904 $16,296,604 $20,645,240
Cost of sales......................................... 5,783,298 7,536,409 9,076,137
----------- ----------- -----------
Gross profit.......................................... 8,110,606 8,760,195 11,569,103
Operating expenses:
Selling, general and administrative................. 3,906,323 4,395,159 5,905,203
Research and development............................ 1,854,596 1,873,365 2,155,597
----------- ----------- -----------
Total operating expenses.................... 5,760,919 6,268,524 8,060,800
----------- ----------- -----------
Income from operations................................ 2,349,687 2,491,671 3,508,303
----------- ----------- -----------
Interest and other income (expense):
Interest income..................................... -- 259,824 300,109
Other, net.......................................... 9,972 (10,916) 4,982
----------- ----------- -----------
Total interest and other income, net........ 9,972 248,908 305,091
----------- ----------- -----------
Income before provision for income taxes.............. 2,359,659 2,740,579 3,813,394
Provision for income taxes............................ 963,410 1,121,608 1,546,846
----------- ----------- -----------
Net income............................................ $ 1,396,249 $ 1,618,971 $ 2,266,548
=========== =========== ===========
Weighted average shares outstanding as adjusted for
reincorporation:
Basic and diluted................................... 4,000,000 4,000,000 4,000,000
=========== =========== ===========
Earnings per share:
Basic and diluted................................... $ 0.35 $ 0.40 $ 0.57
=========== =========== ===========
</TABLE>

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

F-3
<PAGE> 61

TRUETIME, INC.

STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Stockholder's equity, October 1,
1996............................... 4,000,000 $40,000 $4,689,838 $2,741,345 $ 7,471,183
Net income......................... -- -- -- 1,396,249 1,396,249
--------- ------- ---------- ---------- -----------
Stockholder's equity, September 30,
1997............................. 4,000,000 40,000 4,689,838 4,137,594 8,867,432
Net income......................... -- -- -- 1,618,971 1,618,971
--------- ------- ---------- ---------- -----------
Stockholder's equity, September 30,
1998............................. 4,000,000 40,000 4,689,838 5,756,565 10,486,403
Net income......................... -- -- -- 2,266,548 2,266,548
--------- ------- ---------- ---------- -----------
Stockholder's equity, September 30,
1999............................. 4,000,000 $40,000 $4,689,838 $8,023,113 $12,752,951
========= ======= ========== ========== ===========
</TABLE>

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

F-4
<PAGE> 62

TRUETIME, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1997 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 1,396,249 $1,618,971 $2,266,548
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred income taxes.............................. 47,382 47,531 47,360
Depreciation and amortization...................... 200,123 265,874 342,888
Effects of changes in operating assets and
liabilities:
Receivables...................................... (1,327,617) 127,736 (1,365,536)
Inventories...................................... (777,342) (675,414) (846,951)
Prepaid expenses and other current assets........ 5,917 (35,391) 124,902
Trade accounts payable........................... 275,335 (516,230) 330,790
Accrued expenses................................. 275,953 39,426 733,704
----------- ---------- ----------
Net cash provided by (used in) operating
activities.................................. 96,000 872,503 1,633,705
----------- ---------- ----------
Cash flows from investing activities:
Decrease (increase) in receivable from Parent......... 148,824 (201,936) 2,308,981
Capital expenditures.................................. (244,824) (632,219) (442,183)
----------- ---------- ----------
Net cash provided by (used in) investing
activities.................................. (96,000) (834,155) 1,866,798
----------- ---------- ----------
Increase in cash and cash equivalents................... -- 38,348 3,500,503
Cash and cash equivalents, beginning of period.......... -- -- 38,348
----------- ---------- ----------
Cash and cash equivalents, end of period................ $ -- $ 38,348 $3,538,851
=========== ========== ==========
Supplemental cash flow information:
Noncash settlement of cumulative allocated current
income taxes by offset against receivable from
Parent............................................. $ -- $ -- $4,229,878
=========== ========== ==========
</TABLE>

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

F-5
<PAGE> 63

TRUETIME, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

TrueTime, Inc. (the "Company") is a wholly owned subsidiary of OYO
Corporation U.S.A. (the "Parent"). The Parent is a wholly owned subsidiary of
OYO Corporation, a Japanese corporation. The Company designs, develops and
manufactures precision time products that are essential components in modern
communications and computer systems. The Company's products are used in its
telecommunications, computer networking and aerospace industries as well as in
various other commercial markets. The Company's products use a variety of
external timing references, including most importantly the Global Positioning
System, together with state-of-the-art clocks to provide high quality signals
(frequencies) and precision time.

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

USE OF ESTIMATES

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

REVENUE RECOGNITION

Revenue is primarily derived from the sale of precision time and frequency
instruments. Revenue is recognized when products are shipped and title has
passed to the customer.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred.

ALLOCATION OF OPERATING EXPENSES FROM THE PARENT

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

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt securities purchased with an
original or remaining maturity at the time of purchase of three months or less
to be cash equivalents. Subsequent to September 30, 1999, cash and cash
equivalents include amounts held in trust with the Parent as more fully
described in Note 8.

CONCENTRATIONS OF CREDIT RISK

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

The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. Management believes the financial strength
of the financial institutions minimizes the credit risk related to such
deposits.

F-6
<PAGE> 64
TRUETIME, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company sells products to customers throughout the United States and
various foreign countries. The Company's normal credit terms for trade
receivables are 30 days. In certain situations, credit terms may be extended to
60 days. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. Allowances are maintained for estimated
credit losses. The Company's provision for bad debts was none, $13,700 and none
for the years ended September 30, 1997, 1998 and 1999, respectively. The
Company's write off of bad debts against the allowance for doubtful accounts was
none, $13,700 and none for the years ended September 30, 1997, 1998 and 1999,
respectively.

INVENTORIES

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

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation expense is provided
by the straight-line method over an estimated useful life of 5 years for all
property and equipment except leasehold improvements, which are depreciated over
the shorter of the economic life or the term of the lease.

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

GOODWILL

The Parent acquired the Company in 1991. Goodwill represents the Parent's
purchase price of the Company in excess of the fair values of the Company's
assets and liabilities at the purchase date. Goodwill is amortized to expense
using the straight-line method over an estimated useful life of 40 years.

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

PRODUCT WARRANTIES

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

INCOME TAXES

The Company joins in the consolidated U.S. income tax return of the Parent,
which includes all U.S. subsidiaries of the Parent, and in the consolidated
California state income tax return, which includes all subsidiaries that are
included in the consolidated U.S. income tax return. Federal and state income
taxes are provided by the Company as if it filed separate income tax returns.

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

F-7
<PAGE> 65
TRUETIME, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. INVENTORIES:

Inventories consisted of the following:

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Finished goods.............................................. $1,030,747 $ 948,393
Work in process............................................. 769,541 1,375,575
Raw materials............................................... 2,417,540 2,740,811
---------- ----------
$4,217,828 $5,064,779
========== ==========
</TABLE>

3. PROPERTY AND EQUIPMENT:

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------
1998 1999
---------- -----------
<S> <C> <C>
Machinery and equipment..................................... $1,451,660 $ 1,712,419
Furniture and fixtures...................................... 341,963 342,716
Transportation equipment.................................... 2,142 26,767
Leasehold improvements...................................... 132,716 141,728
---------- -----------
1,928,481 2,223,630
Accumulated depreciation.................................... (925,276) (1,095,355)
---------- -----------
$1,003,205 $ 1,128,275
========== ===========
</TABLE>

4. ACCRUED EXPENSES:

Accrued expenses consisted of the following:

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
Employee bonuses............................................ $ 530,331 $ 873,157
Payroll and other compensation.............................. 437,941 725,063
Compensated absences........................................ 230,213 246,984
Product warranty............................................ 12,000 12,000
Legal and professional fees................................. 25,867 26,102
Other accrued expenses...................................... 1,010 87,760
---------- ----------
$1,237,362 $1,971,066
========== ==========
</TABLE>

F-8
<PAGE> 66
TRUETIME, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. INCOME TAXES:

The provision for income taxes consisted of the following:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal......................................... $775,564 $ 909,378 $1,269,555
State........................................... 140,464 164,699 229,931
-------- ---------- ----------
916,028 1,074,077 1,499,486
-------- ---------- ----------
Deferred:
Federal......................................... 40,061 40,201 40,051
State........................................... 7,321 7,330 7,309
-------- ---------- ----------
47,382 47,531 47,360
-------- ---------- ----------
$963,410 $1,121,608 $1,546,846
======== ========== ==========
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Provision for income taxes at the statutory
rate.............................................. $802,284 $ 931,797 $1,296,554
State income taxes, net of federal income tax
benefit......................................... 147,785 172,029 237,240
Goodwill amortization............................. 8,764 8,764 8,764
Other............................................. 4,577 9,018 4,288
-------- ---------- ----------
Provision for income taxes........................ $963,410 $1,121,608 $1,546,846
======== ========== ==========
Effective income tax rate......................... 40.8% 40.9% 40.6%
======== ========== ==========
</TABLE>

Deferred income taxes under the liability method reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred income tax
liabilities and assets were as follows:

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts........................... $ 4,000 $ 4,000
Accrued product warranty.................................. 5,000 5,000
Inventories............................................... 34,390 43,311
Accrued compensated absences.............................. 92,900 99,635
Other..................................................... 85,748 32,560
-------- --------
222,038 184,506
Deferred income tax liability:
Property and equipment.................................... (1,887) (11,715)
-------- --------
Net deferred income tax asset..................... $220,151 $172,791
======== ========
</TABLE>

Under the liability method, a valuation allowance is provided when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. Based on the Company's historical

F-9
<PAGE> 67
TRUETIME, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

taxable income record and taxable income available in carryback years,
management believes that the Company will realize the deferred tax assets.

6. STOCKHOLDER'S EQUITY:

Effective November 1, 1999, the Company was reincorporated from California
to Delaware under the name TrueTime, Inc. (also referred to as the "Company").
The reincorporation was accomplished by the issuance of 4,000,000 shares of $.01
par value common stock in a newly formed Delaware corporation to the Parent and
the tax-free merger of the California corporation into the Delaware corporation.
After the reincorporation, the Company has 20,000,000 authorized shares of $.01
par value common stock, of which 4,000,000 issued and outstanding common shares
are owned by the Parent. The accompanying financial statements reflect the
capital structure of the Company after the reincorporation and the assets,
liabilities, total stockholder's equity and results of operations of the
previous California corporation for all dates and periods presented. Earnings
per share information has been computed giving effect to the common shares
outstanding after the reincorporation for all periods presented.

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

In conjunction with a planned initial public offering, the Company has
filed a registration statement with the Securities and Exchange Commission to
offer 3,000,000 common shares, including 1,500,000 common shares owned by
Parent. The Company has agreed to grant options to the underwriters for the
purchase of up to 450,000 additional common shares to cover over-allotments, if
any. In addition, the Company has agreed to issue warrants to the underwriters
for the purchase of up to 200,000 common shares at an exercise price equal to
110% of the offering price.

The board of directors have established the TrueTime, Inc. 1999 Employee
Stock Plan and the 1999 Non-Employee Director Plan and have reserved an
aggregate of 1,500,000 common shares and 150,000 common shares, respectively,
for issuance thereunder. No stock awards have been granted under either plan.

7. RETIREMENT PLAN:

The Company's employees are participants in a 401(k) plan (the "Plan")
provided by the Parent, which covers substantially all eligible employees in the
United States. The Plan is a qualified salary reduction plan in which all
eligible participants may elect to have a percentage of their compensation
contributed to the Plan, subject to annual limitations. The Company's share of
discretionary contributions was approximately $92,000, $112,000 and $136,000 for
the years ended September 30, 1997, 1998 and 1999, respectively.

8. RELATED PARTY TRANSACTIONS:

Sales to the Parent and other affiliated companies were approximately
$97,000, $40,000 and $52,000 during the years ended September 30, 1997, 1998 and
1999, respectively.

The Company participates in the central cash management system of the
Parent in which the net cash provided or used by operations is transferred to or
from the Parent on a daily basis. Since the implementation of the central cash
management system, the Company's cash flow provided from operating activities
have exceeded capital expenditure and, as a result, the Company has maintained a
receivable from the Parent for the excess that is held in the cash management
system. Beginning October 1, 1997, the Parent implemented a policy of crediting
interest on the receivable balance. Interest credited and added to the
receivable balance was $259,824 and $300,109 for the years ended September 30,
1998 and 1999, respectively. For financial reporting purposes, the receivable
from the Parent represents the
F-10
<PAGE> 68
TRUETIME, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

cumulative amount of cash contributed to the central cash management system,
plus the interest credited thereon, net of the cumulative amount of current
federal income taxes that have been allocated from the Parent.

On September 30, 1999, the Company and the Parent conducted a partial and
preliminary settlement of the receivable from Parent. On that date, the Parent
formally settled the cumulative amount of allocated current income taxes of
$4,229,878 by offsetting such amount against the receivable from the Parent for
the cumulative amount of cash contributed to the central cash management system.
In addition, the Parent paid the Company $3,500,000 in cash as a partial
settlement of the resulting net receivable balance. At September 30, 1999, after
considering this transaction, the remaining receivable from Parent was $432,608.
In October 1999, the Company transferred $3,500,000 in cash to the Parent
subject to the terms of a Trust Agreement with the Parent. Under the terms of
the Trust Agreement, the Parent acknowledged and agreed that it held $3,500,000,
plus the investment income earned thereon, for the Company's benefit and managed
the trust assets as part of the Parent's other cash management activities. This
action was taken to maximize the return on the Company's assets available for
investment. On December 1, 1999, the Trust Agreement was terminated and the cash
and cash equivalents held in trust in the amount of $3,530,089 were distributed
to the Company.

9. COMMITMENTS:

OPERATING LEASES

The Company leases certain office space and manufacturing facilities under
noncancelable operating leases. For fiscal years ending after September 30,
1999, the approximate future minimum rental commitments under noncancelable
operating leases were as follows:

<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-------------------------
<S> <C>
2000.................................................... $ 185,000
2001.................................................... 185,000
2002.................................................... 185,000
2003.................................................... 185,000
2004.................................................... 186,000
Thereafter.............................................. 783,000
----------
$1,709,000
==========
</TABLE>

Rent expense for the years ended September 30, 1997, 1998 and 1999, was
approximately $178,000, $191,000 and $353,000, respectively.

10. SEGMENT INFORMATION:

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

F-11
<PAGE> 69
TRUETIME, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States............................... $11,337,000 $13,445,000 $17,276,000
Foreign:
Europe................................... 1,524,000 1,387,000 1,869,000
Other.................................... 936,000 1,425,000 1,448,000
</TABLE>

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

Various branches and agencies of the U.S. Government utilize the Company's
products in varying applications. Total products sales to the U.S. Government
comprised 21%, 23% and 28% of revenues during the years ended September 30,
1997, 1998 and 1999, respectively. Sales to one branch of the U.S. Government
comprised 18% of the Company's revenues for the year ended September 30, 1999.
In addition, sales to a private-sector customer comprised 10% of revenues for
each of the two years in the period ended September 30, 1998.

F-12
<PAGE> 70

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3,000,000 SHARES

[TRUETIME LOGO]

COMMON STOCK

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

PROSPECTUS
------------------------

C.E. UNTERBERG, TOWBIN

CRUTTENDEN ROTH
INCORPORATED

PENNSYLVANIA MERCHANT GROUP

December 16, 1999

UNTIL JANUARY 10, 2000, 25 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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