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 June 30, 2002.

[ ] 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 6,299,151 shares of common stock outstanding as of August 9,
2002.

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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..............................20

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders.....................................21

Item 6. Exhibits and Reports on Form 8-K........................................................21

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DATUM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)

June 30, December 31,
2002 2001
----------- -------------

ASSETS

Current assets

Cash and cash equivalents................................................... $ 2,471 $ 2,381
Restricted cash............................................................. 530 1,828
Accounts receivable, less allowance for doubtful accounts of $671 and $574.. 14,834 22,023
Costs and estimated earnings in excess of billings.......................... 2,477 3,456
Inventories
Purchased parts............................................................. 10,907 14,247
Work-in-process............................................................. 7,195 7,440
Finished products........................................................... 6,966 6,786
----------- -------------
25,068 28,473
Prepaid expenses............................................................ 689 468
Deferred income taxes....................................................... 3,158 3,158
Income tax refund receivable................................................ 897 2,222
----------- -------------
Total current assets................................................... 50,124 64,009
Plant and equipment
Land........................................................................ 2,040 2,040
Buildings................................................................... 8,061 5,867
Equipment................................................................... 26,081 25,997
Leasehold improvements...................................................... 1,128 1,362
----------- -------------
37,310 35,266
Less accumulated depreciation and amortization................................... 22,580 21,221
----------- -------------
14,730 14,045
Deferred income taxes............................................................ 4,746 374
Excess of purchase price over net assets acquired, net of accumulated
amortization of $11,459 and $11,459............................................. 8,549 8,549
Capitalized software development costs........................................... 3,319 2,379
Other assets..................................................................... 1,653 831
----------- -------------
$ 83,121 $ 90,187
=========== =============

See Notes to Condensed Consolidated Financial Statements

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DATUM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)

June 30, December 31,
2002 2001
------------ -------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable............................................... $ 5,695 $ 7,041
Accrued salaries and wages..................................... 2,206 3,047
Accrued warranty............................................... 1,386 1,577
Other accrued expenses......................................... 693 998
Deferred revenue............................................... 313 314
Current portion of long-term debt.............................. 60 1,810
------------ -------------
Total current liabilities................................. 10,353 14,787
Long-term debt...................................................... 2,605 2,635
Postretirement benefits............................................. 1,178 1,239
Other long-term liabilities......................................... 498 674
Commitments and contingencies.......................................

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--6,280,946 shares in 2002
6,209,721 shares in 2001.................................... 1,570 1,552
Additional paid-in capital..................................... 54,356 53,619
Retained earnings.............................................. 13,385 16,704
Unamortized stock compensation................................. (103) (224)
Accumulated other comprehensive loss........................... (721) (799)
------------ -------------
68,487 70,852
------------ -------------
Total liabilities and stockholders' equity.......................... $ 83,121 $ 90,187
============ =============

See Notes to Condensed Consolidated Financial Statements

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DATUM INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---------- ---------- --------- ---------

Net sales................................................. $ 15,777 $ 28,591 $ 31,571 $ 60,844
Operating expenses:
Cost of sales........................................ 9,609 15,544 20,025 33,005
Selling.............................................. 3,660 4,504 7,284 8,561
Product development.................................. 2,827 3,508 5,906 7,299
General and administrative........................... 2,830 3,747 6,204 7,736
Impairment of long-lived asset....................... 2,718 2,718
---------- ---------- --------- ---------
Operating income (loss)................................... (3,149) (1,430) (7,848) 1,525
---------- ---------- --------- ---------
Interest expense.......................................... 33 101 84 220
Interest income........................................... (13) (10) (32) (46)
---------- ---------- --------- ---------
Income (loss) before income taxes......................... (3,169) (1,521) (7,900) 1,351
Income tax provision (benefit)............................ (1,554) (350) (4,582) 769
---------- ---------- --------- ---------
Net income (loss)......................................... $ (1,615) $ (1,171) $ (3,318) $ 582
========== ========== ========= =========
Net income (loss) per common share:

Basic................................................ $ (0.26) $ (0.19) $ (0.53) $ 0.10
========== ========== ========= =========
Diluted.............................................. $ (0.26) $ (0.19) $ (0.53) $ 0.09
========== ========== ========= =========
Shares used in per share calculation:

Basic................................................ 6,258 6,135 6,239 6,110
========== ========== ========= =========
Diluted.............................................. 6,258 6,135 6,239 6,340
========== ========== ========= =========

See Notes to Condensed Consolidated Financial Statements

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DATUM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

Six Months Ended
June 30,

-----------------------
2002 2001
--------- -----------

Cash flows from operating activities:
Net income (loss)............................................................. $ (3,318) $ 582
--------- -----------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depreciation and amortization............................................ 1,597 1,789
Amortization of capitalized software development costs................... 216
Write-down of impaired asset............................................. 2,718
Amortization of goodwill................................................. 1,063
Contribution of shares of common stock to the Company's 401(k) plan...... 388 340
Non-cash compensation.................................................... 121 184
Income tax benefit from stock options exercised.......................... 32 298
Changes in assets and liabilities:
Decrease in accounts receivable.......................................... 7,188 8,664
(Increase) decrease in costs and estimated earnings in excess
of billings............................................................. 979 (1,282)
(Increase) decrease in inventories....................................... 3,405 (3,165)
(Increase) decrease in income tax receivable............................. 1,325 (2,156)
Increase in prepaid expenses............................................. (221) (154)
Increase in deferred income taxes........................................ (4,372)
Increase in other assets................................................. (822) (511)
Decrease in accounts payable............................................. (1,348) (1,913)
Decrease in accrued expenses............................................. (1,335) (698)
Decrease in income taxes payable......................................... (1,705)
Increase (decrease) in postretirement benefits........................... (61) 149
Decrease in other long-term liabilities.................................. (176) (18)
--------- -----------
Total reconciling items....................................................... 6,916 3,603
--------- -----------
Net cash provided by operating activities..................................... 3,598 4,185
--------- -----------
Cash flows from investing activities:

Capital expenditures.......................................................... (2,266) (2,153)
Capitalized software development costs........................................ (1,156) (1,273)
--------- -----------
Net cash used by investing activities.................................... (3,422) (3,426)
--------- -----------
Cash flows from financing activities:

Reduction of line of credit................................................... (485)
Proceeds from long-term debt.................................................. 2,725
Payments of long-term debt.................................................... (1,780) (1,500)
(Increase) decrease in restricted cash........................................ 1,298 (2,325)
Proceeds from exercise of stock options....................................... 173 182
Proceeds from ESP plan........................................................ 162 190
--------- -----------
Net cash provided by (used for) financing activities..................... (147) (1,213)
--------- -----------
Effect of exchange rate changes on cash and cash equivalents........................ 61 (377)
--------- -----------
Net increase (decrease) in cash and cash equivalents................................ 90 (831)
Cash and cash equivalents at beginning of period.................................... 2,381 1,017
--------- -----------
Cash and cash equivalents at end of period.......................................... $ 2,471 $ 186
========= ===========

See Notes to Condensed Consolidated Financial Statements

-6-

DATUM INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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,
2001 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 statement 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, 2001. 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 June 30, Six Months Ended June 30,
------------------------------ -----------------------------
2002 2001 2002 2001
----------- ------------- ----------- ------------

Basic shares outstanding (weighted average) 6,258 6,135 6,239 6,110
Effect of dilutive securities 230
----------- ------------- ----------- ------------
Diluted shares outstanding 6,258 6,135 6,239 6,340
=========== ============= =========== ============

Options outstanding during the three months ended June 30, 2002 and 2001
to purchase approximately 825,000 and 412,000 shares of common stock, and
options outstanding during the six months ended June 30, 2002 and 2001 to
purchase approximately 762,000 and 361,000 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 loss was $(1.3) million and $(1.4) million for the
three months ended June 30, 2002 and 2001, respectively. For the six months
ended June 30, 2002 and 2001, total comprehensive income (loss) was $(3.2)
million and $0.2 million, respectively. The difference from net income as
reported is the change in cumulative translation adjustment.

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, provides secure time management solutions that manage the
integrity of time in digital business processes for the Information Technology
market.

The Company evaluates performance of its segments and allocates
resources to them based on segment operating income. Segment operating

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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 June 30 (amounts in thousands):

SEGMENT SALES:

Trusted

Wireless Wireline TT&M Time Total
--------- ---------- ---------- ---------- ----------

2002:

Total sales $ 5,163 $ 6,440 $ 5,710 $ 746 $ 18,059
Intersegment sales (1,167) (3) (1,086) (26) (2,282)
--------- ---------- ---------- ---------- ----------
Outside sales $ 3,996 $ 6,437 $ 4,624 $ 720 $ 15,777
========= ========= ========== ========== ==========

2001:

Total sales $ 10,148 $ 14,555 $ 9,415 $ 273 $ 34,390
Intersegment sales (4,041) (23) (1,734) (1) (5,799)
--------- ---------- ---------- ---------- ----------
Outside sales $ 6,107 $ 14,532 $ 7,680 $ 272 $ 28,591
========= ========== ========== ========== ==========

SEGMENT OPERATING INCOME (LOSS):

Trusted

Wireless Wireline TT&M Time Total
--------- ---------- ---------- ---------- ----------

2002 $ (832) $ (452) $ 39 $ (584) $ (1,829)
2001 $ 778 $ 1,672 $ 1,563 $ (851) $ 3,162

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

2002 2001
-------- --------
Segment operating income $ (1,829) $ 3,162
Corporate expenses (1,194) (1,267)
Amortization of goodwill (531)
Write-down of impaired asset (2,718)
Intercompany profit elimination (126) (76)
-------- --------
Consolidated operating income $ (3,149) $ (1,430)
======== ========

The table below presents identifiable segment assets as of June 30, 2002
compared to prior year end:

IDENTIFIABLE SEGMENT ASSETS:

Trusted

Wireless Wireline TT&M Time Total
--------- ---------- ---------- ---------- ----------

June 30, 2002 $ 16,154 $ 18,736 $ 19,055 $ 3,831 $ 57,776
December 31, 2001 $ 18,989 $ 22,262 $ 22,560 $ 3,791 $ 67,602

NOTE E - DEBT

On May 10, 2002, Datum amended its credit facility with Wells Fargo
Bank. The credit facility expires May 29, 2003. The credit facility was reduced
from $16.0 million to $10.0 million. The credit facility includes a line of
credit and a term loan that funded July 7, 2000. The term loan is payable in
monthly principal installments of $250,000 plus interest, which began August 1,
2000. Interest on the term loan is fixed at 9.15%, and interest on the line of
credit is payable monthly at prime or at LIBOR plus 2.5%. The term loan matured
and was paid off on June 15, 2002. Datum does not expect to replace the term
loan in the foreseeable future.

On June 1, 2001, the Massachusetts Development Finance Agency issued a
$2.7 million industrial development bond on Datum's behalf to finance the
expansion of Datum's manufacturing facility in Beverly, Massachusetts. The bond
matures on May 1, 2021. Interest on the bond is payable monthly at an adjustable
rate of interest. The remarketing agent determines the interest rate 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 collateralized by a letter of credit issued under
Datum's credit facility with Wells Fargo Bank.

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In connection with the issuance of promissory notes in 1996 that were
fully paid off in 2000, Datum issued to The Prudential Insurance Company of
America common stock warrants which currently allow for the purchase of 176,303
shares of common stock at an exercise price per share of $11.415. The warrants
expire in September 2003.

At June 30, 2002, Datum was in violation of a debt covenant under the terms
of the May 2002 amended credit agreement facility with Wells Fargo Bank, for
which Datum received a waiver. However, because it is not probable that Datum
will be in compliance with all debt covenants under the existing credit facility
with Wells Fargo Bank through the second quarter 2003, and because the credit
facility serves as collateral for the $2.7 million industrial development bond,
Datum has reclassified the long term portion outstanding under the $2.7 million
industrial development bond as a current obligation. Datum is in the process of
negotiating an amendment to the credit facility with Wells Fargo Bank.

NOTE F - RECENTLY ISSUED ACCOUNTING STANDARDS

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 adopted the provisions of these statements
in the quarter ended March 31, 2002. The implementation of FAS 142 resulted in a
reduction of goodwill amortization of approximately $225 thousand per quarter
beginning in 2002. Datum performed a transitional goodwill impairment test as of
June 30, 2002, at which time it was determined that no impairment existed. The
impact from implementing FAS 141 was not material to the Company's financial
position or results of operations. The following unaudited pro forma summary
presents the Company's net income and per share information as if the Company
had been accounting for its goodwill under SFAS No. 142 for all periods
presented:

Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ------------------------
2002 2001 2002 2001
---------- ----------- ---------- ----------

Reported net income $ (1,615) $ (1,171) $ (3,318) $ 582
Add back goodwill amortization, net of tax 445 890
---------- ----------- ---------- ----------
Adjusted net income $ (1,615) $ (726) $ (3,318) $ 1,472
=========== =========== ========== ==========
Reported basic earnings per share $ (0.26) $ (0.19) $ (0.53) $ 0.10
Add back goodwill amortization, net of tax 0.07 0.14
----------- ----------- ---------- ----------
Adjusted basic earnings per share $ (0.26) $ (0.12) $ (0.53) $ 0.24
========== =========== ========== ==========
Reported diluted earnings per share $ (0.26) $ (0.19) $ (0.53) $ 0.09
Add back goodwill amortization, net of tax 0.07 0.14
----------- ----------- ---------- ----------
Adjusted diluted earnings per share $ (0.26) $ (0.12) $ (0.53) $ 0.23
========== =========== ========== ==========

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 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 adopted the provisions of FAS 144 in the
quarter ended March 31, 2002. The impact from implementing FAS 144 was not
material to the Company's financial position or results of operations.

In April 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 145 (FAS 145). This Statement rescinds
FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt,
and an amendment of that Statement, FASB Statement No. 64, Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds
FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This
Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. Datum is

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currently evaluating the impact of FAS 145.

In June 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," (FAS 146) . FAS 146 requires that a liability for
a cost that is associated with an exit or disposal activity be recognized when
the liability is incurred. It nullifies the guidance of the Emerging Issues Task
Force ("EITF") in EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit and Activity (including
Certain Costs Incurred in a Restructuring). Under EITF Issue No. 94-3, an entity
recognized a liability for an exit cost on the date that the entity committed
itself to an exit plan. In FAS 146, the Board acknowledges that an entity's
commitment to a plan does not, by itself, create a present obligation to other
parties that meets the definition of a liability. FAS 146 also establishes that
fair value is the objective for the initial measurement of the liability. FAS
146 will be effective for exit or disposal activities that are initiated after
December 31, 2002. Datum is currently evaluating the impact of FAS 146.

NOTE G - SUBSEQUENT EVENT

In July 2002, Datum reduced its workforce by approximately 60 employees.
Datum expects to take a severance charge of approximately $0.8 million in the
quarter ended September 30, 2002.

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

You should read the following discussion in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" presented in our Annual Report to Stockholders on Form 10-K for the
year ended December 31, 2001.

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 Datum
intends that such forward-looking statements be subject to the safe harbors
created thereby. Although Datum 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. Datum 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 the discussion of Risk
Factors included in this Form 10-Q, 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,
2001. All subsequent written and oral forward-looking statements attributable to
Datum 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 generating products, such as cesium and rubidium
atomic clocks, used to synchronize the flow of information in telecommunications
networks. Datum is a leading supplier of precise timing products for computing
networks, satellite systems, electronic commerce, and test and measurement
applications. Datum also provides time and frequency products and systems for a
wide range of scientific and industrial test and measurement applications,
including missile guidance, geographic mapping and electric utility operations.

Through the manipulation of cesium or rubidium atoms or quartz crystals,
or by capturing cesium or rubidium-based signals transmitted from global
position system, or GPS, satellites, Datum's products generate highly precise
timing and frequency information. Using this technology, its products can
provide accurate time to within a fraction of one second over 100,000 years.
Datum also supplies approximately 60% of the high-precision rubidium atomic
clocks used for wireless network base station timing that channels
communications over cellular telephone and other personal communications
services, such as pagers.

Datum currently is exploring market opportunities for new applications
for its timing technologies. One of these opportunities is secure time
management, or Trusted Time. In order for businesses to conduct an increasing
variety of transactions over the Internet, businesses are seeking to verify that
the electronic commerce transactions took place between the parties. Trusted
Time is a new application for Datum's precision timing technology for which
Datum is developing hardware and software products that will provide irrefutable
time stamps for electronic commerce transactions. This capability provides
secure and auditable evidence that the transaction occurred.

Datum was incorporated in California in 1959 and reincorporated in
Delaware in 1987. Our principal executive offices are located at 9975 Toledo
Way, Irvine, California 92618-1819, and our telephone number is (949) 598-7500.
Our web site is located at http://www.datum.com.

Definitive Merger Agreement

On May 22, 2002, Datum Inc. entered into a definitive merger agreement
with Symmetricom, Inc. Pursuant to the merger agreement, a wholly-owned
subsidiary of Symmetricom will be merged with and into Datum, and Datum will
survive as a wholly-owned subsidiary of Symmetricom. Symmetricom will issue
2.7609 shares of Symmetricom common stock in exchange for each share of Datum
common stock as consideration for the merger. The aggregate merger consideration
may be adjusted to the extent that Datum's transaction costs exceed $4.9
million. The closing of the merger is subject to stockholder approval by both
parties, as well as regulatory approvals and other customary conditions of
closing.

The merger of Datum is described more fully in the Agreement and Plan of
Merger dated as of May 22, 2002, a copy of which is attached as Exhibit 2.1 to
Datum's Form 8-K filed with the SEC on May 24, 2002.

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Results of Operations

The following table presents our unaudited results of operations as a
percentage of net revenues for the three months ended June 30, 2002 and 2001 and
for the six months ended June 30, 2002 and 2001.

Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2002 2001 2002 2001
---------- -------------- ------------ ------------

Net sales 100.0% 100.0% 100.0% 100.0%
Costs and expenses
Costs of goods sold 60.9% 54.4% 63.4% 54.2%
Selling 23.2% 15.8% 23.1% 14.1%
Product development 17.9% 12.3% 18.7% 12.0%
General and administrative 17.9% 13.1% 19.7% 12.7%
Impairment of long-lived asset 9.5% 4.5%
---------- -------------- ------------ ------------
Operating income (20.0)% (5.0)% (24.9)% 2.5%
========== ============== ============ ============

Net sales. Net sales decreased $12.8 million, or 44.8%, to $15.8 million for the
quarter ended June 30, 2002 from $28.6 million for the corresponding quarter in
2001. Net sales in the wireline synchronization segment decreased $8.1 million
or 55.7%. The decline in the wireline synchronization business was concentrated
in the domestic market as the service providers continued to lower their budgets
for capital expenditures. Sales to the Datum's largest commercial customer,
Lucent Technologies, Inc., decreased to 10% of net sales in the quarter ended
June, 2002 from 15% of net sales in the quarter ended June 30, 2001. This
decrease of $2.7 million, or 63%, was primarily in the wireless segment, where
sales decreased $2.1 million or 34.6%. Net sales in the timing, test and
measurement segment decreased $3.1 million or 39.8% for the quarter ended June
30, 2002 compared to the corresponding quarter of 2001, as the defense industry
decreased its purchases. For the six months ended June 30, 2002, net sales
decreased $29.3 million, or 48.1%, to $31.6 million from $60.8 million for the
corresponding period in 2001. Net sales decreased $18.1 million, or 57.4%, in
the wireline segment and $7.7 million, or 47.6% in the wireless segment for the
six months ended June 30, 2002.

Gross margin. Gross margin decreased to 39.1% for the quarter ended June 30,
2002 from 45.6% for the corresponding quarter in 2001. For the six months ended
June 30, 2002, gross margin decreased to 36.6% from 45.8% for the comparable
period in 2001. Gross margins for the six months ended June 30, 2002 were
negatively impacted by a $1.2 million contract revenue adjustment booked in the
first quarter of 2002 due to an increase in estimated costs to complete certain
contracts for which Datum recognizes revenue on a percent complete basis. The
balance of the decrease in gross margin in both periods was primarily caused by
the decrease in manufacturing volumes, causing the manufacturing overhead to be
absorbed over a lower unit volume.

Selling expense. Selling expense decreased $0.8 million, or 18.7%, to $3.7
million for the quarter ended June 30, 2002 from $4.5 million for the
corresponding quarter in 2001. For the six months ended June 30, 2002, selling
expense decreased to $7.3 million from $8.6 million for the corresponding period
in 2001. The decrease in selling expense was primarily due to lower external and
internal sales commissions due to the decrease in net sales. The increase in
selling expense as a percent of net sales was primarily due to the fixed
component of sales costs becoming a higher percentage of a lower volume of net
sales.

Product development. Product development expense decreased $0.7 million, or
19.4%, to $2.8 million for the quarter ended June 30, 2002 from $3.5 million in
2001. For the six months ended June 30, 2002, product development expense
decreased $1.4 million, or 19.1%, to $5.9 million. The decrease was primarily
due to headcount reductions of employees and contract labor in the wireline
segment. Datum has decreased product development funding due to the operating
losses experienced in 2002.

General and administrative. General and administrative expense decreased $0.9
million, or 24.5%, to $2.8 million for the quarter ended June 30, 2002, from
$3.7 million for the corresponding quarter of 2001. For the six months ended
June 30, 2002, general and administrative expense decreased $1.5 million, or
19.8%, to $6.2 million. The decrease for the six months ended June 30, 2002 was
caused by $0.4 million of goodwill amortization eliminated due to the
implementation of FAS 142 and an additional $0.6 reduction in goodwill
amortization related to the July 1999 acquisition of Digital Delivery, the
balance of which was written off in the quarter ended June 30, 2001. The
majority of the balance of the decrease was caused by lower incentive accruals
in 2002 due to profitability goals not being reached, offset by severance
accruals of approximately $0.5 million for the six months ended June 30, 2002.
For the three months ended June 30, 2002, the decrease of $0.9 million was
caused by a decrease in goodwill amortization of $0.5 million, with the balance
of the decrease caused by lower incentive accruals.

Income tax provision (benefit). The income tax benefit was $1.6 million for the
quarter ended June 30, 2002 and $4.6 million for the six months ended June 30,
2002. The effective tax benefit rate decreased from 64% for the quarter ended
March 31,

-12-

2002 to 58% for the six months ended June 30, 2002, resulting in a 49% effective
tax rate for the quarter ended June 30, 2002, due to increases in projected
losses for the balance of 2002.

Shares outstanding. Shares outstanding increased for the quarter ended June 30,
2002 as a result of approximately 37,000 shares issued through the Datum's
401(k), Employee Stock Purchase Plan and incentive stock option plans.

Liquidity and Capital Resources

At June 30, 2002, Datum was in violation of a debt covenant under the
terms of the May 2002 amended credit agreement facility with Wells Fargo Bank,
for which Datum received a waiver. However, because it is not probable that
Datum will be in compliance with all debt covenants under the existing credit
facility with Wells Fargo Bank through the second quarter 2003, and because the
credit facility serves as collateral for the $2.7 million industrial development
bond, Datum has reclassified the long term portion outstanding under the $2.7
million industrial development bond as a current obligation. Datum is in the
process of negotiating an amendment to the credit facility with Wells Fargo
Bank.

If Datum successfully negotiates an amendment to its credit facility with
Wells Fargo Bank and Datum is in compliance with debt covenants prospectively,
Datum believes that its cash and credit facilities will be adequate to fund its
operations for the foreseeable future. Also, if Datum completes its proposed
merger with Symmetricom before the end of 2002 as the parties contemplate, the
combined company will have sufficient cash because it would have access to
Symmetricom's greater cash resources.

Notwithstanding the above, should there be no improvement in
telecommunication network infrastructure spending, which impacts Datum's
expected revenues and ability to collect its accounts receivable, Datum
potentially could continue to be in violation of debt covenants within its
credit facility. There is no guarantee that Datum would receive a waiver if a
debt covenant were violated. Should Datum be in technical default and not
receive a waiver, it could be required to repay all amounts outstanding to Wells
Fargo, including the $2.7 million industrial development bond, which is secured
by a letter of credit issued under the Wells Fargo credit facility. If Wells
Fargo does not grant waivers for any future covenant violations, and if the
merger with Symmetricom is not consummated, Datum would have to raise capital
and/or further reduce costs. In that event, Datum likely will need to take one
or more of the following actions:

. Further reduce the number of its employees;
. Further reduce its expenses, including a reduction in research and
development;
. Restructure its operations and consolidate manufacturing facilities;
and/or

. Attempt to raise additional debt or equity capital on terms potentially
less favorable than its existing credit facility, if available at all.

Datum reduced its number of employees by approximately 12% in July 2002
in order to further reduce operating expenses.

Cash provided by operations was approximately $3.6 million for the six
months ended June 30, 2002 compared to cash provided by operations of $4.2
million for the corresponding period of 2001. Cash flows were positively
affected in the first half of 2002 by a decrease in accounts receivable and
inventory, offset by the net loss for the period as well as a net increase in
tax assets and decreases in accounts payable and accrued expense.

Cash used in investing activities was approximately $3.4 million for the
six months ended June 30, 2002 compared to $3.4 million for the corresponding
period of 2001, as capital expenditures and capitalized software development
costs were relatively unchanged. Of the $2.3 million of capital expenditures for
the six months ended June 30, 2002, approximately $1.4 million related to the
expansion of the manufacturing facility in Beverly, MA. There were no such
expenditures in the

-13-

comparable period in 2001.

Cash used for financing activities was approximately $0.1 million for
the six months ended June 30, 2002 compared to $1.2 million for the
corresponding six months of 2001. The lower amount in 2002 was the result of the
industrial development bond proceeds that are being used to finance the
expansion of the Beverly, MA manufacturing facility.

Accounts receivable decreased $7.2 million to $14.8 million at June 30,
2002 from $22.0 million at December 31, 2001 due to the continued decrease in
sales volume.

Inventories decreased $3.4 million to $25.1 million at June 30, 2002
from $28.5 million at December 31, 2001, primarily as a result of the decrease
in sales.

Other assets increased by $0.8 million to $1.7 million at June 30, 2002
from $0.8 million at December 31, 2001. This increase was the result of $0.7
million of capitalized merger costs.

At June 30, 2002, Datum had working capital of $37.1 million and a
current ratio of 4.3:1 compared to working capital of $49.2 million and a
current ratio of 4.3:1 at December 31, 2001. The decrease in working capital is
due primarily to the decrease in accounts receivable as a result of the decline
in net sales and to the reclassification of the long-term portion of the
$2.7 million industrial development bond to current liabilities.

-14-

RISK FACTORS

A SIGNIFICANT AMOUNT OF SALES COME FROM DATUM'S TOP CUSTOMERS

A relatively small number of customers historically have accounted for,
and Datum expects to continue to account for, a significant portion of Datum's
net sales in any given fiscal period. Datum's largest customer,

Lucent Technologies, Inc., accounted for approximately 20% of its net
sales for the year ended December 31, 2001, and approximately 33% of its net
sales for each of the years ended December 31, 2000 and 1999. Datum's five
largest customers accounted for approximately 37% of net sales for the year
ended December 31, 2001, 48% of net sales for the year ended December 31, 2000
and 45% of its net sales for the year ended December 31, 1999. Datum believes
that its major customers continually evaluate whether to purchase time and
frequency products from alternative or additional sources using different
technologies. Accordingly, there can be no assurance that a major customer will
not reduce, delay or eliminate its purchases from Datum. Any such reduction,
delay or loss in orders could harm Datum's business. Major customers also have
significant leverage and may attempt to change the terms, including pricing,
upon which Datum and such customers do business, which could have a negative
effect on Datum's earnings and harm Datum's business.

FINANCIAL DIFFICULTIES FACED BY DATUM'S CUSTOMERS IN THE TELECOMMUNICATIONS
MANUFACTURING INDUSTRY HAVE A NEGATIVE EFFECT ON DATUM'S BUSINESS

The telecommunications manufacturing industry, from which Datum derives
a significant amount of its revenue, has experienced a dramatic economic
downturn, and such downturn has significantly weakened the financial condition
of many of Datum's customers, including Lucent Technologies, Inc., Datum's
largest customer, and others such as Qwest Communications International Inc. In
addition, some of Datum's customers have filed for protection against creditors
under Chapter 11 of the federal bankruptcy laws, including WorldCom Group, Inc.,
whose subsidiary MCI Group was a significant Datum customer, Global Crossing
Ltd, 360Networks, Inc., and Williams Communications Group, Inc. If Datum's major
telecommunications customers continue to experience losses, they may be unable
to pay Datum money owed under existing agreements or may terminate or reduce
their purchases from Datum. In addition, the continued decline of the
telecommunications industry could delay decisions by Datum's customers to renew
their agreements or relationships with Datum or could delay decisions by
prospective customers to make initial evaluations of Datum's products.
Reductions or delays in expenditures for Datum's products or nonpayment for its
products could have a material adverse effect on Datum's business and results of
operations.

ECONOMIC, POLITICAL AND OTHER RISKS ASSOCIATED WITH INTERNATIONAL SALES AND
OPERATIONS COULD ADVERSELY AFFECT DATUM'S SALES

Since Datum sells its products worldwide, Datum's business is subject to
risks associated with doing business internationally. Datum's export sales,
which were primarily to Western Europe, Latin America, the Pacific Rim, China
and Canada, accounted for 31% of its net sales in fiscal 2001, 25% of its net
sales in fiscal 2000, and 25% of its net sales in fiscal 1999. Datum anticipates
that revenue from international operations will continue to represent a
substantial portion of Datum's total revenue. In addition, some of Datum's
manufacturing facilities, suppliers and competitors are located outside the
United States. Accordingly, Datum's future results could be harmed by a variety
of factors, including:

. changes in foreign currency exchange rates;
. changes in a specific country's or region's political or economic
conditions;
. trade protection measures and import or export licensing requirements; .
potentially negative consequences from changes in tax laws; . difficulty in
staffing and managing widespread operations; . differing labor regulations;
. foreign based competition lowering prices; . differing protection of
intellectual property; and . unexpected changes in regulatory requirements.

FLUCTUATIONS IN DATUM'S QUARTERLY OPERATING RESULTS MAY CAUSE DATUM'S STOCK
PRICE TO DECLINE

Given the nature of the markets in which Datum participates, it is
difficult for Datum to reliably predict future revenue and profitability, and
unexpected changes may cause Datum to adjust Datum's operations. A high
proportion of Datum's costs

-15-

are fixed, due in part to Datum's significant sales, research and development
and manufacturing costs. Thus, relatively small declines in revenue could
disproportionately affect Datum's operating results in a quarter. Other factors
that could affect Datum's quarterly operating results include:

. competitive pressures resulting in lower selling prices;
. changes in the relative portion of Datum's revenue represented by
Datum's various products and customers;
. changes in the timing of product orders; and
. Datum's inability to forecast revenue in a given quarter from large
system sales.

DATUM HAS A LIMITED ORDER BACKLOG AND A LIMITED VIEW OF WHEN OR IF A SALE WILL
BE COMPLETED

Datum considers all orders that it expects to ship to customers within a
six-month period as order backlog. As part of Datum's close working relationship
with its major original equipment manufacturer customers, such customers expect
Datum to respond quickly to changes in their required volume and delivery
schedule of products. Therefore, although contracts with such customers
typically specify aggregate volumes of products to be purchased over an extended
time period, such contracts may require Datum to supply a significantly greater
volume of products on short notice. As a result of possible changes in product
delivery schedules, cancellations of orders and potential delays in product
shipments and orders received for products shipped in the same quarter, Datum's
backlog at any particular date may not necessarily be representative of actual
sales for any succeeding period.

DATUM HAS EXPERIENCED DELAYS IN OBTAINING NEEDED STANDARD PARTS, SINGLE SOURCE
COMPONENTS AND SERVICES FROM DATUM'S SUPPLIERS

Datum currently procures various components from single sources due to
unique component designs as well as certain quality and performance
requirements. If single source components were to become unavailable on terms
satisfactory to Datum, Datum would be required to purchase comparable components
from other sources. If for any reason Datum could not obtain comparable
replacement components from other sources in a timely manner, Datum's business
results of operations and financial condition could be harmed. In addition, many
of Datum's suppliers require long lead-times to deliver requested quantities of
components. If Datum is unable to obtain sufficient quantities of components to
manufacture its time or frequency products, there could be delays or reductions
in product shipments which could have a material adverse effect on Datum's
business, result of operations and financial condition. Due to rapid changes in
semiconductor and other technology, on occasion one or more of the electronic
components used in Datum's products have become unavailable, resulting in
unanticipated redesign and related delays in shipments. Datum cannot assure you
that it will not experience similar delays in the future, the occurrence of
which could have a material adverse effect on its business, financial condition
and results of operations.

IF DEMAND FOR DATUM'S PRODUCTS DOES NOT MATCH ITS MANUFACTURING CAPACITY,
DATUM'S EARNINGS MAY SUFFER

Because Datum cannot quickly adapt its production and related cost
structures to rapidly changing market conditions, Datum's manufacturing capacity
will exceed its production requirements if demand does not meet Datum's
expectations. The fixed costs associated with excess manufacturing capacity will
adversely affect Datum's earnings. Conversely, if Datum's manufacturing capacity
does not keep pace with product demand, or if Datum experiences difficulties in
obtaining parts or components needed for manufacturing, Datum will not be able
to fulfill orders in a timely manner which in turn may have a negative effect on
its earnings and overall business.

INVENTORY RISKS COULD IMPACT DATUM'S GROSS MARGIN

Although Datum believes that it currently has appropriate provisions for
inventory that has declined in value, become obsolete or is in excess of
anticipated demand, Datum cannot be sure that such provisions will be adequate.
Although the amount of inventory can vary at any given time, over the past year
Datum's inventory has increased from approximately a six to eight months'
supply, attributable primarily to decreased demand in the telecommunications
equipment market. If the difficult economic conditions continue, the level of
excess or obsolete inventory ultimately could exceed Datum's provisions for such
inventory. Datum's business could be materially harmed if significant
inventories become obsolete or are otherwise not able to be sold at favorable
prices.

-16-

DATUM MUST DEVELOP AND SELL NEW PRODUCTS IN ORDER TO KEEP UP WITH RAPID
TECHNOLOGICAL CHANGE

The markets in which Datum competes are characterized by:

. rapidly changing technology;
. evolving industry standards and changes in end-user requirements; and .
frequent new product introductions.

Technological advancements could render Datum's products obsolete and
unmarketable. Datum's success depends on its ability to respond to changing
technologies and customer requirements and its ability to develop and introduce
new and enhanced products in a cost-effective and timely manner. The development
of new or enhanced products is a complex and uncertain process requiring the
accurate anticipation of technological and market trends. Datum may encounter
difficulties in design, manufacturing, marketing, funding or in other areas that
could delay or prevent Datum's development, introduction or marketing of new
products and enhancements. The introduction of new or enhanced products also
requires that Datum manage the transition from older products in order to
minimize disruption in customer ordering patterns and ensure that Datum can
deliver adequate supplies of new products to meet anticipated customer demand.
In the future, Datum expects to develop new products, but it may not
successfully develop, introduce or manage the transition to these new products.
Failure to develop new products that are consistent with market trends and
demand will have a material adverse effect on Datum's financial condition and
results of operations.

DATUM'S SUCCESS IS CONTINGENT UPON DATUM'S PRODUCT PERFORMANCE RELIABILITY

Datum's customers establish demanding specifications for product
performance and reliability. Its products are complex and often use
state-of-the-art components, processes and techniques. Datum products may
contain undetected or unresolved errors when they are first introduced or as new
versions are released. Despite testing, errors may be found in new products or
upgrades after commencement of commercial shipments. Undetected errors and
design flaws have occurred in the past and could occur in the future. In
addition to higher product service, warranty and replacement costs, such product
defects may cause delays in or loss of market acceptance or sales, diversion of
development resources, and could seriously harm Datum's customer relationships
and industry reputation.

PROTECTION OF DATUM'S INTELLECTUAL PROPERTY IS LIMITED

Datum's success depends, in part, on its ability to protect trade
secrets, obtain or license patents and operate without infringing on the rights
of others. Datum relies on a combination of trademark, copyright and trade
secret laws, contractual restrictions and internal security to establish and
protect its proprietary rights. Datum often relies on licenses of intellectual
property useful for its business. Datum cannot provide assurance that these
licenses will be available in the future on favorable terms or at all. Datum
further cannot be sure that such measures will provide meaningful protection for
its trade secrets or other proprietary information. To the extent Datum offers
its products in other countries or faces competition from foreign companies, the
laws of such countries may afford little or no effective protection of Datum's
intellectual property.

THIRD PARTIES MAY CLAIM DATUM IS INFRINGING THEIR INTELLECTUAL PROPERTY, AND
DATUM COULD SUFFER SIGNIFICANT LITIGATION OR LICENSING EXPENSES OR BE PREVENTED
FROM SELLING PRODUCTS

Third parties may claim that Datum is infringing their intellectual
property rights, and Datum may be found to infringe those intellectual property
rights. While Datum does not believe that any of Datum's products infringe the
valid intellectual property rights of third parties, Datum may be unaware of
intellectual property rights of others that may cover some of its technology,
products and services. Any litigation regarding patents or other intellectual
property could be costly and time-consuming, and divert Datum's management and
key personnel from Datum's business operations. The complexity of the technology
involved and the uncertainty of intellectual property litigation increases these
risks. Claims of intellectual property infringement might also require Datum to
enter into costly royalty or license agreements. However, Datum may not be able
to obtain royalty or license agreements on terms acceptable to us, or at all.
Datum also may be subject to significant damages or injunctions against
development and sale of certain of its products.

IF DATUM LOSES KEY PERSONNEL, IT MAY NOT BE ABLE TO SUCCESSFULLY OPERATE ITS
BUSINESS

Datum's success depends to a significant degree upon the continued
contributions of the principal members of its

-17-

management, sales, marketing and technical personnel, many of whom perform
important management functions and would be difficult to replace. Datum believes
that its success in the past has been especially dependent on the employment of
its chief executive officer, president and chairman of the board, Erik H. van
der Kaay, who will serve as chairman of the board of the combined company if the
merger is completed. It is a condition of the merger that no more than
twenty-five percent of key employees identified by Datum cease to be employed by
Datum prior to the completion of the merger or express an intention to
discontinue employment with the combined company after the merger. The loss of
the services of key personnel, particularly senior management and engineers,
could materially harm the business of Datum, affect the consummation of the
merger, the performance and results of operations of the combined companies
after the merger, and the anticipated benefits to be realized from the merger.

DATUM MAY ENGAGE IN FUTURE ACQUISITIONS OR DISPOSITIONS THAT DILUTE ITS
STOCKHOLDERS AND CAUSE IT TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES

As part of Datum's strategy, Datum expects to review acquisition or
disposition alternatives to buy other businesses or technologies that would
complement its current products, expand its market coverage, enhance its
technical capabilities, or offer growth opportunities. In the event of any
future transactions, Datum could:

. issue equity or other convertible securities that would dilute its
current stockholders' percentage ownership;
. incur debt;
. assume liabilities; or
. incur significant one-time write-offs.

These transactions also involve numerous risks, including:

. problems combining the acquired operations, technologies or products; .
unanticipated costs; . diversion of management's attention from its core
business; . adverse effects on existing business relationships with
suppliers and

customers;
. risks associated with entering markets in which it has no or limited
prior experience; and
. potential loss of key employees of purchased organizations.

DATUM CANNOT ASSURE YOU THAT IT WILL BE ABLE TO SUCCESSFULLY INTEGRATE ANY
BUSINESS, PRODUCTS, TECHNOLOGIES OR PERSONNEL THAT IT MIGHT PURCHASE IN THE
FUTURE

Datum and its customers are subject to various governmental regulations,
compliance with which may cause it to incur significant expenses, and if it
fails to maintain satisfactory compliance with certain regulations, it may be
forced to recall products and cease their manufacture and distribution, and it
could be subject to civil or criminal penalties.

Datum's business is subject to various other significant international,
federal, state and local, health and safety, packaging, product content and
labor regulations. These regulations are complex, change frequently and have
tended to become more stringent over time. It may be required to incur
significant expenses to comply with these regulations or to remedy past
violations of these regulations. Any failure by Datum to comply with applicable
government regulations could also result in cessation of its operations or
portions of its operations, product recalls or impositions of fines and
restrictions on its ability to carry on or expand its operations. In addition,
because many of its products are regulated or sold into regulated industries, it
must comply with additional regulations in marketing its products. Datum's
products and operations are also often subject to the rules of industrial
standards bodies, like the International Standards Organization, as well as
regulation of other agencies such as the United States Federal Communications
Commission. Datum also must comply with work safety rules. If Datum fails to
adequately address any of these regulations, its business will be harmed.

ENVIRONMENTAL MATTERS SUBJECT DATUM TO ADDITIONAL BUSINESS RISKS

Datum's operations are subject to numerous federal, state and local
environmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in Datum's manufacturing
process. While Datum has not experienced any significant effects on its
operations from environmental regulations, Datum cannot assure you that changes
in such regulations will not impose the need for additional capital equipment or
other requirements or restrict its ability to expand its operations. Failure to
comply with such regulations could result in suspension or cessation of Datum's
operations, or could subject Datum to significant liabilities. Although Datum
periodically reviews its facilities and internal

-18-

operations for compliance with applicable environmental regulations, such
reviews necessarily are limited in scope and frequency and, therefore, Datum
cannot assure you that such reviews have revealed or will reveal all potential
instances of noncompliance. The liabilities arising from any noncompliance with
such environmental regulations could materially harm Datum's business.

A manufacturing facility previously operated by Datum in Austin, Texas
is undergoing remediation for known subsurface contamination at that facility
and adjoining properties. Datum believes it will continue to incur monitoring
costs for years to come in connection with this subsurface contamination.
Further, Datum may be subject to claims from adjoining landowners, in addition
to claims for remediation, and the amount of such costs and the extent of
Datum's exposure to such claims cannot be determined at this time. The
determination of the existence and cost of any additional contamination caused
by Datum could involve costly and time-consuming negotiations and litigation.
Remediation activities and subsurface contamination may require Datum to incur
unreimbursed costs and could harm on-site operations and the future use and
value of the property. The remediation efforts, the property owners' claims and
any related governmental action may expose Datum to material liability and could
harm its business.

DATUM AND DATUM'S CUSTOMERS ARE SUBJECT TO VARIOUS GOVERNMENTAL REGULATIONS

Datum and its customers are subject to various governmental regulations,
compliance with which may cause Datum to incur significant expenses. If Datum
fails to maintain satisfactory compliance with certain regulations, it may be
forced to recall products and cease their manufacture and distribution, and
Datum could be subject to civil or criminal penalties.

Datum's business is subject to various other significant international,
federal, state and local, health and safety, packaging, product content and
labor regulations. These regulations are complex, change frequently and have
tended to become more stringent over time. Datum may be required to incur
significant expenses to comply with these regulations or to remedy past
violations of these regulations. Any failure by Datum to comply with applicable
government regulations could also result in cessation of its operations or
portions of its operations, product recalls or impositions of fines and
restrictions on its ability to carry on or expand its operations. In addition,
because many of its products are regulated or sold into regulated industries,
Datum must comply with additional regulations in marketing its products. Datum's
products and operations are also often subject to the rules of industrial
standards bodies, like the International Standards Organization, as well as
regulation of other agencies such as the United States Federal Communications
Commission. If Datum fails to adequately address any of these regulations, its
business may be harmed.

FAILURE TO CONSUMMATE THE MERGER WITH SYMMETRICOM COULD HAVE AN ADVERSE IMPACT
ON DATUM AND ITS STOCK PRICE

Since entering into the merger agreement on May 22, 2002, Datum has made
planning and operations decisions on the basis that the merger will be
consummated. Thus, although Datum has reduced its workforce and cut other
expenses, including terminating some research and development projects in order
to conserve cash and lower its break-even level, these actions assume that
following the merger the combined company will be able to achieve further cost
savings through operational synergies, and that, with access to Symmetricom's
greater cash resources, the combined company will have sufficient cash for
working capital and growth. These planning and operating decisions may have been
different had Datum not entered into the merger agreement. For example, if Datum
had not entered into the merger agreement, it may have been appropriate for
Datum to have made greater reductions in the number of employees and expenses,
and to have made those reductions earlier than it actually did. Additionally,
Datum may have pursued a debt or equity financing transaction in order to assure
access to sufficient working capital as an independent company, rather than rely
on the availability of Symmetricom's cash assuming the merger will be
consummated. Moreover, the merger agreement contains restrictions that prohibit
Datum from incurring certain additional debt or issuing additional equity
securities while the merger is pending, subject to Symmetricom's consent. If the
merger is not consummated, not only will Datum not have the benefit of
Symmetricom's cash or have obtained other financing, but Datum also will have
incurred a significant amount of non-operating expenses associated with the
merger that it otherwise would not have incurred. Consequently, if the merger is
not consummated, Datum's financial condition likely will be worse than it would
have been had it never entered into the merger agreement.

If Datum and Symmetricom fail to consummate the merger, Datum will face
the difficulties of competing in a depressed telecommunications equipment market
with limited cash resources. Datum already has experienced decreases in net
sales, earnings. and cash flow as a result of the difficult economic
environment, which has resulted in several reductions in the number of Datum
employees and a violation by Datum of covenants contained in its bank credit
facility. If the merger does not occur and the difficult economic environment in
Datum's core markets continues, Datum likely will need to take one or more of
the following actions:

-19-

. further reduce the number of its employees;
. further reduce its expenses, including a reduction in research and
development;
. restructure its operations and consolidate manufacturing facilities;
. attempt to restructure its credit facility; and/or . attempt to raise
additional debt or equity capital on terms potentially
less favorable than its existing credit facility, if available at all.

Any one or more of these actions could have an adverse impact on Datum's
results of operations and its stock price. Additionally, if the merger is not
completed, Datum's stock would no longer be influenced by the exchange ratio
established by the merger agreement, which could negatively impact Datum's
current market valuation and stock price.

Datum stockholders will receive 2.7609 shares of Symmetricom common stock in
exchange for each share of Datum common stock regardless of changes in the
relative market value of Datum common stock and Symmetricom common stock

Each share of Datum common stock will be exchanged for 2.7609 shares of
Symmetricom common stock upon completion of the merger, subject to adjustments
to reflect any stock split, stock dividend, reorganization or similar change in
Symmetricom or Datum common stock. This exchange ratio for the shares is a fixed
number and the merger agreement does not contain any provision to adjust this
ratio for changes in the market price of either Datum common stock or
Symmetricom common stock. Neither party is permitted to terminate the merger
agreement solely because of changes in the market price of Symmetricom or Datum
common stock. Consequently, the specific dollar value of Symmetricom common
stock to be received by Datum stockholders will depend on the market value of
Symmetricom common stock at the time of completion of the merger and may
decrease from the date of the special meeting or the date that you submit your
proxy. You are urged to obtain recent market quotations for Symmetricom common
stock and Datum common stock. The companies cannot predict or give any
assurances as to the market price of Symmetricom common stock or Datum common
stock at any time before the merger or the common stock of the combined company
after the merger. The prices of Symmetricom common stock and Datum common stock
may vary because of factors such as:

.. changes in the business, operating results or prospects of Symmetricom or
Datum;
.. actual or anticipated variations in quarterly results of operations;
.. market assessments of the likelihood that the merger will be completed;
.. the timing of the completion of the merger;
.. sales of Symmetricom common stock or Datum common stock;
.. additions or departures of key personnel;
.. the status of, and developments concerning, Symmetricom's pending acquisition
of TrueTime;
.. announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments;
.. conditions or trends in the telecommunications industry;
.. announcements of technological innovations or the discontinuation of products
or services by Symmetricom, Datum, their competitors or their customers;
.. changes in market valuations of other telecommunications companies;
.. the prospects of post-merger operations;
.. regulatory considerations; and
.. general market and economic conditions.

If Symmetricom and Datum complete the merger, holders of Datum common stock
will become holders of Symmetricom common stock. Symmetricom's business differs
from Datum's business, and Symmetricom's results of operations, as well as the
price of Symmetricom common stock, may be affected by factors different than
those affecting Datum's results of operations and the price of Datum common
stock.

The market price of the combined company's common stock may decline as a result
of the merger

The market price of the combined company's common stock may decline as a
result of the merger for a number of reasons, including if:

.. the integration of Symmetricom and Datum is not completed in a timely and
efficient manner;
.. the integration of Symmetricom and TrueTime is not completed in a timely and
efficient manner;
.. the combined company does not achieve the perceived benefits of the merger
as rapidly or to the extent anticipated by financial or industry analysts;
.. the effect of the merger on the combined company's financial results is not
consistent with the expectations of financial or industry analysts; or
.. significant stockholders of Symmetricom, TrueTime or Datum decide to dispose
of their shares following completion of the merger.

The price of Symmetricom common stock may be affected by factors different from
those affecting the price of Datum common stock

When the merger is completed, holders of Datum common stock will become
holders of Symmetricom common stock. Symmetricom's business differs from that of
Datum, and Symmetricom's results of operations, as well as the price of
Symmetricom common stock, may be affected by factors different from those
affecting Datum's results of operations and the price of Datum common stock.

Datum directors and officers have interests in the merger that may be different
than Datum stockholders

Some of the directors and officers of Datum have agreements with Datum or
have entered into agreements with Symmetricom that give them an interest in the
merger that is different, or in addition, to the interests of an individual who
just holds Datum common stock. These agreements include severance, termination
and consulting agreements, continuing indemnification against liabilities, as
well as option grants and amendments to existing stock options, all of which are
set forth in greater detail in the joint proxy statement/prospectus of Datum and
Symmetricom filed with the SEC regarding the merger. As a condition of the
merger agreement, all of the members of the Datum board of directors and several
of Datum's executive officers agreed with Symmetricom to vote all of their
shares of Datum common stock in favor of the merger. Datum stockholders should
consider whether these interests may have influenced the decision of the
directors and officers to support and vote their shares in favor of the merger,
or may have influenced the decision of Datum's board of directors to vote to
approve the merger agreement and the merger.

The completion of the merger depends upon regulatory approval which could delay
the merger and, even if granted, may result in unfavorable restrictions or
conditions

The merger is subject to review by the United States Department of Justice
("DOJ") or the Federal Trade Commission under the Hart-Scott-Rodino Antitrust
Improvements Act. Symmetricom and Datum have made their required pre-merger
notification filings and are awaiting the expiration or termination of the
applicable waiting period, which is a condition to completion of the merger. On
June 27, 2002, the staff of the DOJ issued a formal second request for
information as part of its review of the merger. We are in the process of
responding to this request. The waiting period will be extended until 30 days
after Symmetricom and Datum comply with the DOJ request. Compliance with the DOJ
request could take a significant amount of time and could delay the closing of
the merger. Satisfying these regulatory requirements could also delay
consummation of the merger. Any such delay could diminish the anticipated
benefits of the merger, result in additional transaction costs or loss of
revenue, or exacerbate other effects associated with uncertainty about the
transaction, including a decline in the common stock prices of Symmetricom or
Datum.

The reviewing authorities may not permit the merger at all or may impose
restrictions or conditions on the merger that could seriously harm the combined
company if the merger is completed. These conditions could include a complete or
partial license, divestiture, spin-off or the separate holding of certain assets
or businesses. Symmetricom or Datum may refuse to complete the merger if
governmental authorities impose restrictions or conditions that could reasonably
be expected to have a material adverse effect on Symmetricom assuming the merger
has been completed or on the benefits reasonably expected by the combined
company as a result of the merger.

Customer, supplier and employee uncertainty related to the merger could harm the
combined company

Symmetricom and Datum customers and suppliers may, in response to the
announcement or consummation of the merger, delay purchasing or supply decisions
or otherwise alter existing relationships with Symmetricom and Datum. These
decisions or other adverse changes in business relationships of Symmetricom and
Datum with their customers and suppliers could adversely affect the business of
the combined company. Similarly, current and prospective Datum employees may
experience uncertainty about their future as employees of the combined company
until or after strategies with regard to Datum are announced or executed. This
may adversely affect Symmetricom's or Datum's ability to attract and retain, and
may affect the performance during the transition period of, key management,
sales, marketing and technical personnel.

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, 2001.

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PART II. OTHER INFORMATION

Items 1 through 3 and item 5 have been omitted because the related
information is either inapplicable or has been previously reported.

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

(a) The Annual Meeting of Stockholders was held on June 14, 2001

(b) (i) Set forth below is the name of each Class III director
elected at the meeting to serve until the 2004 Annual Meeting of
Stockholders and the number of votes cast for their election and
the number of votes withheld;

Number of Number of
Name Votes "For" Votes "Withheld"
---- ----------- ----------------

G. Tilton Gardner 6,009,957 21,592
Michael M. Mann 6,010,877 20,672

(ii) The terms of the following directors of the company continued
after the meeting: Alfred A. Boschulte, Elizabeth A. Fetter,
R. David Hoover, Louis B. Horwitz and Erik H. van der Kaay.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.63 Amendment No. 4 to Second Amended and Restated Credit Agreement, dated
May 10, 2002, by and between Datum Inc. and Wells Fargo Bank, National
Association.

99.1 Certification of Periodic Report by Chief Financial Officer

99.2 Certification of Periodic Report by Chief Executive Officer

(b) Reports on Form 8-K

On May 24, 2002, the Registrant filed a Report on Form 8-K announcing
the execution of an Agreement and Plan of Merger with Symmetricom, Inc.
dated as of May 22, 2002, and referencing a press release announcing the
execution of the merger agreement.

-21-

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 August 14, 2002
- ----------------------------------------------------------- ------------------
Erik H. van der Kaay, President and Chief Executive Officer

/s/ Robert J. Krist Date August 14, 2002
- ----------------------------------------------------------- ------------------
Robert J. Krist, Vice President and Chief Financial Officer

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EXHIBIT INDEX

Sequentially
Numbered

Exhibit No. Description

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

10.63 Amendment No. 4 to Second Amended and Restated Credit Agreement,
dated May 10, 2002, by and between Datum Inc. and Wells Fargo
Bank, National Association.

99.1 Certification of Periodic Report by Chief Financial Officer

99.2 Certification of Periodic Report by Chief Executive Officer

-23-