##### Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

|(Mark One) |  |                                                                                  
|---------- |  | ---------------------------------------------------------------------------------
|[X]        |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001.

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
  ____________________to ______________________.

Commission file no. 0-6272

DATUM INC.
(Exact name of registrant as specified in its charter)

|                                |  |                    
|------------------------------- |  | -------------------
|DELAWARE                        |  | 95-2512237         
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)

9975 Toledo Way, Irvine, CA 92618-1819
(Address of principal executive offices) (Zip code)

(949) 598-7500
(Registrants telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.

YES [X]. NO [   ].

The registrant had 6,189,291 shares of common stock outstanding as of November
7, 2001.

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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEET                
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS      
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS      
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | Item 3. Quantitative and Qualitative Disclosures about Market Risk.                          
|PART II. OTHER INFORMATION   
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 10.61                



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##### Table of Contents



INDEX

|        |  |                                                            |  |   
|------- |  | ---------------------------------------------------------- |  | --
|Part I  |  | Financial Information                                      |  |   
|Item 1. |  | Financial Statements                                       |  | 3 
|Item 2. |  | Managements Discussion and Analysis of                    |  |   
|        |  | Financial Condition and Results of Operations              |  | 11
|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk |  | 14
|Part II |  | Other Information                                          |  |   
|Item 6. |  | Exhibits and Reports on Form 8-K                           |  | 15

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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

DATUM INC. AND SUBSIDIARIES




|                                                         |                                                                                |                             |                                |        |               |        |              |        |        |        | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------- | ------------------------------ | ------ | ------------- | ------ | ------------ | ------ | ------ | ------ | 
|                                                         |                                                                                |                             |                                |        | September 30, |        | December 31,
|                                                         |                                                                                |                             |                                |        | 2001          |        | 2000        
|                                                         |                                                                                |                             |                                |        |               |        |             
|                                                         |                                                                                |                             |                                |        | (unaudited)   |        |              |        |       
|A S
          S E T S                                    |                                                                                |                             |                                |        |               |        |              |       
|Current
          assets                                 |                                                                                |                             |                                |        |               |        |              |       
|                                                         | Cash and
          cash equivalents                                            |                             | $                              | 3,081  |               |        | $            | 1,017  |       
|                                                         | Restricted
          cash                                                      |                             |                                | 2,012  |               |        |              |       |       
|                                                         | Accounts
          receivable, net of allowance of $876 and $508, respectively |                             |                                | 25,258 |               |        |              | 34,988 |       
|                                                         | Inventories                                                                    |                             |                                |        |               |        |              |        |       
|                                                         |                                                                                | Purchased
          parts   |                                |        | 15,034        |        |              |        | 13,015 |       
|                                                         |                                                                                | Work-in-process             |                                |        | 7,035         |        |              |        | 7,873  |       
|                                                         |                                                                                | Finished
          products |                                |        | 8,354         |        |              |        | 5,512  |       
|                                                         |                                                                                |                             |                                |        |               |        |              |       
|                                                         |                                                                                |                             | 30,423                         |        |               |        | 26,400       |       
|                                                         | Prepaid
          expenses                                                     |                             |                                | 574    |               |        |              | 375    |       
|                                                         | Deferred
          income taxes                                                |                             |                                | 3,769  |               |        |              | 4,613  |       
|                                                         | Income
          tax refund receivable                                         |                             |                                | 3,185  |               |        |              | 161    |       
|                                                         |                                                                                |                             |                                |        |               |        |              |       
|                                                         |                                                                                |                             | Total
          current assets |        |               | 68,302 |              |        |        | 67,554 | 
|Plant
          and equipment                            |                                                                                |                             |                                |        |               |        |              |       
|                                                         | Land                                                                           |                             |                                | 2,040  |               |        |              | 2,040  |       
|                                                         | Buildings                                                                      |                             |                                | 5,785  |               |        |              | 5,435  |       
|                                                         | Equipment                                                                      |                             |                                | 25,415 |               |        |              | 23,509 |       
|                                                         | Leasehold
          improvements                                               |                             |                                | 1,362  |               |        |              | 1,315  |       
|                                                         |                                                                                |                             |                                |        |               |        |              |       
|                                                         |                                                                                |                             | 34,602                         |        |               |        | 32,299       |       
|Less accumulated
          depreciation and amortization |                                                                                |                             | 20,231                         |        |               |        | 17,567       |       
|                                                         |                                                                                |                             |                                |        |               |        |              |       
|                                                         |                                                                                |                             | 14,371                         |        |               |        | 14,732       |       
|                                                         |                                                                                |                             |                                |        |               |        |              |       
|Goodwill,
          net                                  |                                                                                |                             | 8,772                          |        |               |        | 12,595       |       
|Other
          assets                                   |                                                                                |                             | 2,938                          |        |               |        | 395          |       
|                                                         |                                                                                |                             |                                |        |               |        |              |       
|                                                         |                                                                                | $                           | 94,383                         |        |               | $      | 95,276       |       
|                                                         |                                                                                |                             |                                |        |               |        |              |       

See Notes to Condensed Consolidated Financial Statements

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DATUM INC. AND SUBSIDIARIES
  CONDENSED CONSOLIDATED BALANCE SHEET(In thousands, except share data)

|                                               |                                                                                                                                                                           |                         |                                      |        |               |        |              |        |   |        | 
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ------------------------------------ | ------ | ------------- | ------ | ------------ | ------ | - | ------ | 
|                                               |                                                                                                                                                                           |                         |                                      |        | September 30, |        | December 31,
|                                               |                                                                                                                                                                           |                         |                                      |        | 2001          |        | 2000        
|                                               |                                                                                                                                                                           |                         |                                      |        |               |        |             
|                                               |                                                                                                                                                                           |                         |                                      |        | (unaudited)   |        |              |        |  
|LIABILITIES
          AND STOCKHOLDERS EQUITY |                                                                                                                                                                           |                         |                                      |        |               |        |              |       
|Current
          liabilities                  |                                                                                                                                                                           |                         |                                      |        |               |        |              |       
|                                               | Accounts
          payable                                                                                                                                                |                         | $                                    | 9,350  |               |        | $            | 8,777  |  
|                                               | Accrued
          salaries and wages                                                                                                                                      |                         |                                      | 3,473  |               |        |              | 4,179  |  
|                                               | Accrued
          warranty                                                                                                                                                |                         |                                      | 2,236  |               |        |              | 2,173  |  
|                                               | Other
          accrued expenses                                                                                                                                          |                         |                                      | 1,017  |               |        |              | 1,376  |  
|                                               | Income
          taxes payable                                                                                                                                            |                         |                                      |       |               |        |              | 1,705  |  
|                                               | Advances
          on line of credit                                                                                                                                      |                         |                                      |       |               |        |              | 2,020  |  
|                                               | Current
          portion of long-term debt                                                                                                                               |                         |                                      | 2,500  |               |        |              | 3,000  |  
|                                               |                                                                                                                                                                           |                         |                                      |        |               |        |              |       
|                                               |                                                                                                                                                                           |                         | Total
          current liabilities  |        |               | 18,576 |              |        |   | 23,230 | 
|                                               |                                                                                                                                                                           |                         |                                      |        |               |        |              |       
|Long-term
          debt                       |                                                                                                                                                                           |                         | 2,725                                |        |               |        | 1,750        |       
|                                               |                                                                                                                                                                           |                         |                                      |        |               |        |              |       
|Postretirement
          benefits              |                                                                                                                                                                           |                         | 1,394                                |        |               |        | 1,188        |       
|                                               |                                                                                                                                                                           |                         |                                      |        |               |        |              |       
|Other
          long-term liabilities          |                                                                                                                                                                           |                         | 611                                  |        |               |        | 584          |       
|                                               |                                                                                                                                                                           |                         |                                      |        |               |        |              |       
|Deferred
          income taxes                |                                                                                                                                                                           |                         | 985                                  |        |               |        | 985          |       
|                                               |                                                                                                                                                                           |                         |                                      |        |               |        |              |       
|Stockholders
          equity                 |                                                                                                                                                                           |                         |                                      |        |               |        |              |       
|                                               | Preferred
          stock, par value $.25 per share
          Authorized - 1,000,000 shares                                                                               |                         |                                      |        |               |        |              |        |  
|                                               |                                                                                                                                                                           | Issued
           none |                                      |        |              |        |              |        |  |       
|                                               | Common
          stock, par value $.25 per share
          Authorized - 10,000,000 shares 
          Issued  6,183,834 shares in 2001
          6,067,065 shares in 2000 |                         |                                      | 1,546  |               |        |              | 1,517  |  
|                                               | Additional
          paid-in capital                                                                                                                                      |                         |                                      | 53,348 |               |        |              | 51,441 |  
|                                               | Retained
          earnings                                                                                                                                               |                         |                                      | 16,410 |               |        |              | 15,516 |  
|                                               | Unamortized
          stock compensation                                                                                                                                  |                         |                                      | (324   | )             |        |              | (127   | )
|                                               | Accumulated
          other comprehensive loss                                                                                                                            |                         |                                      | (888   | )             |        |              | (808   | )
|                                               |                                                                                                                                                                           |                         |                                      |        |               |        |              |       
|                                               |                                                                                                                                                                           |                         | Total
          stockholders equity |        |               | 70,092 |              |        |   | 67,539 | 
|                                               |                                                                                                                                                                           |                         |                                      |        |               |        |              |       
|                                               |                                                                                                                                                                           | $                       | 94,383                               |        |               | $      | 95,276       |       
|                                               |                                                                                                                                                                           |                         |                                      |        |               |        |              |       

See Notes to Condensed Consolidated Financial Statements

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DATUM INC. AND SUBSIDIARIES




|                                                |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |        | 
|----------------------------------------------- | ---------------------------------------- | - | ------------------ | ------ | ----------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                                |                                          |   | Three Months Ended |        | Nine Months Ended
|                                                |                                          |   | September 30,      |        | September 30,    
|                                                |                                          |   |                    |        |                  
|                                                |                                          |   | 2001               |        | 2000              |   | 2001   |        | 2000
|                                                |                                          |   |                    |        |                   |   |        |        |     
|Net Sales                                       |                                          | $ | 25,670             |        |                   | $ | 36,197 |        |      | $ | 86,514 |        |  | $ | 98,708 |       
|Operating
          expenses:                   |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|                                                | Cost of
          sales                  |   |                    | 14,019 |                   |   |        | 19,776 |      |   |        | 47,024 |  |   |        | 54,185 | 
|                                                | Selling                                  |   |                    | 4,326  |                   |   |        | 4,285  |      |   |        | 12,889 |  |   |        | 12,746 | 
|                                                | Product
          development            |   |                    | 3,320  |                   |   |        | 4,044  |      |   |        | 10,620 |  |   |        | 11,833 | 
|                                                | General
          and administrative     |   |                    | 3,189  |                   |   |        | 4,546  |      |   |        | 10,925 |  |   |        | 12,796 | 
|                                                | Impairment
          of long-lived asset |   |                    |       |                   |   |        |       |      |   |        | 2,718  |  |   |        |       | 
|                                                |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|Operating
          income                      |                                          |   | 816                |        |                   |   | 3,546  |        |      |   | 2,338  |        |  |   | 7,148  |       
|                                                |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|Interest
          expense                      |                                          |   | 123                |        |                   |   | 186    |        |      |   | 343    |        |  |   | 1,529  |       
|Interest
          income                       |                                          |   | (34                | )      |                   |   | (20    | )      |      |   | (80    | )      |  |   | (159   | )     
|                                                |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|Income
          before income taxes            |                                          |   | 727                |        |                   |   | 3,380  |        |      |   | 2,075  |        |  |   | 5,778  |       
|Income
          tax provision                  |                                          |   | 414                |        |                   |   | 1,333  |        |      |   | 1,183  |        |  |   | 2,340  |       
|                                                |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|Net income                                      |                                          | $ | 313                |        |                   | $ | 2,047  |        |      | $ | 892    |        |  | $ | 3,438  |       
|                                                |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|Net income
          per common share:          |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|                                                | Basic                                    |   | $                  | 0.05   |                   |   | $      | 0.34   |      |   | $      | 0.15   |  |   | $      | 0.58   | 
|                                                |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|                                                | Diluted                                  |   | $                  | 0.05   |                   |   | $      | 0.32   |      |   | $      | 0.14   |  |   | $      | 0.55   | 
|                                                |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|Shares
          used in per share calculation: |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|                                                | Basic                                    |   |                    | 6,163  |                   |   |        | 5,977  |      |   |        | 6,128  |  |   |        | 5,913  | 
|                                                |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       
|                                                | Diluted                                  |   |                    | 6,274  |                   |   |        | 6,376  |      |   |        | 6,333  |  |   |        | 6,249  | 
|                                                |                                          |   |                    |        |                   |   |        |        |      |   |        |        |  |   |        |       

See Notes to Condensed Consolidated Financial Statements

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DATUM INC. AND SUBSIDIARIES




|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |         |        |       |        |  
|---------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ------------------------------------------------ | --------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------ | ----------------- | ------ | ------- | ------ | ----- | ------ | -
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        | Nine Months Ended
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        | September 30,    
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                  
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        | 2001              |        | 2000   
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|Cash flows
          from operating activities:                        |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|                                                                       | Net income                                                                                             |                                                  | $                                                   | 892                                                                                             |        |                   | $      | 3,438   |       
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|                                                                       | Adjustments
          to reconcile net income to net cash 
          provided by operating activities: |                                                  |                                                     |                                                                                                 |        |                   |        |         |       
|                                                                       |                                                                                                        |                                                  |                                                     | Depreciation
          and amortization                                                         |        |                   | 2,959  |         |        |       | 3,526  |  
|                                                                       |                                                                                                        |                                                  |                                                     | Amortization
          of goodwill                                                              |        |                   | 1,287  |         |        |       | 1,595  |  
|                                                                       |                                                                                                        |                                                  |                                                     | Write-down
          of impaired asset                                                          |        |                   | 2,718  |         |        |       |       |  
|                                                                       |                                                                                                        |                                                  |                                                     | Contribution
          of shares of common stock to
          the Companys 401(k) plan         |        |                   | 555    |         |        |       | 572    |  
|                                                                       |                                                                                                        |                                                  |                                                     | Non-cash
          compensation                                                                 |        |                   | 284    |         |        |       | 229    |  
|                                                                       |                                                                                                        |                                                  |                                                     | Income
          tax benefit from restricted stock issued
          and stock options exercised |        |                   | 403    |         |        |       |       |  
|                                                                       |                                                                                                        |                                                  | Changes
          in assets and liabilities:        |                                                                                                 |        |                   |        |         |        |       |       
|                                                                       |                                                                                                        |                                                  |                                                     | Increase
          in restricted cash                                                           |        |                   | (2,012 | )       |        |       |       |  
|                                                                       |                                                                                                        |                                                  |                                                     | (Increase)
          decrease in accounts receivable                                            |        |                   | 9,730  |         |        |       | (8,226 | )
|                                                                       |                                                                                                        |                                                  |                                                     | Increase
          in inventories                                                               |        |                   | (4,023 | )       |        |       | (4,132 | )
|                                                                       |                                                                                                        |                                                  |                                                     | Decrease
          in deferred income tax                                                       |        |                   | 844    |         |        |       |       |  
|                                                                       |                                                                                                        |                                                  |                                                     | (Increase)
          decrease in income tax refund receivable                                   |        |                   | (3,024 | )       |        |       | 40     |  
|                                                                       |                                                                                                        |                                                  |                                                     | Increase
          in prepaid expenses                                                          |        |                   | (199   | )       |        |       | (189   | )
|                                                                       |                                                                                                        |                                                  |                                                     | (Increase)
          decrease in other assets                                                   |        |                   | (851   | )       |        |       | 164    |  
|                                                                       |                                                                                                        |                                                  |                                                     | Increase
          in accounts payable                                                          |        |                   | 572    |         |        |       | 2,801  |  
|                                                                       |                                                                                                        |                                                  |                                                     | Increase
          (decrease) in accrued expenses                                               |        |                   | (1,012 | )       |        |       | 3,510  |  
|                                                                       |                                                                                                        |                                                  |                                                     | Increase
          (decrease) in income taxes payable                                           |        |                   | (1,705 | )       |        |       | 1,219  |  
|                                                                       |                                                                                                        |                                                  |                                                     | Increase
          in postretirement benefits                                                   |        |                   | 206    |         |        |       | 114    |  
|                                                                       |                                                                                                        |                                                  |                                                     | Increase
          (decrease) in other long-term liabilities                                    |        |                   | 27     |         |        |       | (44    | )
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|                                                                       |                                                                                                        |                                                  | Total
          reconciling items                   |                                                                                                 |        | 6,759             |        |         |        | 1,179 |       
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|                                                                       |                                                                                                        |                                                  | Net cash
          provided by operating activities |                                                                                                 |        | 7,651             |        |         |        | 4,617 |       
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|Cash flows
          from investing activities:                        |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|                                                                       | Proceeds
          from equipment disposals                                                            |                                                  |                                                     |                                                                                                |        |                   |        | 51      |       
|                                                                       | Capital
          expenditures                                                                         |                                                  |                                                     | (2,748                                                                                          | )      |                   |        | (2,762  | )     
|                                                                       | Capitalized
          software development costs                                                       |                                                  |                                                     | (1,724                                                                                          | )      |                   |        |        |       
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|                                                                       |                                                                                                        | Net cash
          used by investing activities  |                                                     |                                                                                                 | (4,472 | )                 |        |         | (2,711 | )    
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|Cash flows
          from financing activities:                        |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|                                                                       | Reduction
          of line of credit                                                                  |                                                  |                                                     | (2,020                                                                                          | )      |                   |        |        |       
|                                                                       | Proceeds
          of long-term debt                                                                   |                                                  |                                                     | 2,725                                                                                           |        |                   |        | 6,000   |       
|                                                                       | Payments
          of long-term debt                                                                   |                                                  |                                                     | (2,250                                                                                          | )      |                   |        | (15,501 | )     
|                                                                       | Proceeds
          from exercise of stock options                                                      |                                                  |                                                     | 216                                                                                             |        |                   |        | 1,352   |       
|                                                                       | Proceeds
          from ESP plan                                                                       |                                                  |                                                     | 293                                                                                             |        |                   |        | 209     |       
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|                                                                       |                                                                                                        | Net cash
          used for financing activities |                                                     |                                                                                                 | (1,036 | )                 |        |         | (7,940 | )    
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|Effect
          of exchange rate changes on cash and cash equivalents |                                                                                                        |                                                  | (79                                                 | )                                                                                               |        |                   | (310   | )      
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|Net decrease
          in cash and cash equivalents                    |                                                                                                        |                                                  | 2,064                                               |                                                                                                 |        |                   | (6,344 | )      
|Cash and
          cash equivalents at beginning of period             |                                                                                                        |                                                  | 1,017                                               |                                                                                                 |        |                   | 8,271  |        
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        
|Cash and
          cash equivalents at end of period                   |                                                                                                        | $                                                | 3,081                                               |                                                                                                 |        | $                 | 1,927  |        
|                                                                       |                                                                                                        |                                                  |                                                     |                                                                                                 |        |                   |        |        

See Notes to Condensed Consolidated Financial Statements

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##### Table of Contents



DATUM INC. AND SUBSIDIARIES




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2001 AND 2000

NOTE A  BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the requirements of Form 10-Q and, therefore,
do not include all information and footnotes which would be presented were such
financial statements prepared in accordance with generally accepted accounting
principles. The condensed consolidated balance sheet at December 31, 2000 was
derived from the audited consolidated balance sheet at that date which is not
presented herein.

In the opinion of management, the accompanying financial statements reflect all
adjustments, which are normal and recurring, necessary to provide a fair
presentation of the results for the interim period presented. These condensed
consolidated financial statements should be read in conjunction with the
audited financial statements presented in the Companys Annual Report on Form
10-K for the year ended December 31, 2000. Operating results for interim
periods are not necessarily indicative of operating results for an entire year.

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 sales and expenses during the reporting period. Actual
results could differ from those estimates.

NOTE B  EARNINGS PER SHARE

Net income per share-basic excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding during the
reporting period. Net income per share-diluted reflects the potential dilutive
effect, calculated using the treasury stock method, of additional common shares
that are issuable upon exercise of outstanding stock options and stock warrants
as follows (in thousands):

|                                            |  |                    |       |                   |  |      |       |      |  |  |       |  |  |  |       | 
|------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- | 
|                                            |  | Three months ended |       | Nine months ended
|                                            |  | September 30,      |       | September 30,    
|                                            |  |                    |       |                  
|                                            |  | 2001               |       | 2000              |  | 2001 |       | 2000
|                                            |  |                    |       |                   |  |      |       |     
|Basic shares outstanding (weighted average) |  |                    | 6,163 |                   |  |      | 5,977 |      |  |  | 6,128 |  |  |  | 5,913 | 
|Effect of dilutive securities               |  |                    | 111   |                   |  |      | 399   |      |  |  | 205   |  |  |  | 336   | 
|                                            |  |                    |       |                   |  |      |       |      |  |  |       |  |  |  |       | 
|Diluted shares outstanding                  |  |                    | 6,274 |                   |  |      | 6,376 |      |  |  | 6,333 |  |  |  | 6,249 | 
|                                            |  |                    |       |                   |  |      |       |      |  |  |       |  |  |  |       | 

Options outstanding during the three months ended September 30, 2001 and 2000
to purchase approximately 689,000 and 9,000 shares of common stock, and options
outstanding during the nine months ended September 30, 2001 and 2000 to
purchase approximately 367,000 and 47,000 shares of common stock, respectively,
were not included in the computation of dilutive securities because inclusion
would be anti-dilutive.

NOTE C  COMPREHENSIVE INCOME

Total comprehensive income was $0.6 million and $1.8 million for the three
months ended September 30, 2001 and 2000, respectively. For the nine months
ended September 30, 2001 and 2000, total comprehensive income was $0.8 million
and $3.1 million, respectively. The difference from net income as reported is
the change in cumulative translation adjustment.

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NOTE D  SEGMENT AND RELATED INFORMATION

The Company has four reportable segments: Wireless; Wireline; Timing, Test and
Measurement (TT&M); and Trusted Time. The Wireless segment, in Irvine, CA,
produces equipment primarily for the wireless telecommunications market. The
Wireline segment, in Austin, TX and Hofolding, Germany, manufactures products
primarily for the wireline telecommunications market. In Beverly, MA, the TT&M
segment, goods are produced for the enterprise computing, test and measurement,
telecommunications and satellite markets. The Trusted Time segment, in
Lexington, MA, produces products for the eBusiness market.

The Company evaluates performance of its segments and allocates resources to
them based on segment operating income. Segment operating income does not
include corporate expenses, amortization of goodwill and intersegment profit
elimination. Identifiable assets include accounts receivable, inventories, and
land, building and equipment and do not include cash, income tax refund
receivable and deferred income taxes, prepaid expenses, goodwill and other
long-term corporate assets.

The tables below present information about reported segments for the quarters
ended September 30 (amounts in thousands):

Segment Sales

|                   |  |          |        |          |  |      |        |              |  |       |        |   |  |   |     |   |  |   |        |  
|------------------ |  | -------- | ------ | -------- |  | ---- | ------ | ------------ |  | ----- | ------ | - |  | - | --- | - |  | - | ------ | -
|                   |  | Wireless |        | Wireline |  | TT&M |        | Trusted Time |  | Total
|                   |  |          |        |          |  |      |        |              |  |      
|2001               |  |          |        |          |  |      |        |              |  |       |        |   |  |   |     |   |  |   |        |  
|Total sales        |  | $        | 8,862  |          |  | $    | 11,217 |              |  | $     | 8,816  |   |  | $ | 607 |   |  | $ | 29,502 |  
|Intersegment sales |  |          | (3,048 | )        |  |      | (53    | )            |  |       | (723   | ) |  |   | (8  | ) |  |   | (3,832 | )
|                   |  |          |        |          |  |      |        |              |  |       |        |   |  |   |     |   |  |   |        |  
|Outside sales      |  | $        | 5,814  |          |  | $    | 11,164 |              |  | $     | 8,093  |   |  | $ | 599 |   |  | $ | 25,670 |  
|                   |  |          |        |          |  |      |        |              |  |       |        |   |  |   |     |   |  |   |        |  
|2000               |  |          |        |          |  |      |        |              |  |       |        |   |  |   |     |   |  |   |        |  
|Total sales        |  | $        | 16,069 |          |  | $    | 15,596 |              |  | $     | 8,612  |   |  | $ | 40  |   |  | $ | 40,317 |  
|Intersegment sales |  |          | (1,693 | )        |  |      | (149   | )            |  |       | (2,278 | ) |  |   |    |   |  |   | (4,120 | )
|                   |  |          |        |          |  |      |        |              |  |       |        |   |  |   |     |   |  |   |        |  
|Outside sales      |  | $        | 14,376 |          |  | $    | 15,447 |              |  | $     | 6,334  |   |  | $ | 40  |   |  | $ | 36,197 |  
|                   |  |          |        |          |  |      |        |              |  |       |        |   |  |   |     |   |  |   |        |  

Segment Operating Income (Loss)

|     |  |          |       |          |  |      |       |              |  |       |       |  |  |   |      |   |  |   |       | 
|---- |  | -------- | ----- | -------- |  | ---- | ----- | ------------ |  | ----- | ----- |  |  | - | ---- | - |  | - | ----- | 
|     |  | Wireless |       | Wireline |  | TT&M |       | Trusted Time |  | Total
|     |  |          |       |          |  |      |       |              |  |      
|2001 |  | $        | 1,046 |          |  | $    | 589   |              |  | $     | 1,114 |  |  | $ | (505 | ) |  | $ | 2,244 | 
|2000 |  | $        | 3,657 |          |  | $    | 3,009 |              |  | $     | 749   |  |  | $ | (910 | ) |  | $ | 6,505 | 

A reconciliation of segment operating income to consolidated amounts as reported
for the quarters ended September 30:

|                                |                               |   |        |     |      |   |        |       | 
|------------------------------- | ----------------------------- | - | ------ | --- | ---- | - | ------ | ----- | 
|                                |                               |   | 2001   |     | 2000
|                                |                               |   |        |     |     
|Segment operating income        |                               | $ | 2,244  |     |      | $ | 6,505  |      
|Corporate expenses              |                               |   | (1,167 | )   |      |   | (2,330 | )    
|Amortization of goodwill        |                               |   | (408   | )   |      |   | (717   | )    
|Write-down of impaired asset    |                               |   |       |     |      |   |       |      
|Intercompany profit elimination |                               |   | 147    |     |      |   | 88     |      
|                                |                               |   |        |     |      |   |        |      
|                                | Consolidated operating income |   | $      | 816 |      |   | $      | 3,546 | 
|                                |                               |   |        |     |      |   |        |      

The table below presents identifiable segments assets as of September 30, 2001
compared to prior year end:

Identifiable Segment Assets

|                   |  |          |        |          |  |      |        |              |  |       |        |  |  |   |       |  |  |   |        | 
|------------------ |  | -------- | ------ | -------- |  | ---- | ------ | ------------ |  | ----- | ------ |  |  | - | ----- |  |  | - | ------ | 
|                   |  | Wireless |        | Wireline |  | TT&M |        | Trusted Time |  | Total
|                   |  |          |        |          |  |      |        |              |  |      
|September 30, 2001 |  | $        | 20,270 |          |  | $    | 24,037 |              |  | $     | 22,247 |  |  | $ | 1,563 |  |  | $ | 68,117 | 
|December 31, 2000  |  | $        | 23,927 |          |  | $    | 30,890 |              |  | $     | 17,627 |  |  | $ | 1,373 |  |  | $ | 73,817 | 

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NOTE E  ACCOUNTING FOR CERTAIN LONG-LIVED ASSETS

The Company periodically reviews the recorded value of its long-lived assets to
determine if the future cash flows to be derived from these properties will be
sufficient to recover the remaining recorded asset values. In accordance with
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, during the
quarter ended June 30, 2001, the Company recorded a non-cash charge of $2.7
million. The charge represented $2.5 million of acquisition costs from the
July 1999 acquisition of Digital Delivery Inc. and $0.2 million of software
developments cost capitalized in 2000. During the quarter ended June 30, 2001,
the Company determined that the carrying value of the asset related to the
Digital Delivery acquisition exceeded its net realizable value as a result of a
reduced demand outlook caused by significant changes in business conditions.

NOTE F  DEBT

On May 29, 2001, the Company renewed its credit facility with Wells Fargo Bank.
The credit facility expires May 29, 2003. The credit facility with Wells
Fargo Bank is not to exceed $16.0 million and includes a line of credit and a
term loan that funded July 7, 2000, the balance of which was $2.5 million at
September 30, 2001. The term loan is payable in monthly principal installments
of $250 thousand plus interest, which began August 1, 2000. Interest on the
term loan is fixed at 9.15%. Interest on the line of credit is payable monthly
at prime or at LIBOR plus 2.0%. On June 1, 2001, the Massachusetts Development
Finance Agency issued a $2.7 million industrial development bond on the
Companys behalf to finance the expansion of the Datum TT&M manufacturing
facility in Beverly, Massachusetts. The bond matures on May 1, 2021. Interest
on the bond is payable monthly beginning July 2, 2001 at an adjustable rate of
interest as determined by the remarketing agent for each rate period to be the
lowest rate which in its judgment would permit the sale of the bonds at par.
The bond is secured by a letter of credit issued under the Companys credit
facility with Wells Fargo Bank.

NOTE G  RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 133 (FAS 133) Accounting for Derivative Instruments
and Hedging Activities, which defines derivatives, requires all derivatives be
carried at fair value and provides for hedging accounting when certain
conditions are met. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company implemented FAS 133 in
the quarter ended March 31, 2001. The impact from implementing FAS 133 was not
material to the Companys financial position or results of operations.

In June 2001, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 141, Business Combinations, (FAS 141) and Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (FAS 142).
FAS 141 establishes new accounting and reporting standards for business
combinations and will require that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. FAS 142
establishes new standards for goodwill acquired in a business combination,
eliminates amortization of goodwill and sets forth methods for periodically
evaluating goodwill for impairment. The Company is required to adopt the
provisions of these statements no later than the first quarter of its fiscal
year 2002. The implementation of FAS 142 will result in a reduction of
goodwill amortization of approximately $225 thousand per quarter beginning in
2002. The Company is currently evaluating the impact of adopting FAS 141.

In June 2001, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 143, Accounting for Asset Retirement Obligations,
(FAS 143). FAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. The Company is required to adopt the
provisions of FAS 143 no later than the first quarter of its fiscal year 2003.
The Company is currently evaluating the impact of adopting FAS 143.

In August 2001, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, (FAS 144). FAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. FAS 144
supersedes FASB

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Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and the account and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment
of a business (as previously defined in that Opinion). This Statement also
amends ARB No. 51, Consolidated Financial Statements, to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. The Company is required to adopt the provisions of FAS 144 no later
than the first quarter of its fiscal 2002. The Company is currently evaluating
the impact of adopting FAS 144.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following should be read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations presented in the
Companys Annual Report to Stockholders on Form 10-K for the year ended
December 31, 2000.

INTRODUCTORY NOTE

All statements other than statements of historical fact included in this
Quarterly Report on Form 10-Q are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended (the Exchange Act), and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable at this time, it
can give no assurance that such expectations will prove to have been correct.
The Company makes no undertaking to correct or update any such statements in
the future. Important factors that could cause actual results to differ
materially from the expectations (Cautionary Statements) are set forth in
Managements Discussion and Analysis of Financial Condition and Results of
Operations as well as in, or incorporated by reference in, the Annual Report on
Form 10-K for the year ended December 31, 2000. All subsequent written and
oral forward-looking statements attributable to the Company or persons acting
on its behalf are expressly qualified in their entirety by the Cautionary
Statements.

Overview

Datum designs, manufactures and markets a wide variety of high performance time
and frequency products used to synchronize the flow of information in
telecommunications networks. The Company is also a leading supplier of precise
timing products for enterprise computing networks and a wide variety of space,
scientific and industrial test and measurement applications.

A small number of customers account for a substantial portion of the Companys
net sales and the Company expects that a limited number of customers will
continue to represent a substantial portion of net sales for the foreseeable
future. There can be no assurance that a major customer will not reduce, delay
or eliminate its purchases from the Company. Any such reduction, delay or loss
in orders could have a material adverse effect on the Companys business,
financial condition and results of operations.

Results of Operations

Net sales.Net sales decreased $10.5 million, or 29.1%, to $25.7 million for
the quarter ended September 30, 2001 from $36.2 million for the corresponding
quarter in 2000. Net sales in the wireline synchronization business decreased
$4.3 million or 27.7%, net sales in the wireless business decreased $8.6
million or 59.6% and net sales in the timing, test and measurement business
increased $1.8 million or 27.7% for the quarter ended September 30, 2001
compared to the corresponding quarter of 2000. For the nine months ended
September 30, 2001, net sales decreased $12.2 million or 12.4% compared to the
first nine months of 2000. The continuing decrease in net sales was caused by
a continuing slowdown in telecommunications infrastructure spending, offset by
increased demand of the timing, test and measurement products and shipments to
a European customer that began in 2001 under a contract entered into in 1999.

Gross margin. Gross margin was unchanged at 45.4% for the quarter ended
September 30, 2001 from the corresponding quarter in 2000. For the nine months
ended September 30, 2001, gross margin increased to 45.6% from 45.1% in the
first nine months of 2000. The increase in gross margin is largely
attributable to efficiencies created by the closure of the Companys San Jose,
CA manufacturing plant in the fourth quarter of 2000.

Selling expense. Selling expense was unchanged at $4.3 million for the quarter
ended September 30, 2001, from $4.3 million for the corresponding quarter in
2000. As a percentage of net sales, selling expense increased to 16.9% for the
quarter ended September 30, 2001 from 11.8% for the corresponding quarter in
2000. For the nine months ended September 30, 2001, selling expense increased
by 1.1% to $12.9 million, from $12.7 million for the corresponding period in
2000. As a percentage of net sales, selling expense increased to 14.9% for the
nine months ended September 30, 2001 from 12.9% for the corresponding period in
2000. The increase was primarily

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due to the fixed component of sales costs versus the lower volume of sales and
due to a new OEM marketing group in the wireline segment for the Companys
TimePieces product line.

Product development. Product development expense decreased 17.9% to $3.3
million for the quarter ended September 30, 2001 from $4.0 million in 2000. As
a percentage of net sales, product development expense increased to 12.9% for
the quarter ended September 30, 2001 from 11.2% for the corresponding quarter
of 2000. For the nine months ended September 30, 2001, product development
expense decreased 10.3% to $10.6 million from $11.8 million in the
corresponding period in 2000. As a percentage of net sales, product
development expense increased to 12.3% for the nine months ended September 30,
2001 from 12.0% for the corresponding period of 2000. The decrease in product
development expense is primarily due to the capitalization of the software
development costs of the Companys Trusted Time product, which met
technological feasibility as of January 1, 2001.

General and administrative. General and administrative expense decreased 29.9%
to $3.2 million for the quarter ended September 30, 2001, from $4.5 million for
the corresponding quarter of 2000. The quarter ended September 30, 2000
included a $517 thousand severance charge related to the closure of the
Companys manufacturing facility in San Jose, CA, which was completed in
December 2000. The balance of the decrease is primarily due to lower incentive
accruals due to decreased profits, and the elimination of the goodwill
amortization in the amount of $308 thousand per quarter related to the 1999
acquisition of Digital Delivery (see Impairment of long-lived asset below).
As a percentage of net sales, general and administrative expense decreased to
12.4% for the quarter ended September 30, 2001, from 12.6% for the
corresponding quarter of 2000. For the nine months ended September 30, 2001,
general and administrative expense decreased 14.6% to $10.9 million, or 12.6%
of net sales, from $12.8 million, or 13.0% of net sales for the corresponding
period in 2000.

Impairment of long-lived asset.Impairment of long-lived asset for the nine
months ended September 30, 2001 was $2.7 million. There was no such charge in
the comparable period in 2000. The charge represented $2.5 million of
acquisition costs from the July 1999 acquisition of Digital Delivery Inc. and
$0.2 million of software developments costs capitalized in 2000. During the
quarter ended June 30, 2001, the Company determined that the carrying value of
the asset related to the Digital Delivery acquisition exceeded its net
realizable value as a result of a reduced demand outlook caused by significant
changes in business conditions.

Interest, net. Net interest expense decreased by $77 thousand to $0.1 million
for the quarter ended September 30, 2001 from $0.2 million for the
corresponding quarter of 2000. For the nine months ended September 30, 2001,
net interest expense decreased $1.1 million to $0.3 million from $1.4 million
for the corresponding period in 2000. The decrease in year to date net
interest expense is a result of using excess cash to refinance the Companys
debt and the related write-off of unamortized debt expense in June 2000.

Income tax provision.Income tax provision decreased by $0.9 million to $0.4
million for the quarter ended September 30, 2001 from $1.3 million for the
corresponding period in 2000. For the nine months ended September 30, 2001,
income tax provision decreased $1.1 million to $1.2 million from $2.3 million
for the corresponding period in 2000. Income tax provision as a percent of
income before income taxes increased to 57% for the nine months ended September
30, 2000 from 40% percent for the corresponding period in 2000. Because $2.5
million of the long-lived asset charge is not deductible for income tax
purposes, the tax rate was derived based on earnings before taxes excluding
this charge, which caused the increase in the tax rate. Excluding the $2.5
million charge, the tax rate for the nine months ended September 30, 2001 would
have been 38%.

Shares outstanding. Shares outstanding increased for the quarter ended
September 30, 2001 as a result of shares issued through the Companys 401(k),
Employee Stock Purchase Plan and incentive stock option plans.

Liquidity and Capital Resources

On May 29, 2001, the Company renewed its credit facility with Wells Fargo Bank.
The credit facility expires May 29, 2003. The credit facility with Wells
Fargo Bank is not to exceed $16.0 million and includes a line of credit and a
term loan that funded July 7, 2000, the balance of which was $2.5 million at
September 30, 2001. The term loan is payable in monthly principal installments
of $250 thousand plus interest, which began August 1,

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2000. Interest on the term loan is fixed at 9.15%. Interest on the line of
credit is payable monthly at prime or at LIBOR plus 2.0%. On June 1, 2001, the
Massachusetts Development Finance Agency issued a $2.7 million industrial
development bond on the Companys behalf to finance the expansion of the Datum
TT&M manufacturing facility in Beverly, Massachusetts. The bond matures on May
1, 2021. Interest on the bond is payable monthly beginning July 2, 2001 at an
adjustable rate of interest as determined by the remarketing agent for each
rate period to be the lowest rate which in its judgment would permit the sale
of the bonds at par. The bond is secured by a letter of credit issued under
the Companys credit facility with Wells Fargo Bank. No amounts were
outstanding under the line of credit as of September 30, 2001.

The Company believes that its cash and credit facilities are adequate to fund
the Companys operations for the foreseeable future. Should there be a further
reduction in telecommunication network infrastructure spending which impacts
the Companys expected revenues or ability to collect its accounts receivable,
the Company could potentially be in violation of debt covenants within its
credit facility. There is no guarantee that the Company would receive a waiver
if a debt covenant were violated.

Cash provided by operations was approximately $7.7 million for the nine months
ended September 30, 2001 compared to cash provided by operations of $4.6
million for the corresponding period of 2000. Cash flows were positively
affected in the first nine months of 2001 by a decrease in accounts receivable,
partially offset by decreases in income taxes payable and accrued expense.
Also offsetting positive cash flows from operations were increases in
inventories, income tax refund receivable and restricted cash, representing
proceeds from the industrial development bond.

Cash used in investing activities was approximately $4.5 million for the nine
months ended September 30, 2001 compared to $2.7 million for the corresponding
period of 2000. The increase was primarily due to the capitalization of
software development costs of the Companys Trusted Time Initiative.

Cash used for financing activities was approximately $1.0 million for the nine
months ended September 30, 2001 compared to $7.9 million for the corresponding
nine months of 2000. Cash used for financing activities for the nine months
ended September 30, 2000 included $13.0 million of debt that was paid off in
July 2000 with cash and $6 million of new debt. For the nine months ended
September 30, 2001, proceeds of long term debt totaled $2.7 million, with $2.3
million in payments of long term debt.

Accounts receivable decreased $9.7 million to $25.3 million at September 30,
2001 from $35.0 million at December 31, 2000 due to increased collections and a
decrease in sales in 2001.

Inventories increased $4.0 million to $30.4 million at September 30, 2001 from
$26.4 million at December 31, 2000, primarily as a result of the sequential
decreases in sales in each of the first three quarters of 2001.

At September 30, 2001, the Company had working capital of $49.7 million and a
current ratio of 3.7:1 compared to working capital of $44.3 million and a
current ratio of 2.9:1 at December 31, 2000. The increase is primarily due to
the positive cash flow provided by operating activities.

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Information Regarding Potential Fluctuations in Quarterly Operating Results

The Company has experienced, and expects to continue to experience,
fluctuations in sales and operating results from quarter to quarter. As a
result, the Company believes that period-to-period comparisons of its operating
results are not necessarily meaningful, and that such comparisons cannot be
relied upon as indicators of future performance. A significant component of
the fluctuations results from rescheduling of orders by the Companys major
customers, in some cases due in part to the customers attempts to minimize
inventories. Other factors that could cause the Companys sales and operating
results to vary significantly from period to period include: contractual price
reductions on products sold to certain major customers; the timing,
availability and sale of new products; changes in the mix of products with
differing gross margins; variations in manufacturing capacities, efficiencies
and costs; the availability and cost of components; warranty expenses; and
variations in product development and other operating expenses. In addition,
the sales cycles for many of the products are often lengthy and unpredictable,
and can take up to 36 months. Further, there can be no assurance that the
Company will be successful in closing large transactions on a timely basis or
at all. The timing of these transactions could cause additional variability in
the Companys operating results. The Companys quarterly results of operations
are also influenced by competitive factors, including pricing and availability
of the Companys and competing companies time and frequency products. Large
portions of the Companys expenses are fixed and difficult to reduce in a short
period of time. If net sales do not meet the Companys expectations, the
Companys fixed expenses would exacerbate the effect of such net sales
shortfall. Furthermore, announcements by the Company or its competitors
regarding new products and technologies could cause customers to defer
purchases of the Companys products. Order deferrals by the Companys
customers, purchase policy changes, delays in the Companys introduction of new
products and longer than anticipated sales cycles for the Companys products
have in the past materially adversely affected the Companys quarterly results
of operations. Due to the foregoing factors, as well as other unanticipated
factors, it is likely that in some future quarter the Companys operating
results will be below the expectations of public market analysts or investors.
In such event, the price of the Companys common stock would be materially
adversely affected.

The economic downturn in the telecommunications industry may impair our
customers ability to pay us.

The telecommunications manufacturing industry, from which we derive a
significant amount of our revenue, has experienced a general economic downturn,
and such downturn has significantly weakened the financial condition of some of
our top customers. Our largest customer, Lucent Technologies, Inc.,
experienced a 26% decline in total revenues for the fiscal year ended September
30, 2001 as compared to the same period in 2000, and experienced a net loss of
$16.2 billion in fiscal 2001 as compared to net income of $1.2 billion in
fiscal 2000. In addition, on August 1, 2001, Standard and Poors cut Lucents
short-term corporate credit and debt ratings to C from B and Lucents
long-term corporate credit, bank loan and senior unsecured debt ratings two
notches each to BB-minus, its third-highest junk grade. If Lucent and our
other major telecommunications manufacturing customers continue to experience
losses, they may be unable to pay us money owed under existing agreements or
may terminate or cut back on their purchase arrangements with us. In addition,
the continued decline of the telecommunications industry could delay decisions
among certain of our customers to renew their agreements or relationships with
us or could delay decisions by prospective customers to make initial
evaluations of our products. Reductions or delays in expenditures for our
products or nonpayment for our products could have a material adverse effect on
our business and results of operations.




Item 3. Quantitative and Qualitative Disclosures about Market Risk.

There has been no material change from the disclosure regarding market risk
contained in the Annual Report on Form 10-K for the fiscal year ended December
31, 2000.

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PART II. OTHER INFORMATION

Items 1 through 5 have been omitted because the related information is either
inapplicable or has been previously reported.




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits
| | --- |  | --------

|      |  |                                                                                                                     
|----- |  | --------------------------------------------------------------------------------------------------------------------
|10.61 |  | Severance Compensation
        Agreement dated July 11, 2001, by and between the Registrant and
        Ilan Havered



| | (b) |  | No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended September 30, 2001
| | --- |  | -------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents






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

DATUM INC.

|                                                            |  |                       
|----------------------------------------------------------- |  | ----------------------
|/s/ Erik H. van der Kaay                                    |  | Date November 14, 2001
|Erik H. van der Kaay, President and Chief Executive Officer |  |                       
|                                                           
|                                                            |  |                       
|/s/ Robert J. Krist                                         |  | Date November 14, 2001
|Robert J. Krist, Vice President and Chief Financial Officer |  |                       
|                                                           

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EXHIBIT INDEX

|             |  |                                                                                                     
|------------ |  | ----------------------------------------------------------------------------------------------------
|Sequentially |  |                                                                                                     
|Numbered     |  |                                                                                                     
|Exhibit No.  |  | Description                                                                                         
|             |  |                                                                                                     
|10.61        |  | Severance Compensation Agreement dated July 11, 2001, by and between the
Registrant and Ilan Havered

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