**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-K/A**

** **

**Amendment No. 1**

 

| **x**                                           | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**     |
|-------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                            |       |                                                                                                     |
| **For the fiscal year ended July 1, 2007** |
|                                            |       |                                                                                                     |
| **or**                                          |
|                                            |       |                                                                                                     |
| **o**                                           | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe transition period from                to**

** **

**Commissionfile number 0-02287**

 

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**SYMMETRICOM, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                     | ** ** | **No. 95-1906306**               |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |       | (I.R.S. Employer  Identification No.) |
|                                                             |       |                                  |
| **2300  Orchard Parkway,  San Jose, California**                 | ** ** | **95131-1017**                        |
| (Address of  Principal Executive Offices)                        |       | (Zip Code)                            |

 

**Registrant’s telephonenumber, including area code:**(408) 433-0910

 

| **Securities registered pursuant to Section 12(b) of the Act:** | ** ** | **Name of each exchange on which registered:** |
|---------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|
| **Common Stock, $0.0001 Par Value**                                                                     | ** ** | **The NASDAQ Stock Market LLC**                                              |
| **Series A Participating Preferred Stock Purchase  Rights**                                        | ** ** | **The NASDAQ Stock Market LLC**                                              |

 

**Securities registeredpursuant to Section 12(g) of the Act:**None

 

**Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.**

**Yes  ****o****  No  ****x**

** **

**Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.**

**Yes  ****o****  No  ****x**

** **

**Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.****  ****Yes ****x****  ****No ****o**

** **

**Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K(§29.405 of this chapter) is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K.****  ****o**

** **

**Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer,  a non-accelerated filer or a smallerreporting company. See definition of “large accelerated filer,  “accelerated filer” and “smaller reportingcompany” in Rule 12b-2 of the Exchange Act. (Check one):**

 

| **Large accelerated filer ****   ****o** | ** ** | **Accelerated filer****    ****x** | ** ** | **Smaller reporting company    ****o** |
|--------------------------------------------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------------------|
| ** **                                                   | ** ** | **Non-accelerated filer    ****o** | ** ** | ** **                                                 |

 

**Indicate by check mark whether the registrant is a shell company (as defined in     Rule 12b-2 of the Exchange Act).****  ****Yes ****o****  ****No ****x**

 

The aggregate market value of the votingand non-voting common stock held by non-affiliates of the Registrant, computedby reference to the closing price at which the Common Stock was sold on December 31,2006, as reported on the NASDAQ Stock Market LLC (formerly the NASDAQ NationalMarket) was approximately $409,107,852. This calculation does not reflect adetermination that such persons are affiliates of the Registrant for any otherpurpose.

 

As of August 31, 2007, there wereapproximately 45,547,558 shares of Registrant’s Common Stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

**Portionsof the Proxy Statement for the Registrant’s 2007 Annual Meeting of Stockholdersare incorporated by reference in Part III of this Form 10-K.**

 

** **

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**SYMMETRICOM,INC.**

**FORM 10-K/A**

**Forthe Fiscal Year Ended July 1, 2007**

**INDEX**

 
| ** **        | ** **                                                                                                               | **Page**   |
|-------------------|--------------------------------------------------------------------------------------------------------------------------|------------|
|              | Explanatory Note                                                                                                         | 3          |
| ** **        | **PART I**                                                                                                          | ** ** |
| **Item 1.**  | Business                                                                                                                 | 4          |
| **Item 1A.**      | Risk  Factors                                                                                                            | 13         |
| **Item 1B.**      | Unresolved  Staff Comments                                                                                               | 25         |
| **Item 2.**  | Properties                                                                                                               | 25         |
| **Item 3.**  | Legal Proceedings                                                                                                        | 25         |
| **Item 4.**  | Submission  of Matters to a Vote of Security Holders                                                                     | 26         |
| ** **        | **PART II**                                                                                                         |       |
| **Item 5.**  | Market for  Registrant’s Common Equity, Related Stockholder Matters and  Issuer Purchases of Equity Securities | 27         |
| **Item 6.**  | Selected  Financial Data                                                                                                 | 29         |
| **Item 7.**  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                              | 32         |
| **Item 7A.** | Quantitative  and Qualitative Disclosures about Market Risk                                                              | 48         |
| **Item 8.**  | Consolidated  Financial Statements and Supplementary Data (As Restated)                                                  | 49         |
| **Item 9.**  | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure                                    | 90         |
| **Item 9A.** | Controls and  Procedures                                                                                                 | 90         |
| **Item 9B.** | Other Information                                                                                                        | 92         |
| ** **        | **PART III**                                                                                                        | ** ** |
| **Item 10.** | Directors,  Executive Officers and Corporate Governance                                                                  | 95         |
| **Item 11.** | Executive  Compensation                                                                                                  | 95         |
| **Item 12.** | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                         | 95         |
| **Item 13.** | Certain  Relationships and Related Transactions, and Director Independence                                               | 95         |
| **Item 14.** | Principal  Accountant Fees and Services                                                                                  | 95         |
| ** **        | **PART IV**                                                                                                         | ** ** |
| **Item 15.** | Exhibits  and Financial Statement Schedules                                                                              | 96         |
|              | Signatures                                                                                                               | 101        |

 

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# **ExplanatoryNote**

 

Symmetricom, Inc. (the “Company”, “we”, “us” or“our”) is filing this Amendment No. 1 to its Annual Report on Form 10-K/A(this “Amended Report”) for its fiscal year ended July 1, 2007, originallyfiled with the U.S. Securities and Exchange Commission, (“SEC”), on September 25,2007 (the “Original Filing”), to amend and restate its consolidated balancesheets as of July 1, 2007 and July 2, 2006 and related consolidatedstatements of operations, stockholders’ equity and comprehensive income (loss),and cash flows for the fiscal years ended July 1, 2007, July 2, 2006,and July 3, 2005.  In addition, theCompany is restating Item 6, “Selected Financial Data” for the fiscalyears ended July 1, 2007, July 2, 2006, July 3, 2005, June 27,2004 and June 29, 2003 as well as its “Selected Quarterly Financial Data(Unaudited)” in Item 8, and “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” in Item 7.   In connection with the restatements, were-evaluated the effectiveness of our controls and procedures and, accordingly,include revised disclosure in this Amended Report under Part II,Item 9A, “Controls and Procedures.” We are also including revised Risk Factors under Part I, Item 1A,to reflect the other revisions in this Amended Report.

 

On April 17, 2008the Audit Committee of our Board of Directors, following a review initiated bythe Audit Committee with the assistance of independent legal counsel and aforensic accounting firm (the “Independent Review”), concluded that, due toerrors in accounting for accrued liabilities related to inventory receipts, ourfinancial statements for the fiscal years and interim periods from the fiscalyear ended June 30, 2002 through our fiscal year ended July 1, 2007and for the first quarter of fiscal 2008 ended September 30, 2007 and anyreports of the independent registered public accounting firm thereon, should nolonger be relied upon.  The restatementcorrects accounts payable balances, cost of sales, income tax provision(benefit) and related non-current deferred tax assets and retained earnings forthe periods affected.

 

Except as discussed above, we have not modified orupdated disclosures presented in the Original Filing, except as required toreflect the effects of the restatement, in this Amended Report. Accordingly,this Amended Report does not reflect events occurring after the Original Filingor modify or update those disclosures affected by subsequent events, except asspecifically referenced herein. Information not affected by the restatement isunchanged and reflects the disclosures made at the time of the Original Filingon September 25, 2007. References to this Annual Report on Form 10-K/Aherein shall refer to the Annual Report on Form 10-K originally filed on September 25,2007 as amended by this Amended Report. The following items have been amended as a result of the restatement:

 
| · | Part I - Item 1 - Business (as to “Forward  Looking Statements” and “Available Information”);    |
|--------|---------------------------------------------------------------------------------------------------------------------------|
| · | Part I - Item 1A - Risk Factors;                                                                                     |
| · | Part II - Item 6 - Selected Financial  Data;                                                                    |
| · | Part II - Item 7 - Management’s Discussion  and Analysis of Financial Condition and Results of Operations; |
| · | Part II - Item 8 - Financial Statements  and Supplementary Data;                                                |
| · | Part II - Item 9A - Controls and  Procedures; and                                                               |
| · | Part IV - Item 15 - Exhibits and Financial  Statement Schedules.                                                |

 

We have not amended and wedo not intend to amend any of our other previously filed annual reports on Form 10-Kother than this Amended Report.  As partof the Independent Review, we also determined that we need to amend ourQuarterly Report on Form 10-Q/A for the quarter ended September 30, 2007,originally filed on November 9, 2007, which we are filing concurrentlywith this Amended Report.  We have notamended and we do not intend to amend any of our other Quarterly Reports on Form 10-Qas a result of the Independent Review.

 

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**PART I**

 

**FORWARD-LOOKINGINFORMATION**

 

*When used in this discussion, thewords “expects,” “anticipates,” “estimates,” “believes,” “plans,” “will,” “intend,”“can,” “projects” and similar expressions are intended to identifyforward-looking statements. These statements are subject to risks anduncertainties that could cause actual results to differ materially from thoseprojected.*

* *

*These risks and uncertainties include, but are notlimited to, risks relating to general economic conditions in the markets weaddress and the telecommunications market in general, risks related to thedevelopment of our new products and services, the effects of competition andcompetitive pricing pressure, uncertainties associated with changing intellectualproperty laws, developments in and expenses related to litigation, increasedcompetition in our markets, inability to obtain sufficient amounts of keycomponents, the rescheduling or cancellations of key customer orders, the lossof a key customer, the effects of new and emerging technologies, the risk thatexcess inventory may result in write-offs, price erosion and decreased demand,fluctuations in the rate of exchange of foreign currency, changes in oureffective tax rate, the impact on investor confidence due to materialweaknesses in our controls over financial reporting, potential short-terminvestment losses and other risks due to credit market dislocation, changes inaccounting for convertible debt, the tax treatment of the restructuring of ourPuerto Rico subsidiary, market acceptance of our new products and services,technological advancements, undetected errors or defects in our products, therisks associated with our international sales, geopolitical risks and risk ofterrorist activities, the risks associated with attempting to integrate othercompanies and businesses we acquire, expenses related to the restatement of ourfinancial statements and the risks set forth below in Item 1A, “Risk Factors.”*

* *

*These forward-looking statements speakonly as of the date hereof. We expressly disclaim any obligation or undertakingto release publicly any updates or revisions to any forward-looking statementscontained herein to reflect any change in our expectations with regard theretoor any change in events, conditions or circumstances or on which any suchstatement is based.*

 

*In the sections of this reportentitled “Business” and “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Factors That May Affect Results,” allreferences to “Symmetricom,” “we,” “us,” and “our” mean Symmetricom, Inc.and its subsidiaries, except where it is made clear that the term means onlythe parent company.*

 

*TimeSource, SMARTCLOCK, BesTime,GoLong, GoWide, TimeHub, TimePictra, TimeCesium, TimeProvider, TimeCreator,TimeScan, V-Factor, NetAdvisor, NetWarrior and QoSmetrics are our trademarks.We also refer to trademarks of other corporations and organizations in thisdocument.*

 

**Item1.****              *Business***

 

**Overview**

 

Symmetricom is a leading supplier of timing andsynchronization hardware, software, and services. Our technology plays acritical role in network reliability and quality of service. We sell oursolutions to communication service providers, government agencies, enterprises,and research facilities. Symmetricom products have been shipped to more than 90countries in fiscal year 2007. Our products include atomic frequencyreferences, including rubidium and cesium oscillators; hydrogen masers; GPStime and frequency receivers, as well as time and frequency distributionsystems; network management software; and professional services.

 

We manufacture precision time products that allow ourcustomers to keep accurate time within 40 billionths of a second over a24-hour period. Our clocks tell us the time of day and allow us to measure thetime interval between when an event starts and when it stops. The differencebetween conventional time measuring devices and our precise time products liesin the accuracy of the measurements. To place the accuracy of our clocks inperspective, if a clock accumulates a 40 billionth of a second time error overa 24-hour period, it will require more than 500,000 years to accumulate anerror of one second.

 

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During fiscal 2007, in connection with the acquisitionof QoSmetrics, S.A., we entered a new business and formed the Quality ofExperience Assurance Division. This business develops products for use in theIPTV (Internet Protocol Television) market that search for network impairmentsand review video packet integrity.

 

***General Information***

 

Symmetricom was incorporated in California in 1956 andreincorporated in Delaware in 2002. The principal executive offices are locatedat 2300 Orchard Parkway, San Jose, California 95131-1017, and the telephonenumber is (408) 433-0910.

 

Our website is located at *www.symmetricom.com*. We make available, free of charge on orthrough our website, our recorded conference calls, our annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, andamendments to those reports filed or furnished pursuant to Section 13(a) or15(d) of the Exchange Act as soon as practical after we electronicallyfile such material, or furnish it, to the SEC. Information contained orreferenced on our website is not incorporated by reference into and does notform a part of this Amended Report.

 

As stated above in theExplanatory Note, we concluded that we needed to amend our Annual Report on Form 10-K/Afor the year ended July 1, 2007, originally filed with the SEC on September 25,2007, to amend and restate our consolidated balance sheets as of July 1,2007 and July 2, 2006 and the related consolidated statements ofoperations, stockholders’ equity and comprehensive income (loss), and cashflows for the fiscal years ended July 1, 2007, July 2, 2006, and July 3,2005, and the related disclosures.  Aspart of the Independent Review, we also determined that we need to amend ourQuarterly Report on Form 10-Q/A for the quarter ended September 30,2007, originally filed on November 9, 2007.   We have not amended and we do not intend toamend any of our other previously filed annual reports on Form 10-K orquarterly reports on Form 10-Q for the periods affected by the restatementother than this Amended Report and the amended Quarterly Report on Form 10-Q/Afor the quarter ended September 30, 2007.

 

**IndustryBackground**

 

The markets served by Symmetricom include:

 

·       Telecommunications and cable markets;

 

·       Wireless/OEM telecommunications equipment manufacturers; and

 

·       Aerospace, defense, metrology and enterprise.

 

***Reportable Segments***

 

Symmetricom is organized into five reportable segmentsthat are within three divisions:

* *

*TelecomSolutions Division*

 

·       Wireline Products;

 

·       Wireless/OEM (original equipment manufacturer) Products;

 

·       Global Services

 

*Timing,Test and Measurement Division*

 

*Qualityof Experience Assurance Division*

 

Information as to net revenue and gross profit marginattributable to each of these reportable segments for each year in thethree-year period ended July 1, 2007, is contained in Note 16 of the notesto the consolidated financial statements.

 

***Telecom Solutions Division***

 

Our Telecom Solutions Division offers a full suite oftiming and synchronization products that meet global standards requirements.Products include primary reference sources; edge clocks and distributionproducts for synchronization outside the network core; Building IntegratedTiming Supply (BITS) and Sync Supply Unit (SSU) for the central

 

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office; network management and monitoring software;and synchronization subsystems for OEM integration. Symmetricom holds patentsin advanced control algorithms for deployments utilizing the Global PositioningSystem (GPS), DOCSISTM Timing Interface (DTI) and Code Division Multiple Access(CDMA).

 

In fiscal 2007, we actively participated in themodernization of several synchronization networks with certain service providersand helped others develop future plans for such efforts. The carriers andoperators are driven by network economics and competitive forces to evolvetheir network infrastructures toward integrated transmission and switchingfunctions and packet-based technologies. We believe this evolutionary trenddemands a more intelligent and reliable synchronization infrastructure.

 

Our Wireless/OEM segment serves the wireless marketwith synchronization and timing components and sub-system (module) products thatare foundational to the operation of certain types of cellular base stations.

 

We continue to build a strong portfolio of precisetime and frequency solutions to address the growing synchronizationrequirements of all layers of existing circuit switched network andnext-generation packet networks.

 

Our Global Services segment provides services forSymmetricom’s product lines.

 

***Timing, Test and Measurement Division***

 

Our Timing, Test and Measurement Division providesprecision time and frequency instruments and reference standards for theaerospace, defense, metrology and enterprise markets. Products includesynchronized clocks, network time servers, network time displays, time codegenerators, computer plug-in cards, and primary reference standards, such asrubidium and cesium oscillator standards and ruggedized crystal oscillators.Customer applications include synchronization of communication networks,synchronization of computer networks, calibration of lab equipment, GNSS(Global Navigation Satellite Systems), and subsystem master timing. To supportboth a diverse customer and product base, the division built strong applicationengineering capabilities that allow for the tailoring of standard productplatforms to meet a customer’s unique system requirements.

 

During fiscal 2007, we acquired Timing SolutionsCorporation (TSC) in Boulder, Colorado, which strengthened our timingtechnology and provides access to a number of new government customers. TSC hasbeen integrated into the Timing, Test and Measurement Division, and Dr. SamStein, the former President of TSC, has become the VP of Engineering for thedivision.

 

During fiscal 2007, the division continued toemphasize government program business in secure mobile, satellite, and wirelinecommunications, as well as other defense platform upgrades includingdestroyers, submarines, and Unmanned Aerial Vehicles (UAVs). Key customers ofthe division included Boeing, DISA, Lockheed Martin, Northrop Grumman,Raytheon, and various military procurement and service agencies. New productsintroduced during the fiscal year included a line of Phase Noise and AllanDeviation Test Sets and several new time distribution systems which came fromthe TSC acquisition as well as a new ruggedized TCXO oscillator family, anIEEE-1588 test and validation solution, new module capabilities for our XLi GPSTime and Frequency Receiver family and two new models in our SyncServer networktime server family.

 

***Quality of Experience (QoE) Assurance Division***

 

During fiscal 2007, we acquired QoSmetrics S.A., aprivately held provider of quality of experience (QoE) solutions for IPTV.  This acquisition became the foundation of ournew Quality of Experience (QoE) Assurance Division. QoE provides hardware andsoftware-based probes and/or embedded agents that are distributed throughout anIP (Internet Protocol) network in order to monitor network and applicationperformance. The primary applications for these system-level solutions are toensure end users’ Quality of Experience, or QoE, for IPTV service. In addition,we acquired certain intellectual property from Genista Corporation toaccurately determine the quality of real-time video streams as delivered toend-user devices. The staff from QoSmetrics S.A., as well as research anddevelopment staff from Genista Corporation, joined Symmetricom. The market forQoE products is unproven. We believe the market will develop over the next twoto three years. Until the market develops and we generate substantial revenuefrom QoE products and services, the expenses associated with this division willdepress the profitability of the company overall. If the market does notdevelop as we expect and, if it does develop, and our products fail to gainacceptance, this will have a material adverse effect on our results ofoperations.

 

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***Wireline and Cable Infrastructure Markets and Products***

 

***Wireline and Cable Infrastructure Markets:***

 

The wireline and cable infrastructure markets includelocal, long distance and international telecommunications service providers andcarriers and cable service providers. Customers in the wireline market includeworldwide public network providers, incumbent local exchange carriers (ILECs),public telephone and telegraph companies (PTTs), competitive local exchangecarriers (CLECs), other telephone companies as well as cable companies. Webelieve that these telco providers will have to replace their legacysynchronization equipment in the future. Some companies have begun the upgradeprocess. Based on the size of the installed base of legacy equipment, weanticipate that this cycle could take at least several years to complete. Thecable infrastructure market has an emerging requirement for synchronizationwithin cable vendors’ equipment for which we have developed a line ofsynchronization products.

 

We have developed a product, called TimeCreator, forthe cable market, which we believe, will be needed as cable providers move tonext generation equipment.

 

***Wireline and Cable Products:***

 

The telecommunications network consists of a series ofinterconnected switching equipment and other components that route information(i.e., voice, video, data, etc.) through the network. For these networks tofunction efficiently, it is essential that each network be synchronized and theindividual nodes within the network operate within precise tolerances.Precision synchronization equipment throughout these networks provides afrequency reference which enables digital switching, routing and transmissionsystems to operate at a common, synchronized clock rate, thereby aligning timeslots, which increases bandwidth utilization while minimizing signaldegradation and reducing errors throughout a network.

 

Our core system products are built on atomic clock(such as cesium and rubidium) and GPS technologies. The products belong to oneof four classes:

 

·                  *Primary Reference Sources (PRS)* —consistsof the GPS-based TimeSource family, and the cesium-based TimeCesium.

 

·                  *Building Integrated Timing Supplies (BITS) orSynchronization Supply Units (SSUs)* —consists of the versatile SSU2000 and the carrier-class TimeHub, both intelligent sync distribution systems,and carrier class Network Time Protocol (NTP) plug-in server cards, supportingQuality of Service for next generation applications. PackeTimeTM precise timetransfer modules bring high precision, high availability, security, robustmanagement and easy infrastructure integration to telecom operators buildingnext generation networks. Other key products consists of Time Provider, theindustry’s first node clock (hybrid SSU & PRS), TimeCreator, the firstData Over Cable Service Interface Specifications (DOCSIS) Timing Interface(DTI) server qualified by CableLabs, and other products currently underdevelopment to address emerging needs in the wireline and cable markets.

 

·                  *Element Management Systems* — consists ofTimePictra, the carrier class HP-UX based system, and TimeScan, the PC-basedsystem.

 

***Wireless/OEM Market and Products***

 

***Wireless/OEM Market:***

 

Symmetricom’s Wireless/OEM products are sold into thewireless market. Wireless telecommunications networks consist of numerous cellslocated throughout a service area. In a wireless network, calls are segmented,transmitted over the air, and reassembled by a receiver within the network.Certain engineering requirements demand a high level of synchronization at thebase station. Our products are primarily sold into CDMA-based implementationsthroughout the world.

 

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***Wireless/OEM Products:***

 

The primary use of our wireless products is inwireless base stations. Base stations are the infrastructure equipment used inall cellular and personal communication services worldwide. Many of thewireless technologies used today require high precision frequency and timinginformation to operate their services.

 

Our component and sub-system (module) products deliverstable timing to wireless base stations using a combination of GPS receiversfor timing distribution, high precision quartz oscillators and rubidium atomicoscillators. Their use depends on the specific cellular technology such asCDMA2000 or UMTS, and the governing standards that apply. For example, in CDMA,most manufacturers require a GPS signal for every base station with either ahigh performance quartz or rubidium oscillator as a backup. These solutions arealso available to other communication applications requiring high precisionfrequency and timing information, such as digital television transmission, highdefinition television, and instrumentation.

 

Specific products we provide are:

 

·                  *Rubidium atomic oscillators* with variousperformance levels.

 

·                  *GPS accessory components,* which includereceiving antennas, timing antennas, splitters, amplifiers, and lightningprotectors.

 

·                  *Sub-system cards or modules* used withinanother manufacturer’s equipment such as wireless base stations or broadbandwireless solutions. These are customized for each manufacturer, using acombination of GPS, quartz oscillators, rubidium atomic oscillators,input/output signals and control algorithms. Some of the control algorithms arecontained in our BesTime technology.

 

·                  *Time module synchronization sub-systems,*which are flexible GPS-disciplined time and frequency platforms optimized forWiMAX and other applications that require precise frequency or time. Our Timemodule is designed to be integrated into existing communications andtransmission equipment used in WiMAX mobile base station timing, broadcast(DVB, DVB-H, DAB, DTV), satellite communications equipment, and cellular basestations (CDMA, TDMA, UMTS for GPS based timing).

 

***Global Services Market and Products***

 

***Global Services Market:***

 

Wemarket our services exclusively to customers who purchase our products.

 

***Global Services Products:***

 

OurGlobal Services (“Services”) organization provides lifecycle services forSymmetricom product lines. Services products fall into five main categories:

 

·                  *Engineering and installation* —Ourengineering and installation services help customers implement new Symmetricomproduct purchases.

 

·                  *Operations and support programs—* Ouroperations and support programs, such as Sync Office Audits, assist customersin maintenance of their sync networks, help ensure power and alarm diversity toavoid service outages and identify system capacity.

 

·                  *Maintenance—* Our maintenance offerings aredesigned to help customers minimize staff and expenses necessary for ongoingsupport of their Symmetricom products. These include 24 x 7 technical support,traditional return-to-factory repair services, and on-site repair labor.

 

·                  *Training, certification programs and professionaldevelopment courses—* Our training courses enable customer personnelto successfully utilize and maintain our products. These programs are alsoavailable under license for customers who maintain their own training centers.

 

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·                  *Consulting and other professional services—*Our consulting services assist customers in planning new sync communicationsnetworks and developing growth or disaster recovery plans for existingsync networks.

 

***Timing, Test and Measurement Markets and Products***

 

***Timing, Test and Measurement Markets:***

 

The aerospace, defense, metrology, and enterprisemarkets require precision time and frequency instruments and referencestandards. Time and frequency solutions include GPS and timecode instrumentation products, bus level timing cards, and precisionfrequency references (atomic standards). IP network timing products includededicated network time servers and management and monitoring software thatsynchronizes the timing on enterprise networks. Space, defense, and avionics applicationsinclude highly reliable and ruggedized components and systems designed toaddress specific customer requirements.

 

***Timing, Test and Measurement Products:***

 

We offer a wide variety of precision time andfrequency products sold primarily to the aerospace, defense, metrology andenterprise sectors. These products can generally be divided into the followingbroad categories:

 

·                  *Precision Frequency References* —PrecisionFrequency References form the basis of absolute time and frequency in manysystems and applications. Our products include active hydrogen masers, cesiumfrequency standards, rubidium frequency standards, and quartz frequencystandards. Our primary reference source instruments provide stand-alonedependability, ease of use, and ease of installation that make them suitablefor the critical time or frequency systems found in telecommunications timing,calibration and metrology laboratories, satellite tracking stations andspace-based master time standards.

 

·                  *Bus Level Timing—* We manufacture a broadline of precision timing products in the form of plug-in cards for computers.These cards provide precise timing capabilities to computers equipped withcommon bus components. We also offer software development tools to speed theintegration of these cards into software applications.

 

·                  *Enterprise Network Time Servers —We manufactureseveral products for enterprise network time distribution. These bring entirenetworks of computers into precise time synchronization.*

 

·                  *GPS*  & *Time Code Instrumentation Products* —We manufacture a widevariety of general purpose GPS receivers, time code generation, translation anddistribution products. A time code is a data format for recording andprocessing time measurements.

 

·                  *Space, Defense and Avionics* —We provideruggedized and militarized quartz and atomic clock platforms for the mostdemanding military applications. Our designs are vibration isolated withlow-acceleration sensitivity. For space applications such as GPS, where thereis a high degree of exposure to radiation, our products are protected byradiation-hardened designs.

 

·                  *Test & Measurement Equipment* —Weprovide a line of Time and Frequency test solutions including a family of PhaseNoise and Allan Deviation Test Sets designed to measure critical performancespecifications of precision time and frequency signals and sources.

 

***Quality of Experience Assurance Market and Products***

 

***Quality of Experience Assurance Market:***

 

As traditional telephone and broadband access servicesbecome increasingly competitive, communication service providers (CSPs) areinvesting in advanced services that are vital to generate new revenue streams.Delivering services such as IPTV, Video on Demand (VoD), Voice over InternetProtocol (VoIP), and other real time media over an IP network, however, faces anumber of technical challenges that can easily degrade service, and thus,increase support costs and customer churn levels. To address such concerns,service providers may utilize real time Quality of Experience (QoE) monitoringsolutions. These include software agents, network probes and Network OperationsCenter (NOC)-based management software.

 

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***Quality ofExperience Assurance Products:***

 

·                  *Network Probes**:*    Linux server-based components of Symmetricom’sQoE solution provide a benchmark (a MOS, or mean opinion score) that enablesservice providers to monitor and diagnose the perceptual impact of video, voiceor data quality impairments that may be introduced by transmission over an IPnetwork or perhaps by artifacts introduced from various encoding methodologies.

 

·                  *Software Agents:  * Our softwareagents provide comprehensive, real time diagnostics and are resident on eitheran end user’s PC or other customer premise equipment (CPE) such as set-topboxes (STBs) or home gateways. Integration of these agents into various CPE isessential for communication service providers (CSPs) to diagnose problems thatarise within the critical “last mile” of various distribution and accessnetworks, as well as within “in-building” infrastructure.

 

·                  *NOC-based Software:  * Collectingreal time information from network probes and software agents, managementsoftware enables network administrators to diagnose critical issues as theyarise, minimize support costs, monitor service level agreements (SLAs), andimprove and refine network services on an ongoing basis. Key PerformanceIndicators (KPIs), MOS scores, traps, alarms, and other performance-relateddata are aggregated in a highly optimized and proprietary manner, and thenstored in an integrated structured query language (SQL) database. This softwareplatform is typically deployed in a highly integrated fashion with anindustry-standard OSS already in use by the customer.

 

·                  *V-Factor®:  * This producttechnology is at the core of delivering perceptual quality metrics for IP-basedvideo in a no-reference system architecture. Based upon the Moving PictureQuality Metric (MPQM) model and adapted specifically for end-to-end video andaudio quality scoring, it is the first video quality metric that takes intoaccount both network and content impairments. V-Factor-based software productscan be embedded into a variety of network nodes and types of equipment thatinclude network processors, IP-DSLAMs, test probes, STBs, PCs, home gateways,etc.

 

**SalesOperations**

 

We sell our products directly to customers, andthrough domestic and international distributors, as well as systems integratorsand manufacturer sales representatives. In the United States, our wireline andcable products are primarily sold through our own sales force to ILECs, PTTs,CLECs, other telephone companies, wireless service providers, cable operators,Internet Service Providers (ISPs) and OEMs. Our instrumentation productsare primarily sold through manufacturer sales representatives, and ourenterprise products are primarily sold through telesales and the internet.Internationally, we market and sell our products through our internal salesforce, independent sales representatives, distributors, and system integrators.

 

**Licenses,Patents, Trademarks and Copyrights**

 

We use a combination of trademark rights, copyrightsand patent rights, as well as associated registrations, contractualrestrictions, and internal security to establish and protect our proprietaryrights. As of July 1, 2007, we had 51 active United States patents.The active patents issued will expire between August 2009 and September 2024.We believe that our patents have value, but we rely primarily on innovation,technological expertise, and marketing competence to maintain our competitiveadvantage. The telecommunications industry is characterized by the existence ofa large number of patents and frequent litigation based on allegations ofpatent infringement. We intend to continue our efforts to obtain patentswhenever possible, but there can be no assurance that patents will be issued orthat any existing patents or patents that are obtained will not be challenged,invalidated or circumvented, or that the rights granted will provide anycommercial benefit to us. Additionally, if any of our processes or designs areidentified as infringing upon patents held by others, there can be no assurancethat a license will be available, or that the terms of obtaining any suchlicense will be acceptable to us. In addition, the laws of certain countries inwhich our products may be developed, manufactured or sold may not protect ourproducts and intellectual property rights to the same extent as the laws of theUnited States. In addition, we use technology licensed from others.

 

We generally enter into confidentiality agreementswith our employees, consultants, and third parties in connection with ourtechnology. These confidentiality agreements generally seek to control accessto, and distribution of, our technology, documentation and other proprietaryinformation. Despite these precautions, it may be possible for

 

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a third party to obtain and use our proprietary information withoutauthorization or to develop similar technology independently.

 

In addition, we use trademarks to help identify andmarket our products and services. We have a number of trademark registrationsand pending applications both in the United States and around the world. Werely on these trademark registrations and applications as one of the tools toprotect our rights in our trademarks and brands. We also rely on our common lawtrademark rights in those countries that recognize such rights, such as theUnited States. We can provide no assurance, however, that any of our trademarkapplications will be successful, or that our existing registrations will not bechallenged or invalidated. Likewise, we can provide no assurance that ourregistrations, applications or common law rights will enable us to stop othersfrom infringing upon our trademarks, or enable us to successfully defendagainst claims of trademark infringement. Furthermore, effective trademarkprotection may not be available in every country in which our products andservices are distributed.

 

We also have copyrights on our software products,product documentation, marketing materials, and other documentation andmaterials. We rely on these copyrights to protect our rights in our copyrightedmaterials. We can provide no assurance, however, that our copyrighted materialswill not be infringed. In addition, effective copyright protection may not beavailable in every country in which our products are distributed.

 

**Manufacturing**

 

Our manufacturing process for standard productsconsists primarily of assembly and test performed by our manufacturing sites inAguadilla, Puerto Rico; Beverly, Massachusetts; Tuscaloosa, Alabama; San Jose,California and Hofolding, Germany. In addition, custom and semi-custominstrumentation products are developed, assembled, and tested in Santa Rosa,California and Boulder, Colorado. The Boulder, Colorado and Santa Rosa,California facilities are registered to ISO900:2000, while our Beverly,Massachusetts; Aguadilla, Puerto Rico and San Jose, California (engineeringprocesses) are upgraded to meet the TL 9000 quality system standard (anadvanced telecommunications standard for manufacturing and engineering). OurBeverly, Massachusetts facility is also registered to AS9100 which certifiesthe design, development, and production of high precision time and frequencyreferences for commercial military and space markets.

 

**Backlog**

 

Our backlog consists of firm orders that have yet tobe shipped to the customer. Our total backlog was $51.9 million as of July 1,2007, compared with $48.9 million as of July 2, 2006. Of the $51.9 millionbacklog at July 1, 2007, $43.4 million, $6.1 million and $2.3 million isestimated to be shippable within six months, from six to 12 months and after 12months, respectively. Most orders included in backlog can be rescheduled orcancelled by customers without significant penalty. Historically, a substantialportion of net revenue in any fiscal period has been derived from ordersreceived during that fiscal period. Our backlog may also be affected by thecancellation or delay of customer orders, the overall condition of thetelecommunications industry, overall worldwide economic conditions and thecyclical nature of customer demand in each of our markets.

 

**KeyCustomers and Export Sales**

 

During fiscal 2007, AT&T Inc. accounted for 13.7%of our net revenue and Verizon Communications Inc. accounted for 12.7% of ournet revenue. No other single customer accounted for more than 10% of our netrevenue in fiscal 2007. Our export sales to Europe, Latin America, Asia andCanada accounted for 29%, 30% and 35% of our net revenue in fiscal 2007, 2006and 2005, respectively. For additional information regarding our export sales,see Note 16 to our consolidated financial statements. We shipped products toover 90 countries in fiscal 2007.

 

Gains and losses on the conversion to United Statesdollars of accounts receivable and accounts payable arising from internationaloperations may, in the future, contribute to fluctuations in our business andoperating results. Sales and purchase obligations denominated in foreigncurrencies have not been significant. We do not currently engage in currencyhedging activities or derivative arrangements but may do so in the future tothe extent that foreign currency transactions become more significant.

 

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**Competition**

 

Competition in the telecommunications industry isintense. Some of our competitors or potential competitors are well establishedand have significant financial, manufacturing, technical and marketingresources. Competitors of our synchronization products include Emrise Corp.,Frequency Electronics, Inc., Huawei Technologies Co. Ltd., andOscilloquartz SA. Competitors of our Wireless/OEM products include FrequencyElectronics, Inc. and Trimble Navigation, Ltd. Competitors of our timing,test and measurement products include Brandywine Communications, EndRunTechnologies, Frequency Electronics, Inc., Meinberg, Temex and TrakSystems, Inc. (a Veritas Corporation subsidiary). Competitors of ourQuality of Experience Assurance products include Brix, Ineoquest, JDS Uniphase,Agilent Technologies, Tektronix and Telchemy.

 

**Researchand Development**

 

Our development efforts include providing enhancedfunctionality to our existing products including the development of additionalsoftware-based features and functionality. We also utilize domestic andinternational contractors (primarily in India) to assist us in our research anddevelopment activities. We focused our development efforts in fiscal 2007 onthe development of both hardware and software products. Our product developmentprograms include wireline and wireless synchronization, network managementsoftware, government communication and infrastructure, network time server,video quality of experience hardware and software, and updates and maintenanceon existing products. We are developing a number of new services that we expectto provide in the future as part of our next generation platform. These includenetwork time protocol (NTP) and IEEE 1588 services, as well as others. Infiscal 2007, 2006 and 2005, overall research and development expenditures were$23.7 million, $18.8 million and $16.3 million, respectively. Fiscal year2007 research and development expenditures include the partial year impact forthe QoSmetrics S.A. and Timing Solutions Corporation acquisitions. We expensedall research and development expenditures as they were incurred. We expect tocontinue to support research and development efforts in order to enhanceexisting products and to design and develop new technologies and products.

 

Our primary product development centers are inCamarillo, California; San Jose, California; Santa Rosa, California; Beverly, Massachusettsand Austin, Texas.

 

**GovernmentRegulation**

 

The telecommunications industry is subject to domesticand foreign regulatory policies regarding pricing, taxation and tariffs, whichmay adversely impact the demand for our products. These policies arecontinuously reviewed and subject to change by the various governmentalagencies. We are also subject to government regulations and standards for ourproducts.

 

**EnvironmentalRegulation**

 

Our operations are subject to numerous foreign,federal, state and local environmental regulations related to the storage, use,discharge and disposal of toxic, volatile or otherwise hazardous chemicals andmaterials used in our manufacturing process and products. Failure to complywith such regulations could result in a suspension or cessation of ouroperations, or could subject us to significant future liabilities. See “Item 3.Legal Proceedings” and “Item 1A. Risk Factors—Our operating results may beadversely affected as a result of our required compliance with the adoptedEuropean Union Directives on Waste Electrical and Electronic Equipment andtheir Restriction of the Use of Hazardous Substances in electrical andelectronic equipment, as well as other standards around the world.”

 

**Sourcesand Availability of Raw Materials**

 

We endeavor to use standard parts and components,which are generally available from multiple sources. We make significantpurchases of parts and components from third-party suppliers. Certain partsused in our manufacturing process are single sourced.

 

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**Employees**

 

At July 1, 2007, we had 951 employees, including608 in manufacturing, 131 in engineering and 212 in sales, marketing, serviceand general and administration. This headcount represents an increase of86 employees over the prior year, which includes 72 employees added forthe QoSmetrics S.A. and TSC acquisitions that closed in fiscal year 2007. Noneof our employees are represented by a labor union, and we have experienced nowork stoppages. We believe that our employee relations are good.

 

**ExecutiveOfficers of Symmetricom**

 

Following is a list ofour executive officers as of July 1, 2007 and brief summaries of theirbusiness experience over the last five years. All officers, including executiveofficers, are appointed annually by the Board of Directors at its meetingfollowing the annual meeting of stockholders. We are not aware of any officerwho was appointed to the office pursuant to any arrangement or understandingwith another person.

 
| **Name**         | ** ** | **Age** | ** ** | **Position**                                                                                |
|------------------|------------|---------|------------|---------------------------------------------------------------------------------------------|
| Thomas W. Steipp |       | 57      |       | Chief Executive  Officer                                                                    |
| William Slater   |       | 55      |       | Executive Vice  President Finance and Administration, Chief Financial Officer and Secretary |
| Bruce Bromage    |       | 53      |       | Executive Vice  President and General Manager TT&M Division                             |
| Nancy Shemwell   |       | 51      |       | Executive Vice  President Global Sales & Support                                   |
| David Cox        |       | 40      |       | Executive Vice  President & General Manager, QoE Assurance Division                |

 

*Mr. Steipp*hasserved as Chief Executive Officer of Symmetricom since December 1998. Mr. Steippserved as Chief Executive Officer and Chief Financial Officer of Symmetricomfrom December 1998 to October 1999. Mr. Steipp served asPresident and Chief Operating Officer, Telecom Solutions, a division ofSymmetricom, from March 1998 to December 1998.

 

*Mr. Slater*hasserved as Executive Vice President Finance and Administration, Chief FinancialOfficer and Secretary of Symmetricom since July 2006. Mr. Slaterserved as Chief Financial Officer and Secretary of Symmetricom from August 2000to June 2006.

 

*Dr. Bromage*hasserved as Executive Vice President and General Manager of the Timing, Test andMeasurement Division since April 2004. Dr. Bromage joined Symmetricomin April 2002 and served as Vice President, Strategic Planning andAlliances from April 2002 to April 2004.

 

*Ms. Shemwell*joinedSymmetricom in October 2004 as Senior Vice President Global Sales &Support and in July 2006 became Executive Vice President Global Sales &Support. From 2003 to 2004 Ms. Shemwell was Acquisition Partner/ConsultingAffiliate at the Canux Group. From 2001 to 2002 Ms. Shemwell was Presidentand CEO of Jovial Test Equipment.

 

*Mr. Cox*has**served as Executive Vice President andGeneral Manager, QoE Assurance Division, since October 2006. Mr. Coxjoined Symmetricom as Vice President of Corporate Development in April 2006.From January 2006 to February 2006, Mr. Cox was the CEO ofNorwegian-based mobile search firm Stochasto ASA. From July 2002 to December 2005,Mr. Cox was an independent consultant providing strategy consulting servicesto start-up companies and private equity firms.

 

**Item 1A.****          *Risk Factors***

 

***The restatementof our financial statements has had and may continue to have a material adverseimpact on us, including increased costs, diversion of management’s attentionand potential acceleration of our 3.25% Senior Contingent ConvertibleSubordinated Notes due 2025***

 

TheAudit Committee of our Board of Directors has concluded that the financialstatements of the Company for the annual fiscal periods ended June 30,2002 through July 1, 2007 and the quarterly period ended September 30,2007 should be restated, as described in more detail in Note 19 to theaccompanying consolidated Financial

 

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Statements.  In connection with and as a result of theseevents, we have become subject to a number of additional risks anduncertainties, including the following:

 

·                  We have incurredsubstantial unanticipated costs for accounting and legal fees in connectionwith the restatement.  Although therestatement is complete, we may continue to incur accounting and legal fees inconnection with the restatement.

·                  Our management’s time and attention has been diverted  from our other business operations as aresult of the restatement and related matters, which could harm our business.

·                  We have workedwith our independent legal counsel to ensure that our filings comply with allrelated requirements. Nevertheless, we cannot assure you that the SEC willagree with the manner in which we have accounted for and reported the financialimpact of the restatement, or that the SEC or other regulatory oradministrative requirements will not change, and that we will not be requiredto further restate our prior financial statements, amend this and prior filingswith the SEC, or take other actions not currently contemplated.  In addition to the cost and time required,such further restatements, amendments or other actions may have a materialadverse affect on our stock price and could result in a delisting of our commonstock from The Nasdaq Global Select Market.

·                  On May 7,2008, we received a notice of acceleration from the trustee under the indenturegoverning our $120.0 million principal amount of 3.25% Senior ContingentConvertible Subordinated Notes due 2025. The notice alleges that our failure to file our Quarterly Report on Form 10-Qfor the quarter ended December 30, 2007 violates certain provisions of theindenture.  Although we believe that noevent of default entitling holders to accelerate has occurred with respect tothe notes, we cannot assure you that the trustee will withdraw its notice ofacceleration or that we will not be subject to additional costs to resolve thismatter.

·                  As a result of our delayed filing of our Quarterly Report on Form 10-Qfor the quarter ended December 30, 2007, we will be ineligible to registerour securities on Form S-3 for sale by us or resale by others until wehave timely filed all periodic reports under the Securities and Exchange Act of1934 for a period of twelve calendar months and any portion of a month from thedue date of the last untimely report. We may use Form S-1 to raise capitalor complete acquisitions, but doing so could increase transaction costs andadversely impact our ability to raise capital or complete acquisitions of othercompanies in a timely manner.

 

***Public confidence and share value may beadversely impacted by material weaknesses in our internal controls overfinancial reporting***

 

Section 404 of the Sarbanes-Oxley Act of 2002requires us to evaluate the effectiveness of our internal controls overfinancial reporting and to include a management report assessing theeffectiveness of our internal controls over financial reporting in all annualreports. Section 404 also requires our independent registered publicaccounting firm to attest to, and report on, management’s assessment of ourinternal controls over financial reporting.

* *

*During fiscal 2007, we identifiedtwo material weaknesses in our controls over financial reporting. Both materialweaknesses resulted in quarterly restatements in fiscal 2007, one for thesecond quarter and the other for the third quarter. One of the materialweaknesses was remediated prior to year end. Since the other material weakness was not remediated prior to July 1,2007, our management determined that our internal control over financialreporting was not effective as of July 1, 2007.*

* *

Subsequent to filing our Form 10-K forfiscal 2007, we identified a third material weakness in our internal controlenvironment due to an operating deficiency in the completeness, accuracy, andexistence of amounts in the accrued receipts account, and a design deficiencyin the subsequent reconciliation and review process. To correct this materialweakness in the internal control environment, management is in the process ofinstituting changes in our internal controls and procedures to ensure that theaccrued receipts account is properly reconciled and reviewed in the future.  We cannot assure you that we will notidentify other material weaknesses in our internal controls in the future. As aresult, we may experience a loss of public confidence, which could have anadverse effect on our business, financial condition and stock price.

 

We will need to continue to evaluate, upgrade andenhance our internal controls. Because of inherent limitations, our internalcontrol over financial reporting may not prevent or detect misstatements,errors or omissions, and any

 

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projections of any evaluation of effectiveness ofinternal controls to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions or that the degree ofcompliance with our policies or procedures may deteriorate. We cannot becertain in future periods that other control deficiencies that may constituteone or more “significant deficiencies” (as defined by the relevant auditingstandards), or material weaknesses in our internal control over financialreporting, will not be identified. If we fail to maintain the adequacy of ourinternal controls, including any failure to implement or difficulty inimplementing required new or improved controls, our business and results ofoperations could be harmed, the results of operations we report could besubject to adjustments, we could fail to be able to provide reasonableassurance as to our financial results or the effectiveness of our internalcontrols or meet our reporting obligations, and there could be a materialadverse effect on our stock price.

 

***We have not been in compliance with TheNasdaq Stock Market’s continued listing requirements and remain subject to therisk of our stock being delisted from The Nasdaq Global Market, which wouldhave a material adverse effect on us and our stockholders***

 

On February 15, 2008and May 14,  2008, we receivedNasdaq Staff Determination notices stating that we were not in compliance withNasdaq Marketplace Rule 4310(c)(14). The notices were issued in accordance with Nasdaq procedures because wedid not timely file our Quarterly Reports on Form 10-Q for the periodsended December 30, 2007 and March 30, 2007.  We requested and were granted a hearing on April 3,2008 with the Nasdaq Listing Qualifications Panel. On May 1, 2008, wereceived notice that the Nasdaq Listing Qualifications Panel granted ourrequest for continued listing of our common stock on the Nasdaq Global Market.The continued listing of our common stock is subject to the condition that onor before June 30, 2008, we must file with the SEC our Quarterly Reportson Form 10-Q for the periods ended March 30, 2008 and December 30,2007 and any necessary restatements of our prior financial statements. Althoughwe believe the filing of this Form 10-K/A and our subsequent filings ofthe delinquent Form 10-Qs and the Form 10-Q/A for the quarter ended September 30,2007 satisfy the Nasdaq Listing Qualifications Panel’s requirements, we cannotassure you that the Panel will be satisfied with these filings.

 

***If we incur net losses or substantially lower profit in thefuture, we may have to record a valuation allowance against some of ourdeferred tax assets, which would significantly increase our tax expense andhurt our net earnings***

 

Future losses may create uncertainty about therealizability of our $47.3 million net deferred tax assets. If we record avaluation allowance against our deferred tax assets, we would record anadditional tax expense, which would reduce net earnings. In addition,uncertainties about the realizability of our deferred tax assets could limitour ability to recognize future deferred tax assets on our balance sheet andcorrespondingly reduce net earnings. At the end of each fiscal quarter, ourmanagement reviews the results of operations for that quarter and forecasts forthe remainder of the fiscal year and future years to determine if it is morelikely than not that a valuation allowance for the deferred tax assets isneeded.

 

***The tax treatment of the restructuring of our Puerto Ricosubsidiary may negatively impact our net earnings***

 

In July 2006, Symmetricom Puerto Rico, awholly-owned subsidiary, moved its place of legal organization from Delaware toBermuda in a transaction intended to be a tax-free restructuring. We are in theprocess of submitting a ruling request to the Internal Revenue Service toconfirm the tax-free treatment. We are undertaking this ruling request basedupon our subsequent review of the 2006 restructuring. Although ruling requestsof this nature are considered routine and we believe that it is more likelythan not that the ruling will be granted, we cannot assure you that the rulingwill be granted.

 

If the ruling is granted, Symmetricom Puerto Ricowould be treated as a branch of Symmetricom, Inc. effective as of July 2006and, accordingly, the profits of Symmetricom Puerto Rico would be currentlytaxable for federal income tax purposes. If granted, the ruling would result inan effective tax rate of approximately 25.0% for fiscal 2008 compared to aneffective tax rate of approximately 55.6% for fiscal 2007.

 

If the ruling is notgranted, then:

 

·                  we would berequired to take a one-time, non-cash charge to our deferred tax assets ofapproximately $15.2 million;

 

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·                  SymmetricomPuerto Rico would continue its election to indefinitely reinvest its futureearnings outside of the United States and not repatriate future earnings backto Symmetricom, Inc.; and

 

·                  the effectivetax rate for fiscal 2008 would be approximately 221.0%, compared to aneffective tax rate of approximately 55.6% for fiscal 2007. The large increasein the effective tax rate for fiscal 2008 would be due primarily to theone-time $15.2 million charge.

 

Prior to fiscal 2007, Symmetricom Puerto Rico hadelected to report its U.S. taxes under Section 936 of the United StateInternal Revenue Code. This election exempted qualified Puerto Rico earningsfrom regular federal income taxes, subject to various limitations. Section 936expired at the end of fiscal 2006.

 

***THE FOLLOWING RISK FACTORS INCLUDED IN THE ORIGINAL FILINGHAVE NOT BEEN UPDATED FOR INFORMATION OR EVENTS OCCURRING AFTER THE DATE OF THEORIGINAL FILING.***

 

***The new Quality of Experience Assurance Division will incursubstantial losses***

 

During fiscal 2007, in connection with our acquisitionof QoSmetrics, S.A., we entered a new business and formed the Quality ofExperience Assurance Division. This business develops and sells products foruse in IP-based video markets that may require monitoring for networkperformance and the assurance of the quality of video delivery. We arecurrently investing in this business to develop products for this emergingmarket. This market may never develop and, if it does develop, our products maynot be successful. If either of these occurs, then we will have incurredsubstantial losses in QoE over the course of several years and in a futureperiod we would have to write off and expense substantial amounts of goodwilland intangibles. This business will incur substantial losses to develop andmarket products. There is no assurance that these products will attain marketacceptance.

 

***If we are unable to smoothly integrate the businesses weacquire, our operations and financial results could be harmed***

 

As part of our businessstrategy we have engaged in acquisitions in the past, including theacquisitions of TrueTime and Datum, and other smaller acquisitions, andcontinue to evaluate other acquisition opportunities that could provideadditional product or service offerings, technologies or additional industryexpertise. Acquisitions involve risks, which include the following:

 

·                  we may beexposed to unknown liabilities of the acquired business;

 

·                  we may incursignificant write-offs;

 

·                  we mayexperience problems in combining the acquired operations, technologies orproducts;

 

·                  we may notrealize the revenue and profits that we expect the acquired businesses togenerate;

 

·                  we may notachieve the cost savings we hope to obtain from combining the acquired operationswith ours;

 

·                  we mayexperience regulatory difficulties and unbudgeted expenses in attempting tocomplete an acquisition;

 

·                  we may encounterunanticipated acquisition or integration costs that could cause our quarterlyor annual operating results to fluctuate;

 

·                  we may incursubstantial penalties if we do not relocate manufacturing operations asscheduled;

 

·                  our management’sattention may be diverted from our core business;

 

·                  our existingbusiness relationships with suppliers and customers may be impaired;

 

·                  we may not besuccessful in entering new markets in which we have no or limited experience;

 

·                  key employees ofthe acquired businesses may have expertise and know-how, and we may not be ableto retain some of these key employees, and some of them may join or startcompeting businesses;

 

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·                  our earnings pershare may be diluted if we pay for an acquisition with equity securities; and

 

·                  we may not beable to repay our debt used to make acquisitions.

 

We cannot assure you that we will be able tosuccessfully integrate any business, products, technologies or personnel fromany recent or future acquisitions. If we fail to successfully integrateacquisitions or to achieve any anticipated benefits of an acquisition, ouroperations and business could be harmed. Additionally, we may experiencedifficulty integrating and managing the acquired business operations. For thesereasons, we cannot be certain what effect acquisitions may have on our business,financial condition and results of operations.

 

***We may be required to record additional goodwill andintangible impairment charges in future quarters***

 

As of July 1, 2007, we had recorded goodwill witha net book value of $54.7 million related to various acquisitions, mostrecently QoSmetrics S.A and Timing Solutions Corporation. We test forimpairment at least annually, and more frequently whenever evidence ofimpairment exists. For example, we performed a goodwill impairment test on ourWireless/OEM business segment as of March 31, 2006 and determined thatgoodwill was impaired by approximately $7.0 million. If our future financialperformance or other events indicate that the value of our recorded goodwill isimpaired, we may record additional impairment charges that could have amaterial adverse effect on our reported results.

 

***We may be impacted by disruptions and liquidity issues inthe credit market, which may unfavorably impact our financial condition andresults of operations***

 

We invest excess funds in specific instruments andissuers approved for inclusion in our cash and short-term investment accounts.Our investment criteria are to invest only in top tier quality investments orfederally sponsored investments. Top tier quality investments are determined byour investment advisor in conjunction with ratings of those investmentsprovided by outside ratings agencies as well as our investment advisor’sinternal credit specialists. Our cash consists of overnight instruments andinstruments that will mature within ninety days after the end of our fiscalquarter. Our short-term investment portfolio consists of instruments thatmature between ninety-one days and three years after the end of our fiscalquarter.

 

·                  Based uponrecent events in the credit market, we may be impacted by the following risks:

 

·                  We mayexperience temporary or permanent declines in the value of certain instrumentswhich would be reflected in our financial statements;

 

·                  We mayexperience rating agency downgrades of instruments we currently own which maydegrade our portfolio quality and cause us to take impairment charges;

 

·                  We may not beable to reasonably value our investments if there is not a liquid resale marketfor those instruments;

 

·                  We mayexperience losses on the sale of certain instruments if we do not havesufficient operating cash to run our business and are required to sellshort-term investments to meet cash flow requirements; and

 

·                  Our 3.25%Contingent Convertible Subordinated Notes, principal value $120,000,000, due2025 and subject to repurchase in 2012, may be convertible prior to thematurity date into cash, if, during the five consecutive business-day periodfollowing any five consecutive trading-day period in which the trading pricefor the notes for each such trading day was less than 95% of the average of thesale price of our common stock during such five trading-day period multipliedby the then current conversion rate.

 

In addition to the aboverisks, the recent events in the credit market may also impact our customers,and we may be impacted by the following risks:

 

·                  We mayexperience lower revenues if our customers decide to reduce their capitalspending plans;

 

·                  Customers maydelay payments to us reducing our operating cash flow; and

 

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·                  We mayexperience an increase in accounts receivable write-offs if customers areunable to pay their obligations.

*** ***

***Existing common stockholders may experience dilution inconnection with our sale of convertible notes in June 2005 and willexperience immediate dilution if we sell shares of our common stock or otherequity securities in future financings, and, as a result, our stock price maygo down***

 

Our common stockholders may experience dilution inconnection with the sale in June 2005 of $120 million worth of convertiblenotes if our stock price reaches $12.49 or more per share. For example, to theextent the share price exceeds $12.49, the difference would be multiplied by9.6 million shares and then divided by the share price to determine the numberof shares due to noteholders. For instance, if the stock price was $15.00, theconversion value would be $2.51 ($15.00 less $12.49) multiplied by 9.6 millionshares or $24.1 million which would be divided by the share price of $15.00 toprovide 1.6 million additional shares to noteholders. These 1.6 million shares,when added to our number of shares outstanding, would dilute our earnings pershare.

 

In addition, as opportunities present themselves, wemay enter into financing or similar arrangements in the future, including theissuance of debt securities, preferred stock or common stock. If we issuecommon stock or securities convertible into common stock, our commonstockholders will experience dilution.

 

***We may perform increasing amounts of researchand development and manufacturing offshore to lower cost; these efforts mayimpact our ability to deliver products to our customers, complete research anddevelopment projects on a timely basis, and cause potential misappropriation ofour intellectual property***

 

***As a U.S. government contractor, we aresubject to a number of rules and regulations***

 

We must comply with and are affected by laws andregulations relating to the award, administration and performance of U.S.government contracts. Government contract laws and regulations affect how we dobusiness and, in some instances, impose added costs on our business. Aviolation of specific laws and regulations could result in the imposition offines and penalties or the termination of our contracts or debarment frombidding on contracts. In order to administer certain U.S. government contractswe are required to have employees with Top Secret Security Clearance. Becausewe have a limited number of employees with such clearance, the loss of theseemployees could adversely affect our ability to administer these contracts. Wemust also have auditors from our independent registered public accounting firmwith proper security clearance levels to perform an annual audit of revenue forthese transactions.

 

***We have direct or indirect sales pursuant to contracts withU.S. government agencies, which can be terminated at the convenience of thegovernment, and our revenue would decline if the government terminated thesecontracts***

 

Approximately 15% to 20% of our net revenue has beengenerated from sales to U.S. government agencies either directly or indirectlythrough subcontracts. Government-related contracts and subcontracts are subjectto standard provisions for termination at the convenience of the government. Insuch event, however, we are generally entitled to reimbursement of costsincurred on the basis of work completed plus other amounts specified in eachindividual contract. These contracts and subcontracts are either fixed-price orcost reimbursable contracts. Fixed-price contracts provide fixed compensation forspecified work. Under cost reimbursable contracts, we agree to performspecified work in return for reimbursement of costs (to the extent allowableunder government regulations) and a specified fee. In general, while the riskof loss is greater under fixed-price contracts than under cost reimbursablecontracts, the potential for profit under fixed-price contracts is greater thanunder cost reimbursable contracts. In addition, delays in approvals of theannual defense budget or supplemental funding bills may also impact governmentsales.

 

***We have relied and may continue to rely on a limited numberof customers for a significant portion of our net revenue, and our revenuecould decline due to the delay of customer orders or cancellation of existingorders***

 

During fiscal 2007, two customers each accounted formore than 10% of our revenue. We expect lower levels of revenue from these twolarge customers in the first half of fiscal 2008 and results for this periodwill be adversely impacted. We expect that we will continue to depend on arelatively small number of customers for a substantial portion of our netrevenue for the foreseeable future. The timing and level of sales to ourlargest customers have

 

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fluctuated significantly in the past and are expectedto continue to fluctuate significantly in the future. The loss of one or moreof our significant customers, or a significant reduction or delay in sales toany customer, may harm our business and operating results. For instance, ourWireline revenue in 2006 decreased by $2.5 million in part because one largecustomer ordered less product in fiscal 2006 than 2005 as it completed a majorproject. Major customers also have significant leverage and may attempt tochange the terms, including pricing, upon which we do business, which couldalso harm our business and operating results.

 

***If we are unable to develop new products, or we are delayedin production startup, our sales could decline***

 

The markets for our productsare characterized by:

 

·                  rapidly changing technology;

 

·                  evolving industry standards; and

 

·                  changes in end-user requirements.

 

Technological advancements could render our productsobsolete and unmarketable. Our success will depend on our ability to respond tochanging technologies and customer requirements, and our ability to develop andintroduce new and enhanced products in a cost-effective and timely manner. Thedevelopment of new or enhanced products is a complex and uncertain processrequiring the accurate anticipation of technological and market trends. We mayexperience design, manufacturing, marketing, and other difficulties that coulddelay or prevent the development, introduction or marketing of our new productsand enhancements.

 

The introduction of new or enhanced products alsorequires that we manage a smooth transition from older products to newproducts. Delays in new product development or delays in production startupcould reduce our sales.

 

***The telecommunications and government markets are highlycompetitive, and if we are unable to compete successfully in our markets, ourrevenue could decline***

 

Competition in thetelecommunications industry, in general, and in the markets we serve, isintense and likely to increase substantially. We face competition in all of ourmarkets. Competitors of our synchronization products include Emrise Corp.,Frequency Electronics, Inc., Huawei Technologies Co. Ltd., andOscilloquartz SA. Competitors of our Wireless/OEM products include FrequencyElectronics, Inc. and Trimble Navigation, Ltd. Competitors of our timing,test and measurement products include Brandywine Communications, EndRunTechnologies, Frequency Electronics, Inc., Meinberg, Temex and TrakSystems, Inc. (a Veritas Corporation subsidiary). Competitors of ourQuality of Experience Assurance products include Brix, Ineoquest, JDS Uniphase,Agilent Technologies, Tektronix and Telchemy. In addition, theTelecommunications Act of 1996 permits ILECs to manufacture telecommunicationsequipment, which may result in increased competition. Our ability to competesuccessfully in the future will depend on many factors including:

 

·                  thecost-effectiveness, quality, price, service and market acceptance of ourproducts;

 

·                  our ability tocompete with competitors that perform low-cost research and developmentoffshore;

 

·                  our response tothe entry of new competitors into our markets or the introduction of newproducts by our competitors;

 

·                  the averageselling prices for our products;

 

·                  increasedindustry consolidation among our customers, which may lead to decreased demandfor, and downward pricing pressure on the prices of, our products;

 

·                  our ability tokeep pace with changing technology and customer requirements;

 

·                  our continuedimprovement of existing products;

 

·                  the timelydevelopment or acquisition of new or enhanced products;

 

·                  the timing ofnew product introductions by our competitors or us; and

 

·                  changes inworldwide market and economic conditions.

 

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Some of our competitorsor potential competitors are well established and have significant financial,manufacturing, technical and marketing resources. These competitors may be ableto respond more quickly to new and emerging technologies and changes in customerrequirements, to devote greater resources to the development, promotion andsale of products, or to deliver competitive products at lower prices. We expectto continue to experience pricing pressures from our competitors in all of ourmarkets. If we are unable to compete by delivering new products or bydelivering competitive products at lower prices, we could lose market share andour revenue could decline.

 

***Our quarterly and annual operating results have fluctuatedin the past and will likely continue to fluctuate in the future, which couldcause our stock price to decline and result in losses to our investors***

 

We believe thatperiod-to-period comparisons of our operating results may not be a goodindication of our future performance. Our quarterly and annual operatingresults have fluctuated in the past and will likely continue to fluctuate inthe future. Some of the factors that could cause our operating results tofluctuate include:

 

·                  the resumptionof recent adverse economic conditions, particularly within thetelecommunications equipment industry, which may result in revenue declines;

 

·                  restructuringand integration-related charges;

 

·                  goodwillimpairment charges related to acquisitions;

 

·                  our ability toobtain sufficient supplies of sole or limited source components at commerciallyreasonable prices;

 

·                  changes in ourproducts or mix of sales to customers;

 

·                  the possibilitythat, despite our having been approved as a supplier in requests for proposalsfrom several major wireline customers, these proposals will not result in anypurchases;

 

·                  our ability tomanage fluctuations in manufacturing yields of rubidium oscillators and cesiumtubes;

 

·                  our ability tomanage the level and value of our inventories in relation to sales volume;

 

·                  our ability toaccurately anticipate the volume and timing of customer orders or customercancellations;

 

·                  our ability tocollect receivables from our customers, including those in thetelecommunications industry;

 

·                  the gain or lossof significant customers;

 

·                  fluctuations ingovernment spending for infrastructure investment;

 

·                  timing ofpurchases from customers on projects, for example Verizon and AT&T, may beimpacted due to spending delays, availability of resources for installation,and delays in new product availability;

 

·                  our ability tointroduce new products in new and existing markets on a timely andcost-effective basis;

 

·                  customer delaysin qualification of new products;

 

·                  marketacceptance of new or enhanced versions of our products and our competitors’products;

 

·                  our ability tomanage increased competition and competitive pricing pressures;

 

·                  increasedindustry consolidation among our customers, which may lead to decreased demandfor, and downward pricing pressure on the prices of, our products;

 

·                  our ability totimely implement changes developed as a result of our process improvementprojects without negatively impacting operations;

 

·                  our ability tomanage fluctuations in the average selling prices of our products;

 

·                  our ability tomanage the long sales cycle associated with our products;

 

·                  our ability tomanage cyclical conditions in the telecommunications industry;

 

·                  our ability toretain key employees, which could affect our ability to sell, develop anddeliver our products;

 

·                  reduced rates ofgrowth of telecommunications services;

 

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·                  customers maydelay upgrading their old equipment with our new products;

 

·                  our ability toestablish in a timely fashion subsidiaries in new geographic regions, which ourcustomers or potential customers may require to do business with us in thoseregions;

 

·                  internationalcustomers may delay purchasing products;

 

·                  customers in thewireless market may delay adding new base stations which require our products;

 

·                  customers mayexperience labor strikes which could result in reduced sales volume;

 

·                  customers in thewireless market may switch from buying rubidium-based products which areinternally manufactured to quartz-based products which are purchased and soldat a lower price point, which may result in lower revenue and gross margins;and

 

·                  a globalpandemic, if not contained.

 

A significant portion ofour operating and manufacturing expenses are relatively fixed in nature andplanned expenditures are based in part on anticipated orders. If we are unableto adjust spending in a timely manner to compensate for any unexpected futuresales shortfall, our operating results will be negatively impacted. Ouroperations entail a high level of fixed costs and require an adequate volume ofproduction and sales to achieve and maintain reasonable gross profit marginsand net earnings. If we increase the volume of product manufacturing by outsidesources and decrease our internal production, we could incur higher fixed costs(per unit) and integration and restructuring charges. Significant decreases indemand for our products or reduction in our average selling prices, or anymaterial delay in customer orders may negatively harm our business, financialcondition and results of operations. Our future results depend in large part ongrowth in the markets for our products.

 

The growth in each ofthese markets may depend on changes in general economic and regulatoryconditions, conditions related to the markets in which we compete, changes inregulatory conditions, legislation, export rules or conditions, interestrates and fluctuations in the business cycle for any particular market segment.If our quarterly or annual operating results do not meet the expectations ofsecurities analysts and investors, the trading price of our common stock coulddecline significantly.

 

***We purchase certain key components from single or limitedsources and could lose sales if these sources fail to fulfill our needs***

 

We have limited suppliersfor a number of our components. If single source components were to becomeunavailable on satisfactory terms, we would be required to purchase comparablecomponents from other sources. If for any reason we could not obtain comparablereplacement components from other sources in a timely manner, our business,results of operations and financial condition could be harmed. In addition,some of our suppliers require long lead times to deliver requested quantitiesof components. If we are unable to obtain sufficient quantities of components,we could experience delays or reductions in product shipments, which could alsohave a material adverse effect on our business, results of operations andfinancial condition. Due to rapid changes in technology, on occasion, one ormore of the components used in our products could become unavailable, resultingin unanticipated redesign and related delays in shipments.

 

We cannot assure you thatsimilar delays will not occur in the future. Our suppliers of components may beimpacted by compliance with environmental regulations, including Restriction onthe use of Hazardous Substances in electrical and electronic equipment, knownas the RoHS Directive, and Waste Electrical and Electronic Equipment Directive,known as the WEEE Directive, which could affect our continued supply ofcomponents or cause additional costs for us to implement new components intoour manufacturing process.

*** ***

***Our products are complex and may contain errors or designflaws, which could be costly to correct***

 

Our products are complexand often use state-of-the-art components, processes and techniques. When werelease new products, or new versions of existing products, they may containundetected or unresolved errors or defects. Despite testing, errors or defects maybe found in new products or upgrades after the commencement of commercialshipments. Undetected errors and design flaws have occurred in the past andcould occur in the future. These errors could result in delays, loss of marketacceptance and sales, diversion of development resources, damage to our

 

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reputation, legal action by our customers, failure to attract newcustomers, and increased service and warranty costs. The occurrence of any ofthese factors could cause our net revenue to decline.

 

***Our critical business and manufacturing facilities in PuertoRico; Beverly, Massachusetts; San Jose, California; Santa Rosa, California;Camarillo, California; Tuscaloosa, Alabama, and Boulder, Colorado, as well asmany of our customers and suppliers, are located near known hurricane zones,earthquake fault zones, and flood plains, and the occurrence of these events orother catastrophic disasters could cause damage to our facilities andequipment, which could require us, as well as our customers and suppliers tocease, curtail or disrupt operations***

*** ***

***Capacity constraints, systems failures or security breachescould prevent access to our computer systems, which could interrupt ourbusiness and harm our daily operations***

 

Our business goals ofperformance, reliability and availability require that we have adequatecapacity in our computer systems to support our operations. As our operationsgrow in size and scope, we will need to improve and upgrade our systems and infrastructureto offer internal personnel enhanced services, capacity, features andfunctionality. Our ability to provide high-quality service depends on theefficient and uninterrupted operation of our computer and communicationssystems. Our computer system has experienced system interruptions from time totime and could experience periodic system interruptions in the future. Oursystems and operations are also vulnerable to damage or interruption from humanerror, natural disasters, power loss, telecommunication failures, break-ins,sabotage, computer viruses, design defects, vandalism, denial-of-serviceattacks and similar events. Even though we have a formal disaster recoveryplan, it may not completely prevent any system failure or security breach that causesan interruption in our business and daily operations.

*** ***

***If we fail to protect our intellectual property, ourcompetitive position could be weakened and our revenues may decline***

 

We believe our successwill depend in a large part on our ability to protect trade secrets, obtain orlicense patents, and operate without infringing on the rights of others. Werely on a combination of trademark, copyright and patent registration,contractual restrictions and internal security to establish and protect our proprietaryrights. These measures may not provide sufficient protection for our tradesecrets or other proprietary information. We have United States andinternational patents and patent applications pending that cover certaintechnology used by our operations. However, while we believe that our patentshave value, we rely primarily on innovation, technological expertise andmarketing competence to maintain our competitive position. While we intend tocontinue our efforts to obtain patents whenever possible, there can be noassurance that patents will be issued, or that new, or existing patents willnot be challenged, invalidated or circumvented, or that the rights granted willprovide us with any commercial benefit.

*** ***

***Third parties may assert intellectual property infringementclaims, which would be costly to defend and may result in our loss ofsignificant rights***

 

The telecommunicationsindustry is characterized by the existence of a large number of patents andfrequent litigation based on allegations of patent infringement. We are subjectto the risk of adverse claims and litigation alleging infringement of theintellectual property rights of others. Although we are currently not a partyto any intellectual property litigation, from time to time we have receivedclaims asserting that we have infringed the proprietary rights of others. Wecannot assure you that third parties will not assert infringement claimsagainst us in the future, or that any such claims will not result in costlylitigation or require us to obtain a license for such intellectual propertyrights regardless of the merit of such claims. No assurance can be given thatany necessary licenses will be available or that, if available, such licensescan be obtained on commercially reasonable terms. In the event any necessarylicenses are not available, we may not be able to sell or distribute ourproducts, which may have a material adverse effect on our business.

*** ***

***We are subject to environmental regulations that couldresult in costly environmental liability***

 

Our operations aresubject to numerous international, federal, state and local environmentalregulations related to the storage, use, labeling, discharge, disposal andhuman exposure to toxic, volatile or otherwise hazardous chemicals used in our manufacturingprocess. While we have not experienced any significant effects on ouroperations from environmental regulations, changes in these regulations mayrequire additional capital expenditures or restrict our

 

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ability to expand our operations. Failure to comply with suchregulations could result in suspension or cessation of our operations or couldsubject us to significant liabilities. We could also be subject to fines andcivil or criminal sanctions, third-party property damage or personal injuryclaims, or could be required to incur substantial investigation or remediationcosts, if we were to violate or become liable under environmental laws.Liability under environmental laws can be joint and several and without regardto comparative fault. Although, we periodically review our facilities andinternal operations for compliance with applicable environmental regulations,these reviews are necessarily limited in scope and frequency and may not revealall potential instances of noncompliance, possible injury or possiblecontamination. There can be no assurance that violations of environmental lawsor regulations will not occur in the future as a result of the inability toobtain permits, human error, equipment failure or other causes. The liabilitiesarising from any noncompliance with environmental regulations, or liabilityresulting from accidental contamination or injury from toxic or hazardouschemicals could result in liability that exceeds our resources. The risk ofliabilities increases as we acquire other companies, such as Datum, which use,or have used, hazardous substances at various current or former facilities.

 

A manufacturing facilitypreviously operated by Datum in Austin, Texas is undergoing remediation forknown subsurface contamination at that facility and adjoining properties. Webelieve that we will incur monitoring costs for years to come in connectionwith this subsurface contamination. Further, we have received a demand fromadjoining landowner and may be subject to claims from other adjoininglandowners, in addition to claims for remediation, and the amount of thesecosts and the extent of our exposure to these demands and claims cannot bedetermined at this time.

 

The determination of theexistence and cost of any additional contamination could involve costly andtime-consuming negotiations and litigation. Remediation activities andsubsurface contamination may require us to incur additional unreimbursed costsand could harm on-site operations and the future use and value of the property.The remediation efforts, the property owner’s claims and any relatedgovernmental action may expose us to material liability and could significantlyharm our business.

*** ***

***Our operating results may be adversely affected as a resultof our required compliance with the adopted European Union Directives on WasteElectrical and Electronic Equipment and the Restriction of the Use of HazardousSubstances in electrical and electronic equipment, as well as other standardsaround the world***

 

In January 2003, theEuropean Union enacted Directive 2002/96/EC on Waste Electrical and ElectronicEquipment Directive, known as the WEEE Directive. The WEEE Directive requiresproducers of certain electrical and electronic equipment to be financiallyresponsible for the future disposal costs of this equipment. Some of ourproducts fall within the scope of this Directive, and, as such, we will incursome financial responsibility for the collection, recycling, treatment and disposalof both new product sold, and product already sold prior to the WEEE Directive’senforcement date, to customers within the European Union.

 

At the same time, theEuropean Union also enacted Directive 2002/95/EC on the Restriction of the useof Hazardous Substances in electrical and electronic equipment, known as theRoHS Directive. This Directive restricts the use of certain hazardoussubstances, including mercury, lead, cadmium, hexavalent chromium and certainflame retardants, used in the construction of component parts of electrical andelectronic equipment. We may need to change our manufacturing processes,redesign or reformulate some of our products, and change some components toeliminate these hazardous substances in our products, in order to be able tocontinue to offer them for sale within the European Union.

 

Individual European Unionmember states are required to transpose the Directives into nationallegislation. Although not all European Union member states have enactedlegislation to implement these two Directives, we continue to review theapplicability and impact of both Directives on the sale of our products withinthe European Union. If we fail to comply with these laws, we may be forced torecall products and cease their manufacture and distribution, and we could besubject to civil or criminal penalties. We may incur increased manufacturingcosts, and some products may be subject to production delays to comply withfuture legislation which implements these Directives, but we cannot currentlyestimate the extent of such increased costs or production delays, if any.However, to the extent that any such cost increases or delays are substantial,our operating results could be materially adversely affected. Also, we areaware that lead times for new, compliant components are longer and that older,non-compliant components are being discontinued at a fast pace. In addition, weare aware of similar legislation that may be enacted

 

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in other countries, such as Japan and China, and possible new federaland state legislation in the United States, the cumulative impact of whichcould significantly increase our operating costs and adversely affect ouroperating results.

 

***We are subject to other significant domestic and foreignregulations relating to health and safety, packaging, product content and laborregulations***

 

Our business is subjectto various other significant international, federal, state and local, healthand safety, packaging, product content and labor regulations. These regulationsare complex, change frequently and have become more stringent over time. We maybe required to incur significant expenses to comply with these regulations orto remedy past violations of these regulations. Any failure by us to complywith applicable government regulations could also result in cessation of ouroperations or portions of our operations, product recalls or impositions offines and restrictions on our ability to carry on or expand our operations. Inaddition, because many of our products are regulated or sold into regulatedindustries, we must comply with additional regulations in marketing ourproducts. Our products and operations are also often subject to the rules ofindustrial standards bodies, like the International Standards Organization, aswell as regulation of other agencies such as the United States FederalCommunications Commission. If we fail to adequately address any of theseregulations, our business may suffer.

*** ***

***Our customers may be subject to governmental regulations,which, if changed, could negatively impact our business results***

 

Federal and stateregulatory agencies, including the United States Federal CommunicationsCommission and the various state public utility commissions and public servicecommissions, regulate most of our domestic telecommunications customers.Similar government oversight also exists in the international market. While weare not directly affected by this legislation, such regulation of our customersmay negatively impact our business. For instance, the sale of our products maybe affected by the imposition upon certain of our customers of common carriertariffs and the taxation of telecommunications services. These regulations arecontinuously reviewed and changed by the various governmental agencies. Changesin current or future laws or regulations, in the United States or elsewhere,could negatively impact our business results.

*** ***

***Sales of a significant portion of our products to customersoutside of the United States subjects us to business, economic and politicalrisks***

 

Our export sales toEurope, Latin America, Asia, and Canada continue to account for a significantportion of our revenue. We anticipate that sales to customers located outsideof the United States will continue to be a significant part of our net revenuefor the foreseeable future. Because significant portions of our sales are tocustomers outside of the United States we are subject to risks, including:

 

·                  foreign currencyfluctuations;

 

·                  the effects ofterrorist activity and armed conflict which may disrupt general economicactivity and result in revenue shortfalls;

 

·                  exportrestrictions;

 

·                  a globalpandemic if it does not continue to be contained;

 

·                  longer paymentcycles;

 

·                  unexpectedchanges in regulatory requirements or tariffs;

 

·                  protectionistlaws and business practices that favor local competition;

 

·                  dependence onlocal vendors;

 

·                  reduced orlimited protection of intellectual property rights and political and economicinstability; and

 

·                  political andeconomic instability.

 

To date, very few of ourinternational revenue and cost obligations have been denominated in foreigncurrencies. As a result, an increase in the value of the United States dollarrelative to foreign currencies could make our products

 

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more expensive, and thus, less competitive in foreign markets. Aportion of our international revenues may be denominated in foreign currenciesin the future, including the Euro, which will subject us to risks associatedwith fluctuations in these foreign currencies. We do not currently engage inforeign currency hedging activities or derivative arrangements, but may do soin the future to the extent that such obligations become more significant.

 

***If we have significant inventories that become obsolete orcannot be sold at acceptable prices, our results may be negatively impacted***

 

Although we believe thatwe currently have made adequate adjustments for inventory that has declined invalue, become obsolete, or is in excess of anticipated demand, there can be noassurance that such adjustments will be adequate. If significant inventories ofour products become obsolete, or are otherwise not able to be sold at favorableprices, our results of operations could be materially affected.

*** ***

***We may be subject to additional taxes from tax reviews byforeign authorities***

 

Although we believe thatwe have made adequate reserves for foreign tax provisions, there can be noassurance that such reserves will be adequate until the foreign authoritieshave reviewed the foreign tax filings.

*** ***

***Our sales and our cost may be affected by the ongoingmovement towards environmentally friendly manufacturing (“green” manufacturing)***

 

Various countries in theinternational marketplace are moving towards more environmentally friendlymanufacturing requirements and carbon emission standards, and some companies orcountries may require us to meet new standards, which could affect the sales ofour products. These standards may impact the materials used and ourmanufacturing process. Changes to our materials and manufacturing process couldcause delays in product availability and may increase our manufacturing costs.

** **

**Item 1B.****                 *Unresolved Staff Comments***

 

None.

 

**Item 2.****                          *Properties***

 

The following are ourprincipal facilities as of July 1, 2007:

 
| **Location**           | ** ** | **Primary  Use**            | ** ** | **Owned/Leased**        | ** ** | **Segments  Used by** |
|------------------------|------------|-----------------------------|------------|-------------------------|------------|-----------------------|
| San Jose , CA          |       | Headquarters, Manufacturing |       | Leased                  |       | All                   |
| Aguadilla, Puerto Rico |       | Manufacturing               |       | Leased                  |       | All but QoE           |
| Beverly, MA            |       | Manufacturing               |       | Owned (no encumbrances) |       | All but QoE           |
| Santa Rosa, CA         |       | Manufacturing               |       | Leased                  |       | TT&M              |
| Boulder, CO            |       | Manufacturing               |       | Leased                  |       | TT&M              |

 

We also lease otherfacilities in the United States, Europe, and Asia to support research anddevelopment, sales and customer service. We believe that our current facilitiesare suitable and adequate to meet our anticipated needs for the foreseeablefuture, and we periodically evaluate whether additional facilities arenecessary.

 

**Item 3.****                          *Legal Proceedings***

 

We formerly leased atract of land for our operations in Texas. Those operations involved the use ofsolvents and, at the end of the lease, we remediated an area where the solventshad been deposited on the ground and obtained regulatory approval for thatremedial activity. In 1996, an environmental investigation of the propertydetected those same contaminants in groundwater in excess of then currentregulatory standards. The groundwater contamination has migrated to someadjacent properties. We have entered into the Texas Natural ResourceConservation Commission’s Voluntary Cleanup Program (the “VoluntaryCleanup Program”) to obtain regulatory approval for closure of this site and arelease from liability to the State of Texas for subsequent landowners andlenders. We have notified adjacent

 

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property owners affected by the contamination of our participation inthe Voluntary Cleanup Program. On May 20, 2004, we received a demandfrom the owner of several adjacent lots for damages in the amount of $1.3million, as well as seeking an indemnity for the contamination and a promise toremediate the contamination. On March 14, 2006, the adjacentproperty owner filed suit in Probate Court No. 1, Travis County,Texas *(Anna B. Miller, Individually and asExecutrix of the Estate of Robert L. Miller, et al. vs. Austron, Inc.,et al.)* , seeking damages. We have not yet been served inthis matter. We are continuing to work on the remediationof the formerly leased site as well as the adjacent properties andintend to defend this lawsuit vigorously. As of July 1, 2007, we had anaccrual of  $0.5 million for remediation costs and other ongoingmonitoring costs.

 

We are also a party tocertain other claims in the normal course of our operations. While the resultsof these claims cannot be predicted with any certainty, we believe that thefinal outcome of these matters will not have a material adverse effect on ourfinancial position and results of operations.

 

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

 

Not applicable.

 

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**PART II**

 

**Item 5.****                          *Market for the Registrant’s Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities***

 

Our common stock istraded on the Nasdaq Stock Market LLC, under the symbol “SYMM”. We hadapproximately 1,033 stockholders of record as of August 31, 2007.

 

The following table setsforth the high and low per share sale prices reported on the Nasdaq Stock Market LLC for our common stock for the periods indicated.

 
| ** **                    | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------------------|------------|----------|------------|---------|------------|
| Year ended  July 2, 2006 |       |     |       |    |       |
| First Quarter                 |       | $        | 11.04      |    | $          | 7.29 |   |
| Second Quarter                |       | 8.98     |       | 6.56    |       |
| Third Quarter                 |       | 10.11    |       | 8.04    |       |
| Fourth Quarter                |       | 8.45     |       | 6.99    |       |
| Year ended  July 1, 2007 |       |     |       |    |       |
| First Quarter                 |       | $        | 8.13       |    | $          | 6.60 |   |
| Second Quarter                |       | 9.31     |       | 7.81    |       |
| Third Quarter                 |       | 9.40     |       | 7.70    |       |
| Fourth Quarter                |       | 8.92     |       | 7.44    |       |

 

Symmetricom has neverdeclared nor paid cash dividends on its capital stock and does not anticipatepaying any cash dividends in the foreseeable future.

 

The information requiredby this item regarding equity compensation plans is incorporated by referenceto the information in Item 12 of this Form 10-K.

* *

*StockRepurchase Program*

 

On August 11, 2005,the Board of Directors authorized management to repurchase up to approximately2.6 million shares of our common stock pursuant to a repurchase programestablished in fiscal 2002, adding 2.0 million shares to the program previouslyauthorized. There were approximately 46.5 million shares of Symmetricomcommon stock outstanding as of July 1, 2007.

 

During fiscal 2007, werepurchased 0.5 million shares of common stock pursuant to the repurchaseprogram for an aggregate price of approximately $4.0 million. A further 10,511shares were repurchased to cover the cost of taxes on vested restricted stock.Upon termination of certain employees, 19,800 shares of restricted stock wereforfeited pursuant to existing agreements.

 

On August 8, 2007,the Board of Directors authorized management to repurchase up to approximately2.9 million shares of Symmetricom common stock, adding 2.0 million shares to apreviously authorized program.

 

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The following tableprovides a monthly detail of our share repurchases and forfeitures duringfiscal 2007:

 
| ** **                                              | ** ** | **Total**          | ** ** | ** **          | ** ** | **Total**          | ** ** |
|---------------------------------------------------------|------------|--------------------|------------|---------------------|------------|--------------------|------------|
| ** **                                              | ** ** | **Number of** | ** ** | **Average**         | ** ** | **Number of** | ** ** |
| ** **                                              | ** ** | **Shares**         | ** ** | **Price Paid** | ** ** | **Shares**         | ** ** |
| **Period**                                              | ** ** | **Purchased**      | ** ** | **per Share**  | ** ** | **Forfeited**      | ** ** |
| July 1,  2006 through July 31, 2006           |       | —             |       | —              |       | 3,500              |       |
| August 1,  2006 through August 31, 2006       |       | 84,989             |       | $                   | 6.97       |               | 3,000      |   |
| September 1,  2006 through September 30, 2006 |       | 182,648            |       | 7.76                |       | 1,750              |       |
| November 1,  2006 through November 30, 2006   |       | —             |       | —              |       | 2,675              |       |
| February 1,  2007 through February 28, 2007   |       | 2,964              |       | 8.79                |       | —             |       |
| March 1,  2007 through March 31, 2007         |       | 240,000            |       | 8.06                |       | 6,625              |       |
| May 1, 2007  through May 31, 2007             |       | 1,358              |       | 7.97                |       | 2,250              |       |
| Total                                                   |       | 511,959            | (*)        | $                   | 7.78       |               | 19,800     |   |

 

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(*)            Includes 10,511 sharesthat were repurchased to cover the cost of taxes on vested restricted stock.

 

*ComparativeStock Performance*

 

The graph belowcompares the cumulative total stockholders’ return on our common stock for thelast five fiscal years with the total return on the S&P 500 Index and theS&P Technology Sector over the same period (assuming the investment of $100in our common stock, the S&P 500 Index and the S&P InformationTechnology Index, and reinvestment of all dividends).

 

**COMPARISONOF 5 YEAR CUMULATIVE TOTAL RETURN***Among Symmetricom, Inc., The S&P 500 IndexAnd The S&P Information Technology Index

 

 

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*              $100 invested on 6/30/02 in stock or index-includingreinvestment of dividends. Fiscal year ending July 1, 2007.

 

Copyright© 2007, Standard &Poor’s, a division of The McGraw-Hill Companies, Inc. All rightsreserved.

 

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**Item 6.**                          *Selected Financial Data*

 

On April 17,2008, our Audit Committee concluded that, due to errors in accounting foraccrued liabilities related to inventory receipts, the Company’s financialstatements for the fiscal years and interim periods from the fiscal year ended June 30,2002 through its fiscal year ended July 1, 2007 and for the first quarterof fiscal 2008 ended September 30, 2007 and any reports of the independentregistered public accounting firm thereon, should no longer be reliedupon.  The resulting restatement correctsaccounts payable balances, cost of sales, income tax provision (benefit),deferred tax assets and retained earnings for the periods affected.

 

The impact of therestatement, by fiscal year, as discussed in Item 7 “Management’s Discussionand Analysis of Financial Condition and Results of Operations,” and Note 19, “Restatementof Consolidated Financial Statements,” of the Notes to Consolidated FinancialStatements is summarized in the table below:

** **

**Summaryof Restatement Adjustments**

 

| ** **       | ** ** | **Adjustments to**                                                              | ** ** | ** **                              | ** ** |
|------------------|------------|--------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| **Fiscal  Year** | ** ** | **Income (loss)  before income  taxes and  discontinued  operations** | ** ** | **Income tax  expense  (benefit)** | ** ** | **Increase  (decrease) to  Retained  Earnings** | ** ** |
|             |       | **(In  thousands)**                                                                  |       |
| 2002             |       | $                                                                                    | 152        |                                    | $          | 56 |   | $ | 96 |   |
| 2003             |       | 511                                                                                  |       | 189                                     |       | 322 |   |
| 2004             |       | 30                                                                                   |       | 11                                      |       | 19 |   |
| 2005             |       | 443                                                                                  |       | 164                                     |       | 279 |   |
| 2006             |       | (1,198                                                                               | )          | (443                                    | )          | (755 | ) |
| 2007             |       | 310                                                                                  |       | 115                                     |       | 195 |   |
| Total            |       | $                                                                                    | 248        |                                    | $          | 92 |   | $ | 156 |   |

 

29

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*Thefollowing selected consolidated financial data for the fiscal years ended July 1,2007, July 2, 2006, July 3, 2005, June 27, 2004 and June 29,2003 has been restated and should be read in conjunction with our consolidatedfinancial statements, the related notes and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” included elsewherein this Amended Report on Form 10-K/A. The historical results are notnecessarily indicative of the results to be expected for any future period.*

 
| ** **                                                      | ** ** | **Year ended**                                                   | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **July 1, 2007**                                            | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **June 27, 2004** | ** ** | **June 29, 2003** | ** ** |
| ** **                                                      | ** ** | **(In thousands, except per share amounts)** | ** ** |
|                                                            | ** ** | **(as restated)**                                                | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** |
| Consolidated Statement of Operations Data:  |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Net revenue                                                     |       | $                                                                     | 208,380    |   | $ | 176,112 |   | $ | 179,388 |   | $ | 163,310 |   | $ | 127,088 |   |
| Operating income  (loss)                                        |       | 9,238                                                                 |       | (4,166 | ) | 18,180 |   | (5,415 | ) | (46,130 | ) |
| Income (loss)  before income taxes and discontinued operations  |       | 13,646                                                                |       | (1,671 | ) | 19,288 |   | (5,692 | ) | (46,583 | ) |
| Income (loss)  from continuing operations                       |       | 6,058                                                                 |       | (857 | ) | 17,210 |   | (3,167 | ) | (34,386 | ) |
| Gain (loss) from  discontinued operations, net of tax (1)  |       | 242                                                                   |       | 921 |   | 985 |   | 949 |   | (14,609 | ) |
| Net earnings  (loss)                                            |       | 6,300                                                                 |       | 64 |   | 18,195 |   | (2,218 | ) | (48,995 | ) |
| Basic earnings  (loss) per share from continuing operations     |       | 0.13                                                                  |       | (0.02 | ) | 0.38 |   | (0.07 | ) | (0.96 | ) |
| Basic earnings  (loss) per share from discontinued operations   |       | 0.01                                                                  |       | 0.02 |   | 0.02 |   | 0.02 |   | (0.41 | ) |
| Basic net  earnings (loss) per share                            |       | 0.14                                                                  |       | — |   | 0.40 |   | (0.05 | ) | (1.37 | ) |
| Diluted earnings  (loss) per share from continuing operations   |       | 0.13                                                                  |       | (0.02 | ) | 0.37 |   | (0.07 | ) | (0.96 | ) |
| Diluted earnings  (loss) per share from discontinued operations |       | 0.01                                                                  |       | 0.02 |   | 0.02 |   | 0.02 |   | (0.41 | ) |
| Diluted net  earnings (loss) per share                          |       | 0.14                                                                  |       | — |   | 0.39 |   | (0.05 | ) | (1.37 | ) |
|                                                                 |            |                                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                      | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **June 27, 2004** | ** ** | **June 29, 2003** | ** ** |
|-------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                      | ** ** | **(In thousands)**    | ** ** |
| ** **                                      | ** ** | **(as restated)**     | ** ** | **(as restated)**     | ** ** | **(as restated)**     | ** ** | **(as restated)**      | ** ** | **(as restated)**      | ** ** |
| Consolidated Balance Sheet Data: |       |                       |       |                       |       |                       |       |                        |       |                        |       |
| Total assets                                    |       | $                          | 409,187    |                       | $          | 392,441                    |       | $                           | 391,751    |                        | $          | 247,334 |   | $ | 233,645 |   |
| Long-term  obligations                          |       | 125,550                    |       | 126,670                    |       | 126,967                    |       | 8,827                       |       | 10,057                      |       |
| Stockholders’  equity                      |       | $                          | 236,336    |                       | $          | 224,522                    |       | $                           | 226,891    |                        | $          | 196,921 |   | $ | 183,850 |   |

 

----

(1) Reflectsamounts related to gains (losses) on discontinued operations. The Trusted TimeDivision was discontinued in fiscal 2003. The Specialty Manufacturing /Otherbusiness segment was discontinued in the third quarter of fiscal 2007.

 

Theimpact of the restatement and a comparison to the amounts originally reportedare detailed in the tables below:

 
| ** **                                                         | ** ** | **Year ended July 1, 2007**                       | ** ** | **Year ended July 2, 2006**                       | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | ** **                                                            | ** ** | ** **                                                            | ** ** | ** ** | ** ** | **As** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                         | ** ** | **As Previously**                                                | ** ** | **Adjust-**                                                           | ** ** | **As** | ** ** | **Previously** | ** ** | **Adjust-** | ** ** | **As** | ** ** |
| ** **                                                         | ** ** | **Reported**                                                          | ** ** | **ments**                                                             | ** ** | **Restated** | ** ** | **Reported** | ** ** | **ments** | ** ** | **Restated** | ** ** |
| ** **                                                         | ** ** | **(In thousands, except per share amounts)** | ** ** | **(In thousands, except per share amounts)** | ** ** |
| **Consolidated Statement of Operations Data:** |       |                                                                  |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Net revenue                                                        |       | $                                                                     | 208,380    |                                                                  | $          | — |   | $ | 208,380 |   | $ | 176,112 |   | $ | — |   | $ | 176,112 |   |
| Gross profit                                                       |       | 94,692                                                                |       | 310                                                                   |       | 95,002 |   | 79,710 |   | (1,198 | ) | 78,512 |   |
| Operating income  (loss)                                           |       | 8,928                                                                 |       | 310                                                                   |       | 9,238 |   | (2,968 | ) | (1,198 | ) | (4,166 | ) |
| Income tax  provision (benefit)                                    |       | 7,473                                                                 |       | 115                                                                   |       | 7,588 |   | (371 | ) | (443 | ) | (814 | ) |
| Net income                                                         |       | 6,105                                                                 |       | 195                                                                   |       | 6,300 |   | 819 |   | (755 | ) | 64 |   |
| Basic net  earnings per share                                      |       | 0.13                                                                  |       | 0.01                                                                  |       | 0.14 |   | 0.02 |   | (0.02 | ) | — |   |
| Diluted net  earnings per share                                    |       | 0.13                                                                  |       | 0.01                                                                  |       | 0.14 |   | 0.02 |   | (0.02 | ) | — |   |
|                                                                    |            |                                                                       |            |                                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

30

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| ** **                                      | ** ** | **Year ended July 3, 2005**                       | ** ** | **Year ended June 27, 2004**                      | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **(In thousands, except per share amounts)** | ** ** | **(In thousands, except per share amounts)** | ** ** |
| ** **                                      | ** ** | ** **                                                            | ** ** | ** **                                                            | ** ** | ** ** | ** ** | **As** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **As previously**                                                | ** ** | **Adjust-**                                                           | ** ** | **As** | ** ** | **previously** | ** ** | **Adjust-** | ** ** | **As** | ** ** |
| ** **                                      | ** ** | **Reported**                                                          | ** ** | **ments**                                                             | ** ** | **Restated** | ** ** | **Reported** | ** ** | **ments** | ** ** | **Restated** | ** ** |
| **Consolidated  Statement of Operations Data:** |       |                                                                  |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Net revenue                                     |       | $                                                                     | 179,388    |                                                                  | $          | — |   | $ | 179,388 |   | $ | 163,310 |   | $ | — |   | $ | 163,310 |   |
| Gross profit                                    |       | 86,884                                                                |       | 443                                                                   |       | 87,327 |   | 60,295 |   | 30 |   | 60,325 |   |
| Operating income  (loss)                        |       | 17,737                                                                |       | 443                                                                   |       | 18,180 |   | (5,445 | ) | 30 |   | (5,415 | ) |
| Income tax  provision (benefit)                 |       | 1,914                                                                 |       | 164                                                                   |       | 2,078 |   | (2,536 | ) | 11 |   | (2,525 | ) |
| Net income  (loss)                              |       | 17,916                                                                |       | 279                                                                   |       | 18,195 |   | (2,237 | ) | 19 |   | (2,218 | ) |
| Basic net  earnings (loss) per share            |       | 0.39                                                                  |       | 0.01                                                                  |       | 0.40 |   | (0.05 | ) | — |   | (0.05 | ) |
| Diluted net  earnings (loss) per share          |       | 0.38                                                                  |       | 0.01                                                                  |       | 0.39 |   | (0.05 | ) | — |   | (0.05 | ) |
|                                                 |            |                                                                       |            |                                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                      | ** ** | **Year ended June 29, 2003**                      | ** ** | **Year ended June 30, 2002**                      | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **(In thousands, except per share amounts)** | ** ** | **(In thousands, except per share amounts)** | ** ** |
| ** **                                      | ** ** | ** **                                                            | ** ** | ** **                                                            | ** ** | ** ** | ** ** | **As** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **As previously**                                                | ** ** | **Adjust-**                                                           | ** ** | **As** | ** ** | **previously** | ** ** | **Adjust-** | ** ** | **As** | ** ** |
| ** **                                      | ** ** | **Reported**                                                          | ** ** | **ments**                                                             | ** ** | **Restated** | ** ** | **Reported** | ** ** | **ments** | ** ** | **Restated** | ** ** |
| **Consolidated  Statement of Operations Data:** |       |                                                                  |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Net revenue                                     |       | $                                                                     | 127,088    |                                                                  | $          | — |   | $ | 127,088 |   | $ | 72,643 |   | $ | — |   | $ | 72,643 |   |
| Gross profit                                    |       | 45,536                                                                |       | 511                                                                   |       | 46,047 |   | 25,826 |   | 152 |   | 25,978 |   |
| Operating loss                                  |       | (46,641                                                               | )          | 511                                                                   |       | (46,130 | ) | (11,141 | ) | 152 |   | (10,989 | ) |
| Income tax  benefit                             |       | (12,386                                                               | )          | 189                                                                   |       | (12,197 | ) | (3,278 | ) | 56 |   | (3,222 | ) |
| Net loss                                        |       | (49,317                                                               | )          | 322                                                                   |       | (48,995 | ) | (5,285 | ) | 96 |   | (5,189 | ) |
| Basic net loss  per share                       |       | (1.38                                                                 | )          | 0.01                                                                  |       | (1.37 | ) | (0.23 | ) | — |   | (0.23 | ) |
| Diluted net loss  per share                     |       | (1.38                                                                 | )          | 0.01                                                                  |       | (1.37 | ) | (0.23 | ) | — |   | (0.23 | ) |
|                                                 |            |                                                                       |            |                                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                          | ** ** | **As of July 1, 2007** | ** ** | **As of July 2, 2006** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                          | ** ** | **As previously**                     | ** ** | **Adjust-**                                | ** ** | **As** | ** ** | **As  previously** | ** ** | **Adjust-** | ** ** | **As** | ** ** |
| ** **                                          | ** ** | **Reported**                               | ** ** | **ments**                                  | ** ** | **Restated** | ** ** | **Reported** | ** ** | **ments** | ** ** | **Restated** | ** ** |
| ** **                                          | ** ** | **(In thousands)**                    | ** ** | **(In thousands)**                    | ** ** |
| **Consolidated Balance Sheet Data:** |       |                                       |       |                                       |       |   |   |   |   |   |   |   |   |
| Total assets                                        |       | $                                          | 409,279    |                                       | $          | (92 | ) | $ | 409,187 |   | $ | 392,418 |   | $ | 23 |   | $ | 392,441 |   |
| Current  liabilities                                |       | 47,215                                     |       | (248                                       | )          | 46,967 |   | 40,568 |   | 62 |   | 40,630 |   |
| Long-term  obligations                              |       | 125,550                                    |       | —                                     |       | 125,550 |   | 126,670 |   | — |   | 126,670 |   |
| Stockholders’  equity                          |       | 236,180                                    |       | 156                                        |       | 236,336 |   | 224,561 |   | (39 | ) | 224,522 |   |
|                                                     |            |                                            |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                          | ** ** | **As of July 3, 2005** | ** ** | **As of June 27, 2004** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                          | ** ** | **As previously**                     | ** ** | **Adjust-**                                 | ** ** | **As** | ** ** | **As  previously** | ** ** | **Adjust-** | ** ** | **As** | ** ** |
| ** **                                          | ** ** | **Reported**                               | ** ** | **ments**                                   | ** ** | **Restated** | ** ** | **Reported** | ** ** | **ments** | ** ** | **Restated** | ** ** |
| ** **                                          | ** ** | **(In thousands)**                    | ** ** | **(In thousands)**                     | ** ** |
| **Consolidated Balance Sheet Data:** |       |                                       |       |                                        |       |   |   |   |   |   |   |   |   |
| Total assets                                        |       | $                                          | 392,171    |                                        | $          | (420 | ) | $ | 391,751 |   | $ | 247,590 |   | $ | (256 | ) | $ | 247,334 |   |
| Current liabilities                                 |       | 38,610                                     |       | (1,136                                      | )          | 37,474 |   | 41,861 |   | (693 | ) | 41,168 |   |
| Long-term  obligations                              |       | 126,967                                    |       | —                                      |       | 126,967 |   | 8,827 |   | — |   | 8,827 |   |
| Stockholders’  equity                          |       | 226,175                                    |       | 716                                         |       | 226,891 |   | 196,484 |   | 437 |   | 196,921 |   |
|                                                     |            |                                            |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                          | ** ** | **As of June 29, 2003** | ** ** | **As of June 30, 2002** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                          | ** ** | **As previously**                      | ** ** | **Adjust-**                                 | ** ** | **As** | ** ** | **As  previously** | ** ** | **Adjust-** | ** ** | **As** | ** ** |
| ** **                                          | ** ** | **Reported**                                | ** ** | **ments**                                   | ** ** | **Restated** | ** ** | **Reported** | ** ** | **ments** | ** ** | **Restated** | ** ** |
| ** **                                          | ** ** | **(In thousands)**                     | ** ** | **(In thousands)**                     | ** ** |
| **Consolidated Balance Sheet Data:** |       |                                        |       |                                        |       |   |   |   |   |   |   |   |   |
| Total assets                                        |       | $                                           | 233,890    |                                        | $          | (245 | ) | $ | 233,645 |   | $ | 130,310 |   | $ | (56 | ) | $ | 130,254 |   |
| Current  liabilities                                |       | 39,982                                      |       | (663                                        | )          | 39,319 |   | 19,078 |   | (152 | ) | 18,926 |   |
| Long-term  obligations                              |       | 10,057                                      |       | —                                      |       | 10,057 |   | 6,574 |   | — |   | 6,574 |   |
| Stockholders’  equity                          |       | 183,432                                     |       | 418                                         |       | 183,850 |   | 104,189 |   | 96 |   | 104,285 |   |
|                                                     |            |                                             |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

31

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**Item 7.****           *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations***

 

*Thefollowing discussion and analysis of our financial condition and results ofoperations gives effect to the restatement of the accompanying consolidatedfinancial statements and related matters discussed in Note 19, “Restatement ofConsolidated Financial Statements,” of the Notes to Consolidated FinancialStatements, and should be read together with the accompanying consolidatedfinancial statements and related notes included elsewhere in this amendedreport on Form 10-K/A.  Therestatement corrects accounts payable balances, cost of sales, income taxprovision (benefit) and related non-current deferred tax assets and retainedearnings for the periods affected.*

*** ***

**Overview**

 

Symmetricom is a leading supplier of synchronizationand timing products to industry, government, research centers and aerospacemarkets. We supply solutions for customers who demand reliable products andengineering expertise in a variety of applications, including networksynchronization, timing, testing, verification and/or the measurement of timeand frequency-based signals. We design and/or manufacture rubidium clocks,crystal oscillators, cesium clocks and hydrogen maser clocks. Our productsinclude synchronization network elements, timing elements and businessbroadband access devices for wireline and wireless networks as well as theprovision of professional services. Our products play an essential role innetwork operations, quality of service of wireline, wireless and broadbandcommunications networks, enabling our customers to increase performance andefficiency in their communications infrastructures. During fiscal 2007, weformed the Quality of Experience Assurance Division to pursue potentialopportunities in the quality of experience (QoE) market for video services. Webelieve that the QoE market holds the promise of faster revenue growth in thefuture than our historic lines of businesses. The acquisition of QoSmetricsS.A. forms the nucleus of this business.

 

Symmetricom’s customers include worldwide publicnetwork providers, incumbent local exchange carriers (ILECs), public telephoneand telegraph companies (PTTs), competitive local exchange carriers (CLECs),other telephone companies, wireless service providers, cable televisionoperators, distributors and systems integrators, communications originalequipment manufacturers (OEMs), aerospace contractors, governments and researchfacilities.

 

Ourfiscal year is the 52 or 53 weeks ending on the Sunday closest to June 30.Fiscal 2007 and 2006 were 52-week fiscal years, and fiscal 2005 was a 53-weekfiscal year.

 

During the third quarter of fiscal 2007, wediscontinued the operation of our Specialty Manufacturing/Other businesssegment.  Specialty Manufacturing/Other was part of our TelecommunicationsSolutions Division.   This has been accounted for as a discontinuedoperation and, accordingly, the results of operations have been excluded fromcontinuing operations in the consolidated statements of operations.

 

On January 2, 2007, we acquired QoSmetricsS.A., a privately held provider of quality of experience (QoE) solutions forIPTV.  The purchase price of approximately $16.8 million was paid incash.  We acquired QoSmetrics S.A. for its technology, which we believe wecan use to develop a line of products and services that will provide revenuegrowth in future years at a faster pace than our historic lines ofbusiness.  Moreover, its target customers, as well as certain of its proprietaryproduct features, are highly complementary with key parts of Symmetricom’scurrent operations.  With the acquisitionof QoSmetrics, we created a new business segment called the Quality ofExperience Assurance Division.

 

On October 2, 2006, we acquired TimingSolutions Corporation, a privately held company based in Boulder, Colorado thatprovides high-performance time and frequency products and services forgovernment, aerospace and military markets. This acquisition furtherstrengthens and broadens our leadership position in the time and frequencyfield, as well as brings new technology to address the Test &Measurement market. The total purchase price of approximately $8.6 million waspaid in cash.

 

32

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**CriticalAccounting Estimates**

 

Our consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States, whichrequires us to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenue and expenses, and related disclosures at the dateof our financial statements. On an ongoing basis, management evaluates itsestimates and judgments. Management bases its estimates and judgments onhistorical experience and on various other factors that are believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions. We consider the followingaccounting policies to be critical accounting estimates due to their subjectivenature and judgments involved in each:

* *

*Business Combinations*

 

We allocate the purchase price of acquired companies to the tangibleand intangible assets acquired, liabilities assumed, as well as in-processresearch and development based on their estimated fair values. We engage anindependent third-party appraisal firm to assist us in determining the fairvalues of the assets acquired and the liabilities assumed. Such valuationsrequire management to make significant estimations and assumptions, especiallywith respect to intangible assets.

 

Critical estimates in valuing certain intangible assets include but arenot limited to: future expected cash flows from customer contracts, customerlists, distribution agreements, acquired developed technologies and patents;expected costs to develop the in-process research and development intocommercially viable products and estimating cash flows from the projects whencompleted; and the brand awareness and the market position of the acquiredproducts and assumptions about the period of time the brand will continue to beused in the combined company’s product portfolio. Management’s estimates offair value are based upon assumptions believed to be reasonable, but which areinherently uncertain and unpredictable.

* *

*Revenue Recognition*

 

We recognize revenue when persuasive evidence of anarrangement exists, delivery has occurred or services have been rendered, ourprice is fixed or determinable and collectibility is reasonably assured. Ourstandard arrangement for our domestic and international customers includes asigned purchase order or contract and no right of return of delivered products.

 

We assess collectibility based on thecreditworthiness of the customer and past transaction history. We performperiodic credit evaluations of our customers and do not require collateral fromour customers. However, for some of our international customers, we require anirrevocable letter of credit to be issued by the customer before the purchaseorder is accepted. If we determine that collection of the invoice is notreasonably assured, we recognize the revenue at the time that collectionbecomes reasonably assured, which is generally upon the receipt of cash. Wecommonly have transactions that involve sales of both product and services toour customers. Product revenue is generated from the sale of synchronizationand timing equipment with embedded software that is essential to productfunctionality. We account for these transactions in accordance with the rules applicableto software revenue recognition. Service revenue is recognized as the servicesare performed, provided collection of the related receivable is reasonablyassured. Our sales to distributors are made under agreements allowing forreturns or credits under certain circumstances. Accordingly, we defer an amountof revenue equal to our estimate of returns from distributors based on ahistorical average of distributor returns. We record commission expense whenorders are shipped, at which time the commission is both earned and payable.

 

Revenue from contracts that require development andmanufacture in accordance with customer specifications and have a lengthydevelopment period may be categorized into two types: firm fixed price andcost-plus reimbursement. Revenue is recognized under the fixed price contractsusing the percentage of completion method (cost-to-cost basis), principallybased upon the costs incurred relative to the total estimated costs atcompletion on the individual contracts. Any anticipated losses oncontracts are charged to operations as soon as they are determinable. Revenuerecognized under cost-plus contracts is recognized on the basis of direct andindirect costs incurred plus a

 

33

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negotiatedprofit calculated as a percentage of costs or as a performance based award fee.Revenue from long-term contracts is reviewed periodically, with adjustmentsrecorded in the period in which the revisions are made.

* *

*Warranty*

 

Our standard warranty agreement is one year fromshipment. However, our warranty agreements are contract and component specificand can range to twenty years for selected components. We offer extendedwarranty contracts on products that are less than eight years old. The extendedwarranty contract is applicable for a maximum of nine years after theexpiration of the standard one-year warranty. The income from extended warrantycontracts is recognized ratably over the period of contract.

 

We accrue for anticipated warranty costs uponshipment. Our warranty reserve is based on the number of installed units,historical analysis of the volume of product returned to us under the warrantyprogram, management’s judgment regarding anticipated rates of warranty claimsand associated repair costs. We use the historical data to forecast ouranticipated future warranty obligations. This analysis is updated on aquarterly basis.

* *

*Allowance for Doubtful Accounts*

 

We maintain an allowance for doubtful accounts basedon a continuous review of customer accounts, payment patterns and specificcollection issues. Where specific collection issues are identified, we record aspecific allowance based on the amount that we believe will be uncollected. Foraccounts where specific collection issues are not identified, we record areserve based on the age of the receivable and historical collection patterns.

* *

*Inventory Valuation*

 

Inventories are valued at the lower of cost ormarket, cost being determined on a first-in, first-out basis. We assess thevaluation of all inventories, including raw materials, work-in-process,finished goods and spare parts on a periodic basis. Obsolete inventory orinventory in excess of management’s estimated usage is written down to itsestimated market value less costs to sell, if less than its cost. Inherent inthe estimates of market value are management’s estimates related to currenteconomic trends, future demand and technological obsolescence. If actual marketconditions are less favorable than those projected by management, additionalinventory write-downs may be required. If the inventory value is written downto its net realizable value, and subsequently there is an increased demand forthe inventory at a higher value, the increased value of the inventory is notrealized until the inventory is sold.

* *

*Accounting for Income Taxes*

 

We provide for income taxes using the asset andliability method. Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financialstatement carrying amounts of existing assets and liabilities and theirrespective tax basis. Deferred tax assets and liabilities are measured usingenacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be realized. The effect on deferredtax assets and liabilities from a change in tax rates is recognized in thefinancial statements in the period that includes the enactment date.

 

InJuly 2006, Symmetricom Puerto Rico, a wholly-owned subsidiary, moved itsplace of legal organization from Delaware to Bermuda in a transaction intendedto be a tax-free restructuring.  We arein the process of submitting a ruling request to the Internal Revenue Serviceto confirm the tax-free treatment.  Weare undertaking this ruling request based upon our subsequent review of the2006 restructuring.  Although rulingrequests of this nature are considered routine and we believe that it is morelikely than not that the ruling will be granted, we cannot assure you that theruling will be granted.

 

Ifthe ruling is granted, Symmetricom Puerto Rico would be treated as a branch ofSymmetricom, Inc. effective as of July 2006 and, accordingly, theprofits of Symmetricom Puerto Rico would be currently taxable for federalincome tax purposes. If granted, the ruling would result in an effective taxrate of approximately 25.0% for fiscal 2008 compared to an effective tax rateof approximately 55.6% for fiscal 2007.

 

34

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If the ruling is notgranted, then:

 

·                       we would berequired to take a one-time, non-cash charge to our deferred tax assets ofapproximately $15.2 million;

 

·                       SymmetricomPuerto Rico would continue its election to indefinitely reinvest its futureearnings outside of the United States and not repatriate future earnings backto Symmetricom, Inc.; and

 

·                       the effectivetax rate for fiscal 2008 would be approximately 221.0%, compared to aneffective tax rate of approximately 55.6% for fiscal 2007.  The large increase in the effective tax ratefor fiscal 2008 would be due primarily to the one-time $15.2 million charge.

 

Priorto fiscal 2007, Symmetricom Puerto Rico had elected to report its U.S. taxesunder Section 936 of the United State Internal Revenue Code. This electionexempted qualified Puerto Rico earnings from regular federal income taxes,subject to various limitations. Section 936 expired at the end of fiscal2006.

 

The carrying value of our net deferred tax assets,which are made up of tax deductions, net operating loss carryforwards and taxcredits, assumes that we will be able to generate sufficient future income tofully realize these assets. We evaluate the weight of all available evidence indetermining whether it is more likely than not that some portion of thedeferred tax assets will not be realized. If we do not generate sufficientfuture income, the realization of these deferred tax assets may be impaired,resulting in an additional income tax expense. A portion of our tax credits isrelated to stock options and has a valuation allowance because of uncertaintyregarding their realization. If these tax credits are realized, the benefitwill be credited to common stock.

* *

*Valuation of Goodwill*

 

We perform goodwill impairment tests in accordancewith Statement of Financial Accounting Standard (SFAS) No. 142, Goodwilland Other Intangible Assets, on an annual basis, and between annual tests incertain circumstances for each reporting unit. During the third quarter offiscal 2006, we performed a goodwill impairment test on the Wireless/OEMbusiness segment because the product pricing pressures and gross marginpressures continued to decline in the third quarter of fiscal 2006 and we didnot anticipate a significant improvement. As a result, we recorded a non-cashimpairment charge of $7.0 million. Potential goodwill impairment is measuredbased upon a two-step process. In the first step, we compare the fair value ofa reporting unit with its carrying amount using discounted cash flow valuationmethodology. If the fair value of a reporting unit exceeds its carrying amount,goodwill of the reporting unit is not considered impaired, thus the second stepof the impairment test is unnecessary. If the carrying amount of a reportingunit exceeds its fair value, the second step of the goodwill impairment test isperformed to measure the amount of impairment loss, if any.

* *

*Valuation of Long-Lived Assets Including Intangible AssetsSubject to Amortization*

 

Long-lived assets are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amountof such assets may not be recoverable. Intangible assets primarily includepurchased technology and trademarks. We review our intangible assets inaccordance with SFAS No. 144, Accounting for the Impairment or Disposal ofLong-Lived Assets. Factors we consider important that could trigger an impairmentreview include significant under-performance relative to historical orprojected future operating results, significant changes in the manner of ouruse of the acquired assets or the strategy for our overall business, orsignificant negative industry or economic trends. If these criteria indicatethat the value of the intangible asset may be impaired, an evaluation of therecoverability of the net carrying value of the asset over its remaining usefullife is made. If this evaluation indicates that the intangible asset is notrecoverable, the net carrying value of the related intangible asset will bereduced to fair value. Any such impairment charge could be significant andcould have a material adverse effect on our financial statements if and when animpairment charge is recorded. If an impairment charge were recognized, theamortization related to intangible assets would decrease during the remainderof the life of the asset. In the third quarter of fiscal 2006, we recorded anon-cash impairment charge of $1.2 million for the write-down of the otherintangibles entirely related to our wireless business segment purchase inconnection with the Datum acquisition in October 2002.

 

35

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**Resultsof Operations**

*** ***

Thefollowing table presents the percentage of total revenue for the respectiveline items in our consolidated statement of operations:

*** ***

| ** **                                     | ** ** | **Year ended**        | ** ** |
|------------------------------------------------|------------|----------------------------|------------|
| ** **                                     | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Net revenue                                    |       |                       |       |   |   |   |   |
| Telecom  Solutions Division:                   |       |                       |       |   |   |   |   |
| Wireline  Products                             |       | 45.1                       | %          | 45.8 | % | 46.3 | % |
| Wireless/OEM  Products                         |       | 12.8                       | %          | 13.6 | % | 15.5 | % |
| Global Services                                |       | 7.0                        | %          | 7.1 | % | 5.4 | % |
| Timing, Test and  Measurement Division         |       | 34.9                       | %          | 33.5 | % | 32.8 | % |
| Quality of  Experience Assurance Division      |       | 0.2                        | %          | — | % | — | % |
| Total net revenue                              |       | 100.0                      | %          | 100.0 | % | 100.0 | % |
|                                           |       |                       |       |   |   |   |   |
| Cost of products  and services                 |       | 52.7                       | %          | 52.0 | % | 49.1 | % |
| Amortization of  purchased technology          |       | 1.6                        | %          | 2.1 | % | 2.2 | % |
| Impairment of  intangibles                     |       | —                     | %          | 0.7 | % | — | % |
| Integration and  restructuring charges         |       | 0.1                        | %          | 0.6 | % | — | % |
| Gross profit                                   |       | 45.6                       | %          | 44.6 | % | 48.7 | % |
| Operating  expenses:                           |       |                       |       |   |   |   |   |
| Research and  development                      |       | 11.4                       | %          | 10.7 | % | 9.1 | % |
| Selling, general  and administrative           |       | 29.1                       | %          | 32.0 | % | 29.1 | % |
| Acquired  in-process research and development  |       | 0.1                        | %          | — | % | — | % |
| Amortization of  intangibles                   |       | 0.4                        | %          | 0.3 | % | 0.3 | % |
| Integration and  restructuring charges         |       | 0.2                        | %          | — | % | — | % |
| Impairment of  goodwill                        |       | —                     | %          | 4.0 | % | — | % |
| Operating income  (loss)                       |       | 4.4                        | %          | (2.4 | )% | 10.1 | % |
| Gain on equity  investments, net               |       | —                     | %          | — | % | 0.2 | % |
| Interest income                                |       | 4.4                        | %          | 4.2 | % | 0.9 | % |
| Interest expense                               |       | (2.3                       | )%         | (2.8 | )% | (0.5 | )% |
| Income (loss)  before income taxes             |       | 6.5                        | %          | (1.0 | )% | 10.8 | % |
| Income tax  provision (benefit)                |       | 3.6                        | %          | (0.5 | )% | 1.2 | % |
| Income (loss)  from continuing operations      |       | 2.9                        | %          | (0.5 | )% | 9.6 | % |
| Gain from  discontinued operations, net of tax |       | 0.1                        | %          | 0.5 | % | 0.5 | % |
| Net Income                                     |       | 3.0                        | %          | — | % | 10.1 | % |

 

# **Fiscal Year 2008 Outlook**

 

During fiscal year 2007, revenue growth of 18.3% versus prior year wasfavorably impacted by two large customers beginning an upgrade cycle to replacetheir legacy equipment.  Revenue forfiscal year 2008 from these two customers may not increase or continue at thefiscal year 2007 level. In particular, we do not currently expect substantialorders from these customers in the first half of fiscal 2008, which will causeour revenue in the first two quarters to be below the level in the second halfof fiscal 2007. Fiscal year 2007 revenue was also favorably impacted by theacquisition of TSC in our fiscal second quarter.   We also expect fluctuations in quarterlyrevenue, as the upgrade projects undertaken by our customers are notsystematic.

 

We expect the pace of operating expense growth for fiscal year 2008 tobe greater than the prior year due to the full year impact of the acquisitionsof TSC and QoSmetrics, S.A. as well as increased spending levels in ouremerging new Quality of Experience Assurance business segment.  We expect fiscal year 2008 earnings to beunfavorably impacted by this increased spending, as well as an expected lowerorder volume from two large customers in the first half of 2008 compared toorder levels at the end of fiscal year 2007.

 

36

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We expect revenues for fiscal year 2008 to be between $210 million and$220 million and earnings to be between $0.05 and $0.15 per share, on a fullydiluted basis.  Our fiscal year 2008investment in our emerging Quality of Experience Assurance business segment isprojected to dilute annual earnings by approximately $0.22 per share, on a fullydiluted basis.

 

**Fiscal Years Ended July 1, 2007 and July 2,2006**

 
| ** **                                | ** ** | **Year ended**    | ** ** | ** **             | ** ** | ** **        | ** ** |
|-------------------------------------------|------------|------------------------|------------|------------------------|------------|-------------------|------------|
| *** ***                              | ** ** | **July 1,  2007** | ** ** | **July 2,  2006** |       | **$ Change** |       | **% Change** |   |
| **Net  Revenue*(in thousands):***         | ** ** | ** **             | ** ** | ** **             |       | ** **        |       | ** ** |   |
| Wireline  Products                        |       | $                      | 93,908     |                   | $          | 80,636            |       | $ | 13,272 |   | 16.5 | % |
| Wireless/OEM  Products                    |       | 26,672                 |       | 23,893                 |       | 2,779             |       | 11.6 |   |
| Global Services                           |       | 14,627                 |       | 12,539                 |       | 2,088             |       | 16.7 |   |
| Timing, Test and  Measurement Division    |       | 72,672                 |       | 59,044                 |       | 13,628            |       | 23.1 |   |
| Quality of  Experience Assurance Division |       | 501                    |       | —                 |       | 501               |       | 100.0 |   |
| Total Net  Revenue                        |       | $                      | 208,380    |                   | $          | 176,112           |       | $ | 32,268 |   | 18.3 | % |
| Percentage of  Revenue                    |       | 100.0                  | %          | 100.0                  | %          |              |       |   |   |

 

 

***Net revenue*** consists ofsales of products, software licenses and services sales. Net revenue increasedby $32.3 million or 18.3% to $208.4 million in fiscal year 2007 from $176.1million in fiscal year 2006. The increase in net revenue was attributable tothe Wireline products increase of $13.3 million or 16.5% (primarily due toincreases as a result of deployments at AT&T and Verizon of our nextgeneration sync products), the Wireless/OEM products increase of $2.8 millionor 11.6% (due to increased sales to two major customers), the Global Servicesincrease of $2.1 million or 16.7% (due to an increase in installation servicesfor Verizon), and the Timing, Test and Measurement segment increase of $13.6million or 23.1% (due primarily to the acquisition of TSC on October 2,2006, increased sales of SAASM products and higher international sales). Netrevenue for the newly formed Quality of Experience Assurance Division was $0.5million.

 
| ** **                                | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|-------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Gross  Profit *(in thousands)**:***     |       |                       |       |                       |       |              |       |   |   |
| Wireline  Products                        |       | $                          | 53,810     |                       | $          | 44,705            |       | $ | 9,105 |   | 20.4 | % |
| Wireless/OEM  Products                    |       | 7,157                      |       | 5,190                      |       | 1,967             |       | 37.9 |   |
| Global Services                           |       | 3,991                      |       | 6,334                      |       | (2,343            | )          | (37.0 | ) |
| Timing, Test and  Measurement Division    |       | 33,188                     |       | 28,258                     |       | 4,930             |       | 17.4 |   |
| Quality of  Experience Assurance Division |       | 398                        |       | —                     |       | 398               |       | 100.0 |   |
| Other cost of  sales                      |       | (3,542                     | )          | (5,975                     | )          | 2,433             |       | (40.7 | ) |
| Total Gross  Profit                       |       | $                          | 95,002     |                       | $          | 78,512            |       | $ | 16,490 |   | 21.0 | % |
| Percentage of  Revenue                    |       | 45.6                       | %          | 44.6                       | %          |              |       |   |   |

 

***Gross profit***, excludingother cost of sales, increased $14.1 million in fiscal year 2007, or 16.6%,compared to fiscal year 2006.  Grossprofit for the Wireline products increased by $9.1 million or 20.4%, which washigher than the 16.5% revenue increase for the same period (due primarily toincreased sales of higher margin newer products). Gross profit for theWireless/OEM products increased by $2.0 million or 37.9%, which was higher thanthe revenue increase of 11.6% (due to increased sales of higher margin productsand selling price increases). Gross profit for Global Services decreased by$2.3 million or 37.0%, as compared to the revenue increase of 16.7%  for the same period (due primarily to thelarge volume increase in installation services, which is lower margin and inthe prior year a high margin repair project for a major customer occurred whichwas not repeated in fiscal year 2007). Gross profit for the Timing, Test and Measurement Division increased by$4.9 million or 17.4%, which was lower than the revenue increase of 23.1% forthe same period (due primarily to the addition of the lower margin productsacquired

 

37

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from TSC on October 2,2006). Gross profit for the newly formed Quality of Experience AssuranceDivision was $0.4 million.

 

Gross profit due to other cost of sales, forfiscal year 2007 was $2.4 million higher than fiscal year 2006 primarily due tothe $1.2 million impairment charge for the write down of other intangiblesprincipally related to our Wireless/OEM in fiscal 2006 and integration andrestructuring charges which were $0.9 million higher in fiscal year 2006 versusfiscal year 2007 due to the acquisition of Agilent Technologies’ Frequency andTiming Standards product line.

 
| ** **                                             | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|--------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                             | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Research  and development expense *(in thousands)*** |       | $                          | 23,692     |                       | $          | 18,836            |       | $ | 4,856 |   | 25.8 | % |
| Percentage of  Revenue                                 |       | 11.4                       | %          | 10.7                       | %          |              |       |   |   |
|                                                        |            |                            |            |                            |            |                   |            |  |  |  |  |  |

 

***Researchand development expenses*** consist primarily ofsalaries and benefits, prototype expenses and fees paid to outside consultants.Research and development expenses were $23.7 million during fiscal year 2007compared to $18.8 million for fiscal year 2006. The $4.9 million increase inthe research and development expense was primarily attributable to $2.5 millionfor the Quality of Experience Assurance Division and $2.1 million for TSC,which were both acquired in fiscal year 2007. Fiscal year 2007 research anddevelopment expenditures include a partial year impact for the QoSmetrics S.A.and TSC acquisitions.

 
| ** **                                                | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|-----------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                                | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Selling,  general and administrative *(in thousands)*** |       | $                          | 60,543     |                       | $          | 56,357            |       | $ | 4,186 |   | 7.4 | % |
| Percentage of  Revenue                                    |       | 29.1                       | %          | 32.0                       | %          |              |       |   |   |
|                                                           |            |                            |            |                            |            |                   |            |  |  |  |  |  |

 

***Selling, general andadministrative expense***, consists primarily of salaries,benefits, sales commissions and travel-related expenses for our sales andservices, finance, human resources, information technology and related facilitycosts and part of the amortization expenses of our intangible assets. Theseexpenses increased by 7.4% to $60.5 million for fiscal year 2007 compared to$56.4 million for fiscal year 2006. This $4.2 million increase in selling,general and administrative expenses was attributable primarily to $2.6 millionfor the newly formed Quality of Experience Assurance Division and highercompensation costs in fiscal year 2007. Fiscal year 2007 selling, general andadministrative expenses include a partial year impact for the QoSmetrics S.A.and TSC acquisitions.

 
| ** **                                        | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|---------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                        | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Amortization  of intangibles *(in thousands)*** |       | $                          | 792        |                       | $          | 522               |       | $ | 270 |   | 51.7 | % |
| Percentage of  Revenue                            |       | 0.4                        | %          | 0.3                        | %          |              |       |   |   |
|                                                   |            |                            |            |                            |            |                   |            |  |  |  |  |  |

 

38

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***Amortization of intangibles*** increased$0.3 million in fiscal year 2007 over fiscal year 2006 due to the acquisitionsof TSC and QoSmetrics.

 
| ** **                                                  | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|-------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                                  | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Integration  and restructuring charges *(in thousands)*** |       | $                          | 549        |                       | $          | —            |       | $ | 549 |   | 100.0 | % |
| Percentage of  Revenue                                      |       | 0.3                        | %          | —                     | %          |              |       |   |   |
|                                                             |            |                            |            |                            |            |                   |            |  |  |  |  |  |

 

***Integration and restructuring charges*** were $0.5million in fiscal year 2007 for the acquisitions of TSC and QoSmetrics. There wereno such charges in fiscal 2006.

 
| ** **                             | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|----------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                             | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Interest  income *(in  thousands)*** |       | $                          | 9,231      |                       | $          | 7,478             |       | $ | 1,753 |   | 23.4 | % |
| Percentage of  Revenue                 |       | 4.4                        | %          | 4.2                        | %          |              |       |   |   |
|                                        |            |                            |            |                            |            |                   |            |  |  |  |  |  |

 

***Interestincome*** increased to $9.2 million in fiscal 2007compared to $7.5 million in fiscal year 2006 due to higher average interestrates experienced in fiscal year 2007, which was approximately 5.3%, versusfiscal year 2006, which was 4.3%.  Theaverage cash and short-term investment balance was fairly consistent in fiscal2007 and fiscal 2006.

 
| ** **                              | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|-----------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                              | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Interest  expense *(in  thousands)*** |       | $                          | (4,823     | )                          | $          | (4,983            | )          | $ | 160 |   | (3.2 | )% |
| Percentage of  Revenue                  |       | (2.3                       | )%         | (2.8                       | )%         |              |       |   |   |
|                                         |            |                            |            |                            |            |                   |            |  |  |  |  |  |

 

***Interest expense*** consistsprimarily of interest on our capital lease for our headquarters building inSan Jose, California and interest for our 3.25% convertible notes.Interest expense decreased 3.2% to $4.8 million in fiscal year 2007 from $5.0million in fiscal year 2006 due primarily to lower capital lease costs.

 
| ** **                                         | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|----------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                         | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Income  tax expense (benefit)*(in thousands).*** |       | $7,588                     |       | $(814                      | )          | $8,402            |       | (1,032.2 | )% |
| Percentage of  Revenue                             |       | 3.6                        | %          | (0.5                       | )%         |              |       |   |   |

 

***Income tax expense (benefit),*** increased to $7.6 million in fiscal year 2007compared to a benefit of ($0.8) million in fiscal year 2006.  The income tax provision for fiscal year 2007includes $3.4 million related to the planned legal entity liquidation ofQoSmetrics S.A. and QoSmetrics, Inc., which were both acquired on January 2,2007. As described above under Critical Accounting Estimates - Accounting forIncome Taxes, we are in the process of submitting a ruling request to theInternal Revenue Service to confirm the tax-free treatment.  We are undertaking this ruling request basedupon our subsequent review of the 2006 restructuring.  Although ruling requests of this nature areconsidered routine and we believe that it is more likely than not that theruling will be granted, we cannot assure you that the ruling will be granted.

 

39

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Ifthe ruling is granted, Symmetricom Puerto Rico would be treated as a branch ofSymmetricom, Inc. effective as of July 2006 and, accordingly, theprofits of Symmetricom Puerto Rico would be currently taxable for federalincome tax purposes. If granted, the ruling would result in an effective taxrate of approximately 25.0% for fiscal 2008 compared to an effective tax rateof approximately 55.6% for fiscal 2007.

 

Ifthe ruling is not granted, then:

 

·                                             we would berequired to take a one-time, non-cash charge to our deferred tax assets ofapproximately $15.2 million;

 

·                                          SymmetricomPuerto Rico would continue its election to indefinitely reinvest its futureearnings outside of the United States and not repatriate future earnings backto Symmetricom, Inc.; and

 

·                                          theeffective tax rate for fiscal 2008 would be approximately 221.0%, compared toan effective tax rate of approximately 55.6% for fiscal 2007.  The large increase in the effective tax ratefor fiscal 2008 would be due primarily to the one-time $15.2 million charge.

 

Priorto fiscal 2007, Symmetricom Puerto Rico had elected to report its U.S. taxesunder Section 936 of the United State Internal Revenue Code. This electionexempted qualified Puerto Rico earnings from regular federal income taxes,subject to various limitations. Section 936 expired at the end of fiscal2006.

*** ***
| ** **                                                          | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|---------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                                          | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Gain  from discontinued operations, net of tax *(in thousands)*** |       | $                          | 242        |                       | $          | 921               |       | $ | (679 | ) | (73.7 | )% |
| Percentage of  Revenue                                              |       | 0.1                        | %          | 0.5                        | %          |              |       |   |   |
|                                                                     |            |                            |            |                            |            |                   |            |  |  |  |  |  |

*** ***

***Discontinued operations:*** Duringfiscal year 2007, we discontinued the operation of the SpecialtyManufacturing/Other business segment and the results, net of tax, are reflectedin the results of operations for fiscal years 2007 and 2006.

** **

**FiscalYears Ended July 2, 2006 and July 3, 2005**

** **
| ** **                                | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|-------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Net  Revenue *(in thousands):***        |       |                       |       |                       |       |              |       |   |   |
| Wireline  Products                        |       | $                          | 80,636     |                       | $          | 83,129            |       | $ | (2,493 | ) | (3.0 | )% |
| Wireless/OEM  Products                    |       | 23,893                     |       | 27,723                     |       | (3,830            | )          | (13.8 | ) |
| Global Services                           |       | 12,539                     |       | 9,712                      |       | 2,827             |       | 29.1 |   |
| Timing, Test and  Measurement Division    |       | 59,044                     |       | 58,824                     |       | 220               |       | 0.4 |   |
| Quality of  Experience Assurance Division |       | —                     |       | —                     |       | —            |       | NA |   |
| Total Net  Revenue                        |       | $                          | 176,112    |                       | $          | 179,388           |       | $ | (3,276 | ) | (1.8 | )% |
| Percentage of  Revenue                    |       | 100.0                      | %          | 100.0                      | %          |              |       |   |   |

** **

***Net revenue*** consists ofsales of products, software licenses and services sales. Net revenue decreasedby $3.3 million or 1.8% to $176.1 million in fiscal year 2006 from $179.4million in fiscal year 2005. The decrease in net

 

40

----

 

revenue was attributableto the Wireline products decrease of $2.5 million or 3.0% (primarily due to largeinitial orders from a customer in fiscal year 2005 not repeated in fiscal year2006) and the Wireless/OEM products decrease of $3.8 million or 13.8% (due to aproduct shift toward lower priced, lower performance quartz-based products fromhigher performance, lower maintenance rubidium-based solutions, continuedoverall pricing pressure and implementation of non-CDMA base stations thatderive timing from a central office). These revenue decreases were partiallyoffset by a $2.8 million or 29.1% increase in the Global Services segment(primarily due to an increase in total solution sales to customers) and a $0.2million or 0.4% increase in the Timing, Test and Measurement segment (dueprimarily to the acquisition of the Agilent’s cesium products partially offsetby decline in other products).

 
| ** **                                | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|-------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Gross Profit *(in  thousands)**:***     |       |                       |       |                       |       |              |       |   |   |
| Wireline  Products                        |       | $                          | 44,705     |                       | $          | 47,472            |       | $ | (2,767 | ) | (5.8 | )% |
| Wireless/OEM  Products                    |       | 5,190                      |       | 8,207                      |       | (3,017            | )          | (36.8 | ) |
| Global Services                           |       | 6,334                      |       | 4,165                      |       | 2,169             |       | 52.1 |   |
| Timing, Test and  Measurement Division    |       | 28,258                     |       | 31,382                     |       | (3,124            | )          | (10.0 | ) |
| Quality of  Experience Assurance Division |       | —                     |       | —                     |       | —            |       | NA |   |
| Other cost of  sales                      |       | (5,975                     | )          | (3,899                     | )          | (2,076            | )          | 53.2 |   |
| Total Gross  Profit                       |       | $                          | 78,512     |                       | $          | 87,327            |       | $ | (8,815 | ) | (10.1 | )% |
| Percentage of  Revenue                    |       | 44.6                       | %          | 48.7                       | %          |              |       |   |   |

 

***Gross profit*** for fiscalyear 2006, excluding other cost of sales, decreased $6.7 million, or 7.4%,compared to fiscal year 2005. This decrease in total gross profit was greaterthan the revenue decrease of 1.8%.  Grossprofit for the Wireline products decreased by $2.8 million or 5.8%, which washigher than the 3.0% revenue decrease for the same period due primarily tohigher manufacturing period costs.  Grossprofit for the Wireless/OEM products decreased by $3.0 million or 36.8%, whichwas higher than the revenue decrease of 13.8% due to lower selling prices andincreased sales of lower margin products. Gross profit for Global Services increased by $2.2 million or 52.1%,which was higher than the 29.1% revenue increase for the same period due toincreased sales of lower cost services. Gross profit for the Timing, Test andMeasurement Division decreased by $3.1 million or 10.0%, which was lower than therevenue increase of 0.4% for the same period due primarily to the addition ofthe higher cost cesium product acquired from Agilent Technologies in August 2005.

 

Grossprofit due to other cost of sales for fiscal 2006 decreased $2.1 millionin comparison to fiscal 2005 primarily due to the $1.2 million impairmentcharge for the write down of other intangibles principally related to ourWireless/OEM business segment and the acquisition of Agilent Technologies’Frequency and Timing Standards product line, which includes costs associatedwith integration and restructuring and additional intangibles. In addition,during fiscal 2006, there were $1.2 million in integration and restructuringcharges related to the acquisition of Agilent Technologies’ Frequency and TimingStandards product line. There were no integration expenses in fiscal 2005.

 
| ** **                                             | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|--------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                             | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Research  and development expense *(in thousands)*** |       | $                          | 18,836     |                       | $          | 16,286            |       | $ | 2,550 |   | 15.7 | % |
| Percentage of Revenue                                  |       | 10.7                       | %          | 9.1                        | %          |              |       |   |   |
|                                                        |            |                            |            |                            |            |                   |            |  |  |  |  |  |

 

***Research and development expenses*** consistprimarily of salaries and benefits, prototype expenses and fees paid to outsideconsultants. Research and development expenses were $18.8 million during fiscalyear 2006 compared to

 

41

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$16.3 million for fiscalyear 2005. The overall increase in the research and development expense wasprimarily attributable to $0.5 million in stock-based compensation, salaryincreases, and increased spending in new R&D projects to comply with a newEU regulation, RoHS (restriction of the use of certain hazardous substances inelectrical and electronic equipment). This regulation bans the placing in theEU market of new electrical and electronic equipment containing more thancertain levels of lead, cadmium, mercury, hexavalent chromium, polybrominatedbiphenyl (PBB) and polybrominated diphenyl ether (PBDE) flame retardantsbeginning July 1, 2006.

 
| ** **                                                | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|-----------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                                | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Selling,  general and administrative *(in thousands)*** |       | $                          | 56,357     |                       | $          | 52,248            |       | $ | 4,109 |   | 7.9 | % |
| Percentage of  Revenue                                    |       | 32.0                       | %          | 29.1                       | %          |              |       |   |   |
|                                                           |            |                            |            |                            |            |                   |            |  |  |  |  |  |

 

***Selling, general and administrative expense*** consistsprimarily of salaries, benefits, sales commissions and travel-related expensesfor our sales and services, finance, human resources, information technologyand related facility costs. These expenses increased by 7.9% to $56.4 millionfor fiscal year 2006 compared to $52.2 million for the corresponding period offiscal year 2005. This $4.1 million increase in selling, general andadministrative expenses was attributable primarily to an increase instock-based compensation of $3.6 million and annual merit increases.

 
| ** **                                       | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|--------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                       | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Amortization of intangibles *(in thousands)*** |       | $                          | 522        |                       | $          | 613               |       | $ | (91 | ) | (14.8 | )% |
| Percentage of  Revenue                           |       | 0.3                        | %          | 0.3                        | %          |              |       |   |   |
|                                                  |            |                            |            |                            |            |                   |            |  |  |  |  |  |

 

***Amortization of intangibles*** decreased14.8% due to a writedown of intangibles related to our Wireless/OEM business.

 
| ** **                                   | ** ** | **Year ended**    | ** ** | ** **             | ** ** | ** **        | ** ** |
|----------------------------------------------|------------|------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                                   | ** ** | **July 2,  2006** |       | **July 3,  2005** |       | **$ Change** |       | **% Change** |   |
| **Impairment  of goodwill *(in thousands)*** |       | $                      | 6,963      |                   | $          | —            |       | $ | 6,963 |   | (100.0 | )% |
| Percentage of  Revenue                       |       | 4.0                    | %          | —                 | %          |              |       |   |   |
|                                              |            |                        |            |                        |            |                   |            |  |  |  |  |  |

 

***Impairment of goodwill*** increasedin fiscal year 2006 due to a third quarter non-cash impairment charge of $7.0million for the write-down of goodwill principally related to our wirelessbusiness segment purchased in connection with the Datum acquisition in October 2002.For fiscal year 2005, there were no charges associated with goodwill.

 
| ** **                             | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|----------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                             | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Interest  income *(in  thousands)*** |       | $                          | 7,478      |                       | $          | 1,533             |       | $ | 5,945 |   | 387.8 | % |
| Percentage of  Revenue                 |       | 4.2                        | %          | 0.9                        | %          |              |       |   |   |
|                                        |            |                            |            |                            |            |                   |            |  |  |  |  |  |

 

***Interest income*** increasedto $7.5 million in fiscal year 2006 compared to $1.5 million in fiscal year2005 due to higher cash investments balance attributable to the proceedsreceived from the convertible notes issued in June 2005 and higher averageinterest rates.

 
| ** **                              | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|-----------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                              | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Interest  expense *(in  thousands)*** |       | $                          | (4,983     | )                          | $          | (814              | )          | $ | (4,169 | ) | 512.2 | % |
| Percentage of  Revenue                  |       | (2.8                       | )%         | (0.5                       | )%         |              |       |   |   |
|                                         |            |                            |            |                            |            |                   |            |  |  |  |  |  |

 

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***Interest expense*** consistsprimarily of interest on our capital lease for our headquarters building in SanJose, California and interest for our convertible notes. Interest expenseincreased 512.2% to $5.0 million in fiscal year 2006 from $0.8 million infiscal year 2005 due primarily to interest expense on the convertible notes,which started accruing at 3.25% on June 15, 2005.

 
| ** **                                        | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|---------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                        | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Income  tax expense (benefit)*(in thousands)*** |       | $                          | (814       | )                          | $          | 2,078             |       | $ | (2,892 | ) | (139.2 | )% |
| Percentage of  Revenue                            |       | (0.5                       | )%         | 1.2                        | %          |              |       |   |   |
|                                                   |            |                            |            |                            |            |                   |            |  |  |  |  |  |

*** ***

***Income tax expense(benefit)*** was ($0.8) million in fiscal year 2006compared to $2.1 million in fiscal year 2005. The effective tax rate fluctuatedsignificantly in fiscal year 2006 as a result of the write-off of goodwill for$7.0 million, since a substantial portion of the goodwill write-off was notdeductible for tax reporting purposes. The increase in tax rate from thewrite-off of goodwill was offset by our Puerto Rico earnings, since asubstantial percentage of our Puerto Rico earnings were taxed under Section 936of the U.S. Internal Revenue Code, which exempts qualified Puerto Rico earningsfrom regular federal income taxes. Section 936 expired at the end offiscal year 2006.

 
| ** **                                                          | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|---------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                                          | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| **Gain  from discontinued operations, net of tax *(in thousands)*** |       | $                          | 921        |                       | $          | 985               |       | $ | (64 | ) | (6.5 | )% |
| Percentage of  Revenue                                              |       | 0.5                        | %          | 0.5                        | %          |              |       |   |   |
|                                                                     |            |                            |            |                            |            |                   |            |  |  |  |  |  |

 

***Discontinued operations:*** Duringfiscal year 2007, we discontinued the operation of the Specialty Manufacturing/Otherbusiness segment and the results, net of tax, are reflected in the results ofoperations for fiscal years 2006 and 2005.

 

** Key Operating Metrics**

 

Key operating metrics formeasuring our performance include sales backlog, contract revenue, headcountand deferred revenue. These metrics, which compare fiscal year 2007 with fiscalyear 2006, are listed below.

 

*Salesbacklog:*

 

Our backlog consists offirm orders that have yet to be shipped to the customer, or may not beshippable to a customer until a future period. Most orders included in backlogcan be rescheduled or cancelled by customers without significant penalty.Historically, a substantial portion of net revenue in any fiscal period hasbeen derived from orders received during that fiscal period. Our total backlogamounted to $51.9 million as of July 1, 2007, compared to $48.9 million asof July 2, 2006. Our backlog, which is shippable within the next sixmonths, was $43.4 million as of July 1, 2007, compared to $35.1 million asof July 2, 2006.

* *

*Contractrevenue:*

 

Revenue from contractsthat require development and manufacture in accordance with customerspecifications and have a lengthy development period may be categorized intotwo types: firm fixed price and cost-plus reimbursement. Revenue is recognizedunder the fixed price contracts using the percentage of completion method,(cost-to-cost basis) principally based upon the costs incurred relative to thetotal estimated costs at completion on the individual contracts. Anyanticipated losses on contracts are charged to operations as soon as they aredeterminable.

 

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Revenue recognized undercost-plus contracts is recognized on the basis of direct and indirect costsincurred plus a negotiated profit calculated as a percentage of costs or asperformance based award fee. Revenue from long-term contracts is reviewedperiodically, with adjustments recorded in the period in which the revisionsare made. As of July 1, 2007, we had approximately $6.3 million incontract revenue to be performed and recognized within the next 36 months,compared to approximately $4.4 million in contract revenue that was to beperformed and recognized within the following 36 months as of July 2,2006. These amounts have been accounted for as part of our sales backlogdiscussed above.

* *

*Headcount:*

 

Our consolidatedheadcount as of July 1, 2007 was comprised of 890 regular employees and 61temporary employees, compared to 802 regular employees and 63 temporaryemployees as of July 2, 2006.

* *

*Deferredrevenue:*

 

Deferred revenue iscomprised of deferred revenue on sales of goods with special terms, which arerecognized when the special terms are satisfied; maintenance contracts, whichare recognized ratably over the maintenance period; and distributor returnallowances, which are based on historical return averages with certaindistributors.  Deferred revenue for salesof goods with special terms was $0.9 million as of July 1, 2007, comparedto $0.4 million as of July 2, 2006. Deferred revenue for maintenancecontracts was $2.6 million as of July 1, 2007, compared to $2.2 million asof July 2, 2006. Deferred revenue for distributor return allowances was$0.2 million as of July 1, 2007, compared to $0.3 million as of July 2,2006.

** **

**Liquidity and Capital Resources**

 

As of July 1, 2007,working capital was $217.1 million compared to $222.2 million as of July 2,2006. Cash and cash equivalents as of July 1, 2007 decreased $44.6 millionto $37.6 million from $82.2 million as of July 2, 2006. This decrease wasprimarily the result of acquisitions paid in cash in the amount of $25.4million and a shift from cash and cash equivalents to short-terminvestments.   As a result, short-terminvestments increased from $106.7 million as of July 2, 2006 to $138.6million as of July 1, 2007.

 

The $20.7 million netcash provided by operating activities in fiscal 2007 was primarily attributableto a net income of $6.3 million and non-cash expenses related to depreciationand amortization of $9.6 million and stock-based compensation of $6.4 million,which was partially offset by a $3.1 million increase in accounts receivableand $6.6 million increase in inventory. The increase in accounts receivable infiscal 2007 was the result of higher sales during the fourth quarter of fiscal2007 compared to fiscal 2006 and the increase in inventory was related to theTSC acquisition in October 2006 and higher finished goods inventory tomeet customers’ shorter lead time requirements. The $62.3 million net cash usedfor investing activities in fiscal 2007 was primarily attributable to $225.4million in purchases of short-term investments, $25.4 million cash payment for the acquisitions of QoSmetrics S.A. andTSC, and $5.1 million in purchases of plant and equipment.  This was partially offset by $193.6 millionin maturities of short-term investments. The $3.0 million net cash used forfinancing activities was primarily attributable to $4.0 million used torepurchase common stock and $2.2 million to repay long-term obligations.  This was partially offset by $2.7 million inproceeds from the issuance of common stock.

 

Our total capitalspending commitments outstanding as of July 2, 2007 were approximately$0.9 million. Days sales outstanding in accounts receivable was 59 days as of July 1,2007, unchanged from July 2, 2006.

 

We believe that ourexisting cash resources will be sufficient to meet our anticipated operatingand working capital expenditure needs in the ordinary course of business for atleast the next 12 months and the foreseeable future.     We base our expense levels in part on ourexpectation of future revenue levels. If our revenue for a particular period islower than we expect, we may take steps to reduce our operating expensesaccordingly. If cash generated from operations is insufficient to satisfy ourliquidity requirements or if we require additional capital resources to growour business or to acquire complementary technologies and businesses in thefuture, we may seek to issue additional equity securities or obtain additionaldebt financing. Additional financing may not be available at all or on termsfavorable to us. Additional financing may also be dilutive to our existingstockholders. As a result of our delayed filing of our Quarterly Report on Form 10-Qfor the quarter ended December 30, 2007, we will be ineligible to registerour securities on Form S-3 for sale by us or resale by others until wehave timely filed all periodic reports under the Securities and Exchange Act of1934 for a period of twelve calendar months and any portion of a month

 

44

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from the due date of thelast untimely report. We may use Form S-1 to raise capital or completeacquisitions, but doing so could increase transaction costs and adverselyimpact our ability to raise capital or complete acquisitions of other companiesin a timely manner.  We do not have anyarrangements or relationships with entities that are not consolidated into ourfinancial statements that are reasonably likely to materially affect ourliquidity or the availability of our capital resources.

*** ***

***Wells Fargo Line of Credit***

 

On May 1, 2004, weentered into a credit agreement with Wells Fargo Bank, National Association toobtain a revolving line of credit up to $5.0 million to be used as workingcapital.  On June 1, 2005 thisagreement was amended to allow us to increase the line of credit up to $10.0million.  On November 1, 2006 theagreement was amended to lower the line of credit to $3.0 million.  The line of credit contains certain financialcovenants and restrictions.  The line ofcredit expires on November 1, 2007. No borrowings were outstanding under this facility as of July 1,2007.  This line of credit is used tosupport a letter of credit for the $2.4 million Massachusetts DevelopmentFinance Agency bond.

*** ***

***ConvertibleSubordinated Notes***

 

On June 8, 2005, we sold $120 million ofcontingent convertible subordinated notes (the “Notes”), which mature on June 15,2025 and bear interest at the rate of 3.25% per annum. Interest on the Notes ispayable semi-annually in June and December of each year beginning on December 15,2005. The Notes are unsecured obligations and are subordinated in right ofpayment to all of our existing and future senior debt, including our indebtednessunder our senior credit facilities. The Notes are structurally subordinated toall indebtedness and liabilities of our subsidiaries.

 

The Notes are convertible, at the holder’s option,prior to the maturity date into cash and, if applicable, shares of our commonstock in the following circumstances:

 

·                  Prior to June 15, 2023, if the commonstock price for a least 20 trading days in the period of 30 consecutive daysending on the last trading day of the calendar quarter preceding the quarter inwhich the conversion occurs is more than 125% of the conversion price of theNotes in effect on that 30th trading day;

 

·                  On or after June 15, 2023, at all timeson or after any date on which the common stock price is more than 125% of thethen current conversion price;

 

·                  During the five consecutive business-day periodfollowing any five consecutive trading-day period in which the trading pricefor the Notes for each such trading day was less than 95% of the average of thesale price of our common stock during such five trading-day period multipliedby the then current conversion rate;

 

·                  If we have called the particular Notes forredemption and the redemption has not yet occurred; or

 

·                  Upon the occurrence of specified corporatetransactions.

 

Holders may convert anyoutstanding Notes into cash and, if applicable, shares of our common stock atan initial conversion price per share of $12.49, which was determined based onthe reported closing price of our common stock of $9.91 per share on June 2,2005.

 

Also, on or after June 20, 2012, we may redeemsome or all of the Notes at any time or from time to time at a redemption priceof 100% of the principal amount of the Notes, plus accrued and unpaid interest(including liquidated damages, if any) up to but not including the date ofredemption, payable in cash. Holders may require us to repurchase all or aportion of their Notes on June 15, 2012, 2015 and 2020 for a repurchaseprice equal to 100% of the principal amount of the Notes, plus accrued andunpaid interest (including liquidated damages, if any) up to but not includingthe date of repurchase, payable in cash, in the event of certain change ofcontrol events related to us.

 

45

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We may from time to time repurchase or redeem all ora portion of the Notes, if necessary, to comply with NASDAQ marketplace rule 4350(i)(1)(D).We may undertake such repurchase from time to time through privately negotiatedor open market transactions or other available means.

 

In connection with the issuance of these Notes,Symmetricom recorded bond fees of approximately $3.8 million, which are beingamortized using the straight-line method over a period of seven years untilfiscal 2012.

 

As of July 1, 2007, none of the conditions thatwould trigger early redemption of the convertible subordinated notes hadoccurred.

 

On May 7,2008, we received a notice of acceleration from the trustee under the indenturegoverning our $120.0 million principal amount of 3.25% Senior ContingentConvertible Subordinated Notes due 2025. The notice states that our failure to file our Quarterly Report on Form 10-Qfor the quarter ended December 30, 2007 violates certain provisions of theindenture.  The acceleration letterdeclares that the principal amount outstanding under the Notes, together withany accrued and unpaid interest, and fees and expenses, are immediately due andpayable.  This notice of accelerationrelates to the trustee’s and certain bondholders’ previous notice received bythe Company on or about March 3, 2008 stating that our failure to file ourQuarterly Report on Form 10-Q for the quarter ended December 30, 2007with the SEC violates provisions of the indenture.  We believe we are not in default under theindenture.  We also believe that no eventof default entitling holders to accelerate has occurred with respect to thenotes.  We believe the indenture requiresus to provide to the trustee, copies of the reports we are required to filewith the SEC, such as our quarterly and annual reports, within 15 days offiling such reports with the SEC rather than the date such reports are due tobe filed with the SEC.

 

***Massachusetts Development Finance Agency Bond***

 

In connection with the acquisition of Datum in October 2002,we assumed Datum’s liability relating to an industrial development bond thatwas issued by the Massachusetts Development Finance Agency on June 1,2001, to finance the expansion by Datum of its manufacturing facility inBeverly, Massachusetts. The bond matures on May 1, 2021, and thebalance is $2.4 million as of July 1, 2007. Interest on the bond is payable monthly at an adjustable rate ofinterest as determined by the remarketing agent for each rate period to be thelowest rate which in its judgment would permit the sale of the bonds at par.The bond is collateralized by the line of credit with Wells Fargo Bank.

** **

**Contractual Obligations**

 

On November 18, 2005, we entered into a FirstAmendment to Lease, effective as of October 27, 2005, which amended ourexisting lease for approximately 117,739 square feet of space in an officebuilding located in San Jose,California. The leased space serves as our corporate office.  The amendment extended the terminationdate of the lease from April 15, 2009 to April 15, 2016. In addition,it provides that, commencing December 1, 2005, basic annual rent (asdefined in the lease) would be reduced to $1.7 million, subject to 4% annualincreases commencing on April 15, 2006. The building element of the original lease, which was accounted for fromthe outset as a capital lease for a property with a cost of $9.0million, continues to be amortized over the initial lease period ending in April 2009,in accordance with SFAS No. 13, Accounting for Leases.

 

The balance on the bondissued by the Massachusetts Development Finance Agency is $2.4 million as of July 1,2007. The bond is collateralized by a $2.4 million letter of credit issuedunder our credit facility with Wells Fargo Bank.

 

We operate in multiplelocations domestically and internationally. As such, certain facilities andequipment are leased under capital lease agreements or operating leaseagreements. Due to excess capacity on several non-cancelable leases as a resultof the economic downturn, we subleased certain facilities and recognized leaseloss liability for the remainder.

 

We incur purchasecommitments during our normal course of business. As of July 1, 2007, ourprincipal commitments totaled $20.7 million and related primarily tocommitments to purchase inventory.

 

46

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In connection with theDatum acquisition, we assumed Datum’s post-retirement health care benefitsplan. Post-retirement benefits are recognized over the employee’s serviceperiod based on a 6.00% discounted rate to the employee and the employee’sbeneficiaries after retirement. The health care plan was curtailed as of December 31,2002, and only existing retired participants and former Datum employees, nowemployed by Symmetricom and who meet the retirement eligibility requirements byDecember 31, 2004, are eligible for participation. The health care plan isa contributory plan.

 

Thefollowing table summarizes our contractual cash obligations as of July 1,2007, and the effect such obligations are expected to have on liquidity andcash flow in future periods.

 
| ** **                            | ** ** | **Payments due by period** | ** ** |
|---------------------------------------|------------|-------------------------------------------|------------|
| ** **                            | ** ** | ** **                                | ** ** | **Less than** | ** ** | ** ** | ** ** | ** ** | ** ** | **More than** | ** ** |
| ** **                            | ** ** | **Total**                                 | ** ** | **1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **5 years** | ** ** |
| ** **                            |       | **(In  thousands)**                       |       |
| **Contractual Obligations**      |       |                                      |       |   |   |   |   |   |   |   |   |
| Bond payable                          |       | $                                         | 2,405      |   | $ | — |   | $ | — |   | $ | — |   | $ | 2,405 |   |
| Convertible  subordinate notes        |       | 120,000                                   |       | — |   | — |   | — |   | 120,000 |   |
| Capital lease  obligations (1)        |       | 2,901                                     |       | 1,576 |   | 1,325 |   | — |   | — |   |
| Operating leases  obligations (2)     |       | 33,698                                    |       | 3,124 |   | 6,718 |   | 7,959 |   | 15,897 |   |
| Purchase  obligations                 |       | 20,726                                    |       | 19,977 |   | 742 |   | 7 |   | — |   |
| Conditional  grant                    |       | 136                                       |       | 136 |   | — |   | — |   | — |   |
| Post-retirement  benefits liabilities |       | 302                                       |       | 40 |   | 103 |   | 60 |   | 99 |   |
| Lease loss  accrual                   |       | 145                                       |       | 59 |   | 73 |   | 13 |   | — |   |
| Total                                 |       | $                                         | 180,313    |   | $ | 24,912 |   | $ | 8,961 |   | $ | 8,039 |   | $ | 138,401 |   |

 

----

(1)           Capitallease obligation includes interest

 

(2)           Operatinglease obligation is net of the lease loss accrual

 

**Recent Accounting Pronouncements**

 

In September 2006, the FASB issued SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans, an amendment of FASB Statements Nos. 87, 106, and 132(R). SFAS No. 158requires employers to recognize a net liability or asset and an offsettingadjustment to accumulated other comprehensive income to report the fundedstatus of defined benefit pension and other post-retirement benefit plans.Previous standards required employers to disclose the complete funded status ofits plans only in the notes to the financial statements. Additionally, SFAS No. 158requires employers to measure plan assets and obligations at their year-endbalance sheet date. Guidance relating to the recognition of the over or underfunded status of the plan and additional disclosure requirements is effectivefor periods ending after December 15, 2006.  Guidance relating to themeasurement date of the plans is effective for the years ending after December 15,2008. We determined that SFAS No. 158 does not have a material impact onour consolidated balance sheet, statement of operations or cash flows.

 

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements, which provides guidance for using fair value tomeasure assets and liabilities. The standard also responds to investors’requests for more information about (1) the extent to which companiesmeasure assets and liabilities at fair value, (2) the information used tomeasure fair value, and (3) the effect that fair-value measurements haveon earnings. SFAS No. 157 will apply whenever another standardrequires (or permits) assets or liabilities to be measured at fair value. Thestandard does not expand the use of fair value to any new circumstances.SFAS No. 157 is effective for financial statements issued for fiscalyears beginning after November 15, 2007, and interim periods within thosefiscal years.  We do not believe that SFAS No. 157 will have amaterial impact on our consolidated balance sheet or statement of operations.

 

In September 2006, the SEC issued StaffAccounting Bulletin (SAB) No. 108, Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements.  SAB No. 108 provides guidance on the considerationof the effects of prior year misstatements in quantifying current yearmisstatements for the purpose of a materiality assessment. SAB No. 108establishes an approach that requires quantification of financial

 

47

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statementerrors based on the effects of each of the company’s balance sheet andstatement of operations and the related financial statement disclosures.SAB No. 108 permits existing public companies to record thecumulative effect of initially applying this approach in the first year endingafter November 15, 2006 by recording the necessary correcting adjustmentsto the carrying values of assets and liabilities as of the beginning of thatyear with the offsetting adjustment recorded to the opening balance of retainedearnings. Additionally, the use of the cumulative effect transition methodrequires detailed disclosure of the nature and amount of each individual errorbeing corrected through the cumulative adjustment and how and when it arose. Wedo not believe that SAB No. 108 has a material impact on ourconsolidated balance sheet or statement of operations.

 

In June 2006,the FASB issued Interpretation Number (FIN) No. 48, Accounting forUncertainty in Income Taxes. FIN No. 48 applies to all tax positionswithin the scope of FASB Statement No. 109, applies a “more likely thannot” threshold for tax benefit recognition, identifies a defined methodologyfor measuring benefits and increases the disclosure requirements for companies.FIN No. 48 is mandatory for years beginning after December 15, 2006.We are still assessing the impact of the adoption of FIN No. 48, and havenot yet determined the impact that its adoption will have on the consolidatedfinancial statements. The final analysis will be completed in the first quarterof fiscal 2008.

 

**Item7A.**                 *Quantitative and Qualitative Disclosures About Market Risk*

** **

**Interest Rate Exposure**

 

As of July 1, 2007,we had short-term investments of $138.6 million. These investments in corporatedebt securities have maturity dates of greater than three months. Our corporatedebt securities are subject to interest rate risk in as much as their fairvalue will fall if market interest rates increase. If market interest rateswere to increase immediately and uniformly by 10% from the levels prevailing atJuly 1, 2007, the fair value of the portfolio would not decline by amaterial amount. Additionally, a 10% decrease in the market interest rateswould not materially impact the fair value of the portfolio. We do not use derivativefinancial instruments to mitigate the risks inherent in these securities.However, we do attempt to reduce these risks by typically limiting the maturitydate of such securities to no more than 36 months, placing our investments withhigh credit quality issuers and limiting the amount of credit exposure with anyone issuer. The possibility exists that some of these issues may be downgradedas a result of disruptions in the credit market; however, we believe that wecurrently have the ability and currently intend to hold these investments untilmaturity, and therefore, believe that reductions in the value of thesesecurities attributable to short-term fluctuations in interest rates would notmaterially harm our business

 

On June 8, 2005, weissued convertible subordinated notes with a fixed rate of 3.25%, which wouldhave no interest rate risk impact to our business.

** **

**Foreign CurrencyExchange Rate Exposure**

 

Our exposure to marketrisk due to fluctuations in currency exchange rates relates primarily to theintercompany balances with our subsidiaries in the United Kingdom and Germany.Although we transact business with various countries, settlement amounts areusually based on United States currency. Transaction gains or losses have notbeen significant in the past and we do not presently engage in hedgingactivity. A hypothetical 10% adverse change in sterling or Euro against UnitedStates dollars would not result in a material foreign exchange loss.Consequently, we do not expect that a sudden or significant fluctuation inforeign exchange rates would have a direct material impact on our business.

 

Notwithstanding theforegoing analysis of the direct effects of interest rate and currency exchangerate fluctuations on the value of certain of our investments and accounts, theindirect effects of such fluctuations could have a materially harmful effect onour business. For example, international demand for our products is affected byforeign currency exchange rates. In addition, interest rate fluctuations mayaffect the buying patterns of our customers. Furthermore, interest rate andcurrency exchange rate fluctuations have broad influence on the generalcondition of the United States, foreign and global economies which couldmaterially harm our business.

 

48

----

 

**Item 8.**                          *Consolidated Financial Statements and Supplementary Data (Restated)*

** **

**Supplementary quarterly financialdata (unaudited):**

 

The following table shows our unaudited condensed,consolidated quarterly statements of operations data for each of the quartersin the years ended July 1, 2007 and July 2, 2006. This informationhas been derived from our unaudited financial information, which, in theopinion of management, has been prepared on the same basis as our auditedfinancial statements and include all adjustments necessary for the fairpresentation of the financial information for the quarters presented  The information below has been restated togive effect to the correction of errors relating to the accounting for accruedliabilities related to inventory receipts.

 
| ** **                                                      | ** ** | **First**                                                             | ** ** | **Second**             | ** ** | **Third**              | ** ** | **Fourth**             | ** ** | **Total**              | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                      | ** ** | **Quarter**                                                           | ** ** | **Quarter**            | ** ** | **Quarter**            | ** ** | **Quarter**            | ** ** | **Year**               | ** ** |
| ** **                                                      | ** ** | **(In thousands, except per share amounts)** | ** ** |
| ** **                                                      | ** ** | **(as restated)**                                                | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** | **(as restated)** | ** ** |
| **Fiscal Year 2007**                                  |       |                                                                  |       |                   |       |                   |       |                   |       |                   |       |
| Net  revenue                                                    |       | $                                                                     | 47,260     |                   | $          | 51,761                 |       | $                      | 51,943     |                   | $          | 57,416 |   | $ | 208,380 |   |
| Gross  profit                                                   |       | 22,125                                                                |       | 21,717                 |       | 24,755                 |       | 26,405                 |       | 95,002                 |       |
| Operating  income                                               |       | 3,906                                                                 |       | 2,200                  |       | 2,356                  |       | 776                    |       | 9,238                  |       |
| Income  before income taxes and discontinued operations         |       | 5,054                                                                 |       | 3,382                  |       | 3,360                  |       | 1,850                  |       | 13,646                 |       |
| Income  (loss) from continuing operations                       |       | 3,379                                                                 |       | 2,501                  |       | (1,229                 | )          | 1,407                  |       | 6,058                  |       |
| Gain  (loss) on discontinued operations                         |       | 474                                                                   |       | 260                    |       | (349                   | )          | (143                   | )          | 242                    |       |
| Net  income (loss)                                              |       | 3,853                                                                 |       | 2,761                  |       | (1,578                 | )          | 1,264                  |       | 6,300                  |       |
| Basic  earnings (loss) per share from continuing operations     |       | 0.07                                                                  |       | 0.05                   |       | (0.02                  | )          | 0.03                   |       | 0.13                   |       |
| Basic  earnings (loss) per share from discontinued operations   |       | 0.01                                                                  |       | 0.01                   |       | (0.01                  | )          | —                 |       | 0.01                   |       |
| Basic  net earnings (loss) per share                            |       | 0.08                                                                  |       | 0.06                   |       | (0.03                  | )          | 0.03                   |       | 0.14                   |       |
| Diluted  earnings (loss) per share from continuing operations   |       | 0.07                                                                  |       | 0.05                   |       | (0.02                  | )          | 0.03                   |       | 0.13                   |       |
| Diluted  earnings (loss) per share from discontinued operations |       | 0.01                                                                  |       | 0.01                   |       | (0.01                  | )          | —                 |       | 0.01                   |       |
| Diluted  net earnings (loss) per share                          |       | 0.08                                                                  |       | 0.06                   |       | (0.03                  | )          | 0.03                   |       | 0.14                   |       |
| **Fiscal Year 2006**                                            |       |                                                                  |       |                   |       |                   |       |                   |       |                   |       |
| Net  revenue                                                    |       | $                                                                     | 42,545     |                   | $          | 45,281                 |       | $                      | 41,532     |                   | $          | 46,754 |   | $ | 176,112 |   |
| Gross  profit                                                   |       | 20,286                                                                |       | 20,815                 |       | 16,600                 |       | 20,811                 |       | 78,512                 |       |
| Operating  income (loss)                                        |       | 1,479                                                                 |       | 2,179                  |       | (9,087                 | )          | 1,263                  |       | (4,166                 | )          |
| Income  (loss) before income taxes and discontinued operations  |       | 1,795                                                                 |       | 2,682                  |       | (8,356                 | )          | 2,208                  |       | (1,671                 | )          |
| Income  (loss) from continuing operations                       |       | 1,369                                                                 |       | 2,068                  |       | (6,014                 | )          | 1,720                  |       | (857                   | )          |
| Gain  on discontinued operations                                |       | 97                                                                    |       | 309                    |       | 508                    |       | 7                      |       | 921                    |       |
| Net  income (loss)                                              |       | 1,466                                                                 |       | 2,377                  |       | (5,506                 | )          | 1,727                  |       | 64                     |       |
| Basic  earnings (loss) per share from continuing operations     |       | 0.03                                                                  |       | 0.04                   |       | (0.13                  | )          | 0.04                   |       | (0.02                  | )          |
| Basic  earnings per share from discontinued operations          |       | —                                                                |       | 0.01                   |       | 0.01                   |       | —                 |       | 0.02                   |       |
| Basic  net earnings (loss) per share                            |       | 0.03                                                                  |       | 0.05                   |       | (0.12                  | )          | 0.04                   |       | —                 |       |
| Diluted  earnings (loss) per share from continuing operations   |       | 0.03                                                                  |       | 0.04                   |       | (0.13                  | )          | 0.04                   |       | (0.02                  | )          |
| Diluted  earnings per share from discontinued operations        |       | —                                                                |       | 0.01                   |       | 0.01                   |       | —                 |       | 0.02                   |       |
| Diluted  net earnings (loss) per share                          |       | 0.03                                                                  |       | 0.05                   |       | (0.12                  | )          | 0.04                   |       | —                 |       |

 

49

----

 

The impact of therestatement to our unaudited condensed, consolidated quarterly statements ofoperations data for each of the quarters in the years ended July 1, 2007and July 2, 2006 are summarized in the tables below:

 
| ** **                                               | ** ** | **2007**                                      | ** ** | **2007**                                      | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                               | ** ** | **First Quarter**                        | ** ** | **Second Quarter**                       | ** ** |
| ** **                                               | ** ** | **As  previously**                            | ** ** | **Adjust-**                                   | ** ** | **As** | ** ** | **As  previously** | ** ** | **Adjust-** | ** ** | **As** | ** ** |
|                                                     |       | **Reported**                                  | ** ** | **ments**                                     | ** ** | **Restated** | ** ** | **Reported** | ** ** | **ments** | ** ** | **Restated** |   |
| ** **                                               | ** ** | **(In  thousands, except per share amounts)** | ** ** | **(In  thousands, except per share amounts)** | ** ** |
| Net  revenue                                             |       | $                                             | 47,260     |                                          | $          | — |   | $ | 47,260 |   | $ | 51,761 |   | $ | — |   | $ | 51,761 |   |
| Gross  profit                                            |       | 22,036                                        |       | 89                                            |       | 22,125 |   | 21,655 |   | 62 |   | 21,717 |   |
| Operating  income                                        |       | 3,817                                         |       | 89                                            |       | 3,906 |   | 2,138 |   | 62 |   | 2,200 |   |
| Income  before income taxes and discontinued operations  |       | 4,965                                         |       | 89                                            |       | 5,054 |   | 3,320 |   | 62 |   | 3,382 |   |
| Income  from continuing operations                       |       | 3,323                                         |       | 56                                            |       | 3,379 |   | 2,462 |   | 39 |   | 2,501 |   |
| Gain  on discontinued operations                         |       | 474                                           |       | —                                        |       | 474 |   | 260 |   | — |   | 260 |   |
| Net  income                                              |       | 3,797                                         |       | 56                                            |       | 3,853 |   | 2,722 |   | 39 |   | 2,761 |   |
| Basic  earnings per share from continuing operations     |       | 0.07                                          |       | —                                        |       | 0.07 |   | 0.06 |   | (0.01 | ) | 0.05 |   |
| Basic  earnings per share from discontinued operations   |       | 0.01                                          |       | —                                        |       | 0.01 |   | — |   | 0.01 |   | 0.01 |   |
| Basic  net earnings per share                            |       | 0.08                                          |       | —                                        |       | 0.08 |   | 0.06 |   | — |   | 0.06 |   |
| Diluted  earnings per share from continuing operations   |       | 0.07                                          |       | —                                        |       | 0.07 |   | 0.06 |   | (0.01 | ) | 0.05 |   |
| Diluted  earnings per share from discontinued operations |       | 0.01                                          |       | —                                        |       | 0.01 |   | — |   | 0.01 |   | 0.01 |   |
| Diluted  net earnings per share                          |       | 0.08                                          |       | —                                        |       | 0.08 |   | 0.06 |   | — |   | 0.06 |   |
|                                                          |            |                                               |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

** **
| ** **                                                      | ** ** | **2007**                                                              | ** ** | **2007**                                                              | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **Third Quarter**                                                | ** ** | **Fourth Quarter**                                               | ** ** |
| ** **                                                      | ** ** | **(In thousands, except per share amounts)** | ** ** | **(In thousands, except per share amounts)** | ** ** |
|                                                            |       | **As  previously**                                                    | ** ** | **Adjust-**                                                           | ** ** | **As** | ** ** | **As  previously** | ** ** | **Adjust-** | ** ** | **As** |   |
|                                                            |       | **Reported**                                                          | ** ** | **ments**                                                             | ** ** | **Restated** | ** ** | **Reported** | ** ** | **ments** | ** ** | **Restated** |   |
|                                                            |       |                                                                  |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Net  revenue                                                    |       | $                                                                     | 51,943     |                                                                  | $          | — |   | $ | 51,943 |   | $ | 57,416 |   | $ | — |   | $ | 57,416 |   |
| Gross  profit                                                   |       | 24,629                                                                |       | 126                                                                   |       | 24,755 |   | 26,372 |   | 33 |   | 26,405 |   |
| Operating  income                                               |       | 2,230                                                                 |       | 126                                                                   |       | 2,356 |   | 743 |   | 33 |   | 776 |   |
| Income  before income taxes and discontinued operations         |       | 3,234                                                                 |       | 126                                                                   |       | 3,360 |   | 1,817 |   | 33 |   | 1,850 |   |
| Income  (loss) from continuing operations                       |       | (1,308                                                                | )          | 79                                                                    |       | (1,229 | ) | 1,386 |   | 21 |   | 1,407 |   |
| Gain  (loss) on discontinued operations                         |       | (349                                                                  | )          | —                                                                |       | (349 | ) | (143 | ) | — |   | (143 | ) |
| Net  income (loss)                                              |       | (1,657                                                                | )          | 79                                                                    |       | (1,578 | ) | 1,243 |   | 21 |   | 1,264 |   |
| Basic  earnings (loss) per share from continuing operations     |       | (0.03                                                                 | )          | 0.01                                                                  |       | (0.02 | ) | 0.03 |   | — |   | 0.03 |   |
| Basic  earnings (loss) per share from discontinued operations   |       | (0.01                                                                 | )          | —                                                                |       | (0.01 | ) | — |   | — |   | — |   |
| Basic  net earnings (loss) per share                            |       | (0.04                                                                 | )          | 0.01                                                                  |       | (0.03 | ) | 0.03 |   | — |   | 0.03 |   |
| Diluted  earnings (loss) per share from continuing operations   |       | (0.03                                                                 | )          | 0.01                                                                  |       | (0.02 | ) | 0.03 |   | — |   | 0.03 |   |
| Diluted  earnings (loss) per share from discontinued operations |       | (0.01                                                                 | )          | —                                                                |       | (0.01 | ) | — |   | — |   | — |   |
| Diluted  net earnings (loss) per share                          |       | (0.04                                                                 | )          | 0.01                                                                  |       | (0.03 | ) | 0.03 |   | — |   | 0.03 |   |
|                                                                 |            |                                                                       |            |                                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

** **

**50**

----

** **
| ** **                                               | ** ** | **2006**                                                              | ** ** | **2006**                                                              | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                               | ** ** | **First Quarter**                                                | ** ** | **Second Quarter**                                               | ** ** |
| ** **                                               | ** ** | **(In thousands, except per share amounts)** | ** ** | **(In thousands, except per share amounts)** | ** ** |
|                                                     |       | **As  previously**                                                    | ** ** | **Adjust-**                                                           | ** ** | **As** | ** ** | **As  previously** | ** ** | **Adjust-** | ** ** | **As** |   |
|                                                     |       | **Reported**                                                          | ** ** | **ments**                                                             | ** ** | **Restated** | ** ** | **Reported** | ** ** | **ments** | ** ** | **Restated** |   |
|                                                     |       |                                                                  |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Net  revenue                                             |       | $                                                                     | 42,545     |                                                                  | $          | — |   | $ | 42,545 |   | $ | 45,281 |   | $ | — |   | $ | 45,281 |   |
| Gross  profit                                            |       | 20,138                                                                |       | 148                                                                   |       | 20,286 |   | 21,256 |   | (441 | ) | 20,815 |   |
| Operating  income                                        |       | 1,331                                                                 |       | 148                                                                   |       | 1,479 |   | 2,620 |   | (441 | ) | 2,179 |   |
| Income  before income taxes and discontinued operations  |       | 1,647                                                                 |       | 148                                                                   |       | 1,795 |   | 3,123 |   | (441 | ) | 2,682 |   |
| Income  from continuing operations                       |       | 1,276                                                                 |       | 93                                                                    |       | 1,369 |   | 2,346 |   | (278 | ) | 2,068 |   |
| Gain  on discontinued operations                         |       | 97                                                                    |       | —                                                                |       | 97 |   | 309 |   | — |   | 309 |   |
| Net  income                                              |       | 1,373                                                                 |       | 93                                                                    |       | 1,466 |   | 2,655 |   | (278 | ) | 2,377 |   |
| Basic  earnings per share from continuing operations     |       | 0.03                                                                  |       | —                                                                |       | 0.03 |   | 0.05 |   | (0.01 | ) | 0.04 |   |
| Basic  earnings per share from discontinued operations   |       | —                                                                |       | —                                                                |       | — |   | 0.01 |   | — |   | 0.01 |   |
| Basic  net earnings per share                            |       | 0.03                                                                  |       | —                                                                |       | 0.03 |   | 0.06 |   | (0.01 | ) | 0.05 |   |
| Diluted  earnings per share from continuing operations   |       | 0.03                                                                  |       | —                                                                |       | 0.03 |   | 0.05 |   | (0.01 | ) | 0.04 |   |
| Diluted  earnings per share from discontinued operations |       | —                                                                |       | —                                                                |       | — |   | 0.01 |   | — |   | 0.01 |   |
| Diluted  net earnings per share                          |       | 0.03                                                                  |       | —                                                                |       | 0.03 |   | 0.06 |   | (0.01 | ) | 0.05 |   |
|                                                          |            |                                                                       |            |                                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                     | ** ** | **2006**                                                              | ** ** | **2006**                                                              | ** ** |
|----------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                     | ** ** | **Third Quarter**                                                | ** ** | **Fourth Quarter**                                               | ** ** |
| ** **                                                     | ** ** | **(In thousands, except per share amounts)** | ** ** | **(In thousands, except per share amounts)** | ** ** |
|                                                           |       | **As  previously**                                                    | ** ** | **Adjust-**                                                           | ** ** | **As** | ** ** | **As  previously** | ** ** | **Adjust-** | ** ** | **As** |   |
|                                                           |       | **Reported**                                                          | ** ** | **ments**                                                             | ** ** | **Restated** | ** ** | **Reported** | ** ** | **ments** | ** ** | **Restated** |   |
| Net  revenue                                                   |       | $                                                                     | 41,532     |                                                                  | $          | — |   | $ | 41,532 |   | $ | 46,754 |   | $ | — |   | $ | 46,754 |   |
| Gross  profit                                                  |       | 17,106                                                                |       | (506                                                                  | )          | 16,600 |   | 21,210 |   | (399 | ) | 20,811 |   |
| Operating  income (loss)                                       |       | (8,581                                                                | )          | (506                                                                  | )          | (9,087 | ) | 1,662 |   | (399 | ) | 1,263 |   |
| Income  (loss) before income taxes and discontinued operations |       | (7,850                                                                | )          | (506                                                                  | )          | (8,356 | ) | 2,607 |   | (399 | ) | 2,208 |   |
| Income  (loss) from continuing operations                      |       | (5,695                                                                | )          | (319                                                                  | )          | (6,014 | ) | 1,971 |   | (251 | ) | 1,720 |   |
| Gain  on discontinued operations                               |       | 508                                                                   |       | —                                                                |       | 508 |   | 7 |   | — |   | 7 |   |
| Net  income (loss)                                             |       | (5,187                                                                | )          | (319                                                                  | )          | (5,506 | ) | 1,978 |   | (251 | ) | 1,727 |   |
| Basic  earnings (loss) per share from continuing operations    |       | (0.12                                                                 | )          | (0.01                                                                 | )          | (0.13 | ) | 0.04 |   | — |   | 0.04 |   |
| Basic  earnings per share from discontinued operations         |       | 0.01                                                                  |       | —                                                                |       | 0.01 |   | — |   | — |   | — |   |
| Basic  net earnings (loss) per share                           |       | (0.11                                                                 | )          | (0.01                                                                 | )          | (0.12 | ) | 0.04 |   | — |   | 0.04 |   |
| Diluted  earnings (loss) per share from continuing operations  |       | (0.12                                                                 | )          | (0.01                                                                 | )          | (0.13 | ) | 0.04 |   | — |   | 0.04 |   |
| Diluted  earnings per share from discontinued operations       |       | 0.01                                                                  |       | —                                                                |       | 0.01 |   | — |   | — |   | — |   |
| Diluted  net earnings (loss) per share                         |       | (0.11                                                                 | )          | (0.01                                                                 | )          | (0.12 | ) | 0.04 |   | — |   | 0.04 |   |
|                                                                |            |                                                                       |            |                                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

** **

**51**

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** **

**SYMMETRICOM,INC.**

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**

 
| ** **                                                                                                                                                                               | **Page** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| Report  of Independent Registered Public Accounting Firm                                                                                                                                 | 53       |
| Consolidated  Balance Sheets As Restated at July 1, 2007 and July 2, 2006                                                                                                      | 54       |
| Consolidated  Statements of Operations As Restated for the years ended July 1, 2007,  July 2, 2006, and July 3, 2005                                                      | 55       |
| Consolidated  Statements of Stockholders’ Equity and Comprehensive Income (Loss) As  Restated for the years ended July 1, 2007, July 2, 2006, and  July 3, 2005 | 56       |
| Consolidated  Statements of Cash Flows As Restated for the years ended July 1, 2007,  July 2, 2006, and July 3, 2005                                                      | 57       |
| Notes to  the Consolidated Financial Statements                                                                                                                                          | 58       |

 

52

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**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

** **

To the Board of Directorsand Stockholders of

Symmetricom, Inc.

San Jose, California

 

We have audited theaccompanying consolidated balance sheets of Symmetricom, Inc. andsubsidiaries (the “Company”) as of July 1, 2007 and July 2, 2006 andthe related consolidated statements of operations, stockholders’ equity andcomprehensive income (loss), and cash flows for each of the three years in theperiod ended July 1, 2007.  Ouraudits also included the financial statement schedule listed in the Index atItem 15 Schedule II.  These consolidatedfinancial statements and financial statement schedule are the responsibility ofthe Company’s management.  Ourresponsibility is to express an opinion on the consolidated financialstatements and financial statement schedule based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of the Company as of July 1, 2007 and July 2, 2006, and the results of its operations and its cash flows for each of the threeyears in the period ended July 1, 2007, in conformity with accounting principlesgenerally accepted in the United States of America.  Also, in our opinion, such financialstatement schedule, when considered in relation to the basic consolidatedfinancial statements taken as a whole, presents fairly, in all materialrespects, the information set forth therein.

 

As described in Note 1 to the Consolidated FinancialStatements, the Company adopted Statement of Financial Accounting Standards No. 123(R),“*Share-Based Payment*,” during fiscal2006.

 

As discussed in Note 19,the accompanying consolidated financial statements have been restated.

 

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the effectiveness of the Company’s internal control overfinancial reporting as of July 1, 2007, based on the criteria establishedin Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated September 25,2007 and June 17, 2008 as to the effects of the material weakness forerrors in accrued liabilities relating to inventory, expressed an unqualifiedopinion on management’s assessment of the effectiveness of the Company’sinternal control over financial reporting and an adverse opinion on the effectivenessof the Company’s internal control over financial reporting because of materialweaknesses.

 

 
| **/s/ DELOITTE & TOUCHE LLP**                                                                                        | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|
| San Jose, California                                                                                                          |
| September 25, 2007  except for Note 18 and Note 19 for which the dates are May 7, 2008 and June  17, 2008, respectively. |

 

53

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**SYMMETRICOM,INC.CONSOLIDATED BALANCE SHEETS**

**(In thousands, exceptpar value)**

 
| ** **                                                                                                                                                             | ** ** | **July 1, 2007**                     | ** ** | **July 2, 2006**                     | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                                                                             | ** ** | **(As restated, See  Note 19)** | ** ** | **(As restated, See  Note 19)** | ** ** |
| **ASSETS**                                                                                                                                                             |       |                                           |       |                                           |       |
| Current  assets:                                                                                                                                                       |       |                                           |       |                                           |       |
| Cash  and cash equivalents                                                                                                                                             |       | $                                              | 37,587     |                                           | $          | 82,193 |   |
| Short-term  investments                                                                                                                                                |       | 138,559                                        |       | 106,696                                        |       |
| Accounts  receivable, net of allowance for doubtful accounts of $1,107 in 2007 and $888  in 2006                                                                       |       | 37,368                                         |       | 33,015                                         |       |
| Inventories,  net                                                                                                                                                      |       | 38,957                                         |       | 30,717                                         |       |
| Note  receivable from employee                                                                                                                                         |       | 500                                            |       | —                                         |       |
| Prepaids  and other current assets                                                                                                                                     |       | 11,094                                         |       | 10,240                                         |       |
| Total  current assets                                                                                                                                                  |       | 264,065                                        |       | 262,861                                        |       |
| Property,  plant and equipment, net                                                                                                                                    |       | 26,626                                         |       | 26,553                                         |       |
| Goodwill                                                                                                                                                               |       | 54,706                                         |       | 45,899                                         |       |
| Other  intangible assets, net                                                                                                                                          |       | 17,730                                         |       | 8,200                                          |       |
| Deferred  taxes and other assets                                                                                                                                       |       | 46,060                                         |       | 48,428                                         |       |
| Note  receivable from employee                                                                                                                                         |       | —                                         |       | 500                                            |       |
| Total  assets                                                                                                                                                          |       | $                                              | 409,187    |                                           | $          | 392,441 |   |
|                                                                                                                                                                   |       |                                           |       |                                           |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                          |       |                                           |       |                                           |       |
| Current  liabilities:                                                                                                                                                  |       |                                           |       |                                           |       |
| Accounts  payable                                                                                                                                                      |       | $                                              | 12,949     |                                           | $          | 13,421 |   |
| Accrued  compensation                                                                                                                                                  |       | 13,936                                         |       | 10,352                                         |       |
| Accrued  warranty                                                                                                                                                      |       | 3,374                                          |       | 3,547                                          |       |
| Other  accrued liabilities                                                                                                                                             |       | 15,161                                         |       | 12,024                                         |       |
| Current  maturities of long-term obligations                                                                                                                           |       | 1,547                                          |       | 1,286                                          |       |
| Total  current liabilities                                                                                                                                             |       | 46,967                                         |       | 40,630                                         |       |
| Long-term  obligations                                                                                                                                                 |       | 125,550                                        |       | 126,670                                        |       |
| Deferred  income taxes                                                                                                                                                 |       | 334                                            |       | 619                                            |       |
| Total  liabilities                                                                                                                                                     |       | 172,851                                        |       | 167,919                                        |       |
| Commitments  and contingencies                                                                                                                                         |       |                                           |       |                                           |       |
| Stockholders’  equity:                                                                                                                                            |       |                                           |       |                                           |       |
| Preferred  stock, $0.0001 par value; 500 shares authorized, none issued                                                                                                |       | —                                         |       | —                                         |       |
| Common  stock, $0.0001 par value; 70,000 shares authorized, 48,959 shares issued and  46,528 outstanding in 2007; 47,662 shares issued and 45,743 outstanding in  2006 |       | 187,070                                        |       | 181,696                                        |       |
| Accumulated  other comprehensive income                                                                                                                                |       | 403                                            |       | 263                                            |       |
| Retained  earnings                                                                                                                                                     |       | 48,863                                         |       | 42,563                                         |       |
| Total  stockholders’ equity                                                                                                                                       |       | 236,336                                        |       | 224,522                                        |       |
| Total  liabilities and stockholders’ equity                                                                                                                       |       | $                                              | 409,187    |                                           | $          | 392,441 |   |

 

**See notes to the consolidated financialstatements.**

 

54

----

 

**SYMMETRICOM,INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Inthousands, except per share amounts)**

** **
| ** **                                                     | ** ** | **Year ended**                            | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                     | ** ** | **July 1, 2007**                     | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| ** **                                                     | ** ** | **(As restated, See  Note 19)** | ** ** | **(As restated, See  Note 19)** | ** ** | **(As restated, See  Note 19)** | ** ** |
| ** **                                                     | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  revenue                                                   |       | $                                              | 208,380    |   | $ | 176,112 |   | $ | 179,388 |   |
| Cost  of products and services                                 |       | 109,837                                        |       | 91,626 |   | 88,162 |   |
| Amortization  of purchased technology                          |       | 3,317                                          |       | 3,622 |   | 3,899 |   |
| Impairment  of intangibles                                     |       | —                                         |       | 1,198 |   | — |   |
| Integration  and restructuring charges                         |       | 224                                            |       | 1,154 |   | — |   |
| Gross  profit                                                  |       | 95,002                                         |       | 78,512 |   | 87,327 |   |
| Operating  expenses:                                           |       |                                           |       |   |   |   |   |
| Research  and development                                      |       | 23,692                                         |       | 18,836 |   | 16,286 |   |
| Selling,  general and administrative                           |       | 60,543                                         |       | 56,357 |   | 52,248 |   |
| Acquired  in-process research and development                  |       | 188                                            |       | — |   | — |   |
| Amortization  of intangibles                                   |       | 792                                            |       | 522 |   | 613 |   |
| Integration  and restructuring charges                         |       | 549                                            |       | — |   | — |   |
| Impairment  of goodwill                                        |       | —                                         |       | 6,963 |   | — |   |
| Operating  income (loss)                                       |       | 9,238                                          |       | (4,166 | ) | 18,180 |   |
| Gain  on equity investments, net                               |       | —                                         |       | — |   | 389 |   |
| Interest  income                                               |       | 9,231                                          |       | 7,478 |   | 1,533 |   |
| Interest  expense                                              |       | (4,823                                         | )          | (4,983 | ) | (814 | ) |
| Income  (loss) before income taxes and discontinued operations |       | 13,646                                         |       | (1,671 | ) | 19,288 |   |
| Income  tax provision (benefit)                                |       | 7,588                                          |       | (814 | ) | 2,078 |   |
| Income  (loss) from continuing operations                      |       | 6,058                                          |       | (857 | ) | 17,210 |   |
| Gain  from discontinued operations, net of tax                 |       | 242                                            |       | 921 |   | 985 |   |
| Net  income                                                    |       | $                                              | 6,300      |   | $ | 64 |   | $ | 18,195 |   |
| Earnings  per share—basic:                                |       |                                           |       |   |   |   |   |
| Earnings  from continuing operations                           |       | $                                              | 0.13       |   | $ | (0.02 | ) | $ | 0.38 |   |
| Earnings  from discontinued operations                         |       | 0.01                                           |       | 0.02 |   | $ | 0.02 |   |
| Net  earnings                                                  |       | $                                              | 0.14       |   | $ | — |   | $ | 0.40 |   |
| Weighted  average shares outstanding—basic                |       | 45,572                                         |       | 45,913 |   | 45,532 |   |
|                                                           |       |                                           |       |   |   |   |   |
| Earnings  per share—diluted:                              |       |                                           |       |   |   |   |   |
| Earnings  from continuing operations                           |       | $                                              | 0.13       |   | $ | (0.02 | ) | $ | 0.37 |   |
| Earnings  from discontinued operations                         |       | 0.01                                           |       | 0.02 |   | 0.02 |   |
| Net  earnings                                                  |       | $                                              | 0.14       |   | $ | — |   | $ | 0.39 |   |
| Weighted  average shares outstanding—diluted              |       | 46,389                                         |       | 46,791 |   | 46,936 |   |

 

**Seenotes to the consolidated financial statements.**

 

55

----

 

**SYMMETRICOM,INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**AND COMPREHENSIVE INCOME(LOSS)**

**(In thousands)**

** **
| ** **                                                            | ** ** | ** **            | ** ** | ** ** | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** **       | ** ** | ** **                                     | ** ** | **Total**                                      | ** ** | ** **                                     | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------|------------|------------|------------|-------------------|------------|------------------------|------------|------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                            | ** ** | ** **            | ** ** | ** ** | ** ** | **Stockholder**   | ** ** | **Other**              | ** ** | **Deferred**     | ** ** | ** **                                     | ** ** | **Stock-**                                     | ** ** | **Total**                                      | ** ** |
| ** **                                                            | ** ** | **Common Stock** | ** ** | **Note**   | ** ** | **Comprehensive** | ** ** | **Stock-based**        | ** ** | **Retained**     | ** ** | **holders’**                              | ** ** | **Comprehensive**                              | ** ** |
| ** **                                                            | ** ** | **Shares**            | ** ** | **Amount** | ** ** | **Receivable**    | ** ** | **Income (loss)** | ** ** | **Compensation** | ** ** | **Earnings**                                   | ** ** | **Equity**                                     | ** ** | **Income (loss)**                         | ** ** |
| ** **                                                            | ** ** | ** **            | ** ** | ** ** | ** ** | ** **        | ** ** | ** **             | ** ** | ** **       | ** ** | **(As restated, See  Note 19)** | ** ** | **(As restated, See  Note 19)** | ** ** | **(As restated, See  Note 19)** | ** ** |
| Balance  at June 27, 2004, previously reported                   |       | 44,915                |       | $          | 174,293    |              | $          | (555                   | )          | $                | (1         | )                                              | $          | (1,120                                         | )          | $                                              | 23,867     |   | $ | 196,484 |   | $ | (2,060 | ) |
| Adjustment  to opening stockholders’ equity                      |       | —                |       | —     |       | —            |       | —                 |       | —           |       | 437                                            |       | 437                                            |       | —                                         |       |
| Balance  at June 27, 2004, as restated                           |       | 44,915                |       | $          | 174,293    |              | $          | (555                   | )          | $                | (1         | )                                         | $          | (1,120                                         | )     | $                                              | 24,304     |   | $ | 196,921 |   | $ | (2,060 | )  |
| Issuance  of common stock:                                            |       |                  |       |       |       |              |       |                   |       |             |       |                                           |       |                                           |       |                                           |       |
| Stock  option exercises, net of shares tendered upon exercise         |       | 1,619                 |       | 8,012      |       | —            |       | —                 |       | —           |       | —                                         |       | 8,012                                          |       | —                                         |       |
| Reinstated  stock option                                              |       | —                |       | 919        |       | —            |       | —                 |       | —           |       | —                                         |       | 919                                            |       | —                                         |       |
| Restricted  stock issued                                              |       | —                |       |       |       |              |       |                   |       |             |       |                                           |       |                                           |       |                                           |       |
| Repurchase  of common stock                                           |       | (186                  | )          | (1,833     | )          | —            |       | —                 |       | —           |       | —                                         |       | (1,833                                         | )          | —                                         |       |
| Restricted  stock canceled                                            |       | (19                   | )          | (120       | )          | —            |       | —                 |       | 84               |       | —                                         |       | (36                                            | )          | —                                         |       |
| Stock  option income tax benefit                                      |       | —                |       | 3,021      |       | —            |       | —                 |       | —           |       | —                                         |       | 3,021                                          |       | —                                         |       |
| Amortization  of deferred compensation                                |       | —                |       | —     |       | —            |       | —                 |       | 1,036            |       | —                                         |       | 1,036                                          |       | —                                         |       |
| Loan  payment                                                         |       | —                |       |       |       | 555               |       |                   |       |             |       |                                           |       | 555                                            |       | —                                         |       |
| Comprehensive  income:                                                |       |                  |       |       |       |              |       |                   |       |             |       |                                           |       |                                           |       |                                           |       |
| Income  from continuing operations                                    |       | —                |       | —     |       | —            |       | —                 |       | —           |       | 17,210                                         |       | 17,210                                         |       | 17,210                                         |       |
| Gain  from discontinued operations, net of tax of $724                |       | —                |       | —     |       | —            |       | —                 |       | —           |       | 985                                            |       | 985                                            |       | 985                                            |       |
| Unrealized  gain on short-term investments, net of taxes              |       | —                |       | —     |       | —            |       | 84                     |       | —           |       | —                                         |       | 84                                             |       | 84                                             |       |
| Cumulative  adjustments to foreign currency translation, net of taxes |       | —                |       | —     |       | —            |       | 17                     |       | —           |       | —                                         |       | 17                                             |       | 17                                             |       |
| Balance  at July 3, 2005, as restated                            |       | 46,329                |       | 184,292    |       | —            |       | 100                    |       | —           |       | 42,499                                         |       | 226,891                                        |       | 18,296                                         |       |
| Issuance  of common stock:                                            |       |                  |       |       |       |              |       |                   |       |             |       |                                           |       |                                           |       |                                           |       |
| Stock  option exercises, net of shares tendered upon exercise         |       | 402                   |       | 1,904      |       | —            |       | —                 |       | —           |       | —                                         |       | 1,904                                          |       | —                                         |       |
| Restricted  stock issued                                              |       | 220                   |       | —     |       | —            |       | —                 |       | —           |       | —                                         |       | —                                         |       | —                                         |       |
| Repurchase  of common stock                                           |       | (1,172                | )          | (9,712     | )          | —            |       | —                 |       | —           |       | —                                         |       | (9,712                                         | )          | —                                         |       |
| Restricted  stock canceled                                            |       | (36                   | )          | —     |       | —            |       | —                 |       | —           |       | —                                         |       | —                                         |       | —                                         |       |
| Stock  option income tax benefit                                      |       | —                |       | 592        |       | —            |       | —                 |       | —           |       | —                                         |       | 592                                            |       | —                                         |       |
| Stock-based  compensation                                             |       | —                |       | 4,620      |       | —            |       | —                 |       | —           |       | —                                         |       | 4,620                                          |       | —                                         |       |
| Comprehensive  income:                                                |       |                  |       |       |       |              |       |                   |       |             |       |                                           |       |                                           |       |                                           |       |
| Income  (loss) from continuing operations                             |       | —                |       | —     |       | —            |       | —                 |       | —           |       | (857                                           | )          | (857                                           | )          | (857                                           | )          |
| Gain  from discontinued operations, net of tax of $521                |       | —                |       | —     |       | —            |       | —                 |       | —           |       | 921                                            |       | 921                                            |       | 921                                            |       |
| Unrealized  gain on short-term investments, net of taxes              |       | —                |       | —     |       | —            |       | 67                     |       | —           |       | —                                         |       | 67                                             |       | 67                                             |       |
| Cumulative  adjustments to foreign currency translation, net of taxes |       | —                |       | —     |       | —            |       | 96                     |       | —           |       | —                                         |       | 96                                             |       | 96                                             |       |
| Balance  at July 2, 2006, as restated                            |       | 45,743                |       | 181,696    |       | —            |       | 263                    |       | —           |       | 42,563                                         |       | 224,522                                        |       | 227                                            |       |
| Issuance  of common stock:                                            |       |                  |       |       |       |              |       |                   |       |             |       |                                           |       |                                           |       |                                           |       |
| Stock  option exercises, net of shares tendered upon exercise         |       | 556                   |       | 2,749      |       | —            |       | —                 |       | —           |       | —                                         |       | 2,749                                          |       | —                                         |       |
| Restricted  stock issued                                              |       | 725                   |       | —     |       | —            |       | —                 |       | —           |       | —                                         |       | —                                         |       |                                           |       |
| Repurchase  of common stock                                           |       | (512                  | )          | (3,993     | )          | —            |       | —                 |       | —           |       | —                                         |       | (3,993                                         | )          | —                                         |       |
| Restricted  stock canceled                                            |       | (20                   | )          | —     |       | —            |       | —                 |       | —           |       | —                                         |       | —                                         |       | —                                         |       |
| Exercise  of warrants, (net)                                          |       | 36                    |       | —     |       | —            |       | —                 |       | —           |       | —                                         |       | —                                         |       | —                                         |       |
| Stock  option income tax benefit                                      |       | —                |       | 225        |       | —            |       | —                 |       | —           |       | —                                         |       | 225                                            |       | —                                         |       |
| Stock-based  compensation                                             |       | —                |       | 6,393      |       | —            |       | —                 |       | —           |       | —                                         |       | 6,393                                          |       | —                                         |       |
| Comprehensive  income:                                                |       |                  |       |       |       |              |       |                   |       |             |       |                                           |       |                                           |       |                                           |       |
| Income  from continuing operations                                    |       | —                |       | —     |       | —            |       | —                 |       | —           |       | 6,058                                          |       | 6,058                                          |       | 6,058                                          |       |
| Gain  from discontinued operations, net of tax of $167                |       | —                |       | —     |       | —            |       | —                 |       | —           |       | 242                                            |       | 242                                            |       | 242                                            |       |
| Unrealized  gain on short-term investments, net of taxes              |       | —                |       | —     |       | —            |       | 124                    |       | —           |       | —                                         |       | 124                                            |       | 124                                            |       |
| Cumulative  adjustments to foreign                                    |       |                  |       |       |       |              |       |                   |       |             |       |                                           |       |                                           |       |                                           |       |
| currency  translation, net of taxes                                   |       | —                |       | —     |       | —            |       | 16                     |       | —           |       | —                                         |       | 16                                             |       | 16                                             |       |
| Balance  at July 1, 2007, as restated                            |       | 46,528                |       | $          | 187,070    |              | $          | —                 |       | $                | 403        |                                           | $          | —                                         |       | $                                              | 48,863     |   | $ | 236,336 |   | $ | 6,440 |   |
|                                                                       |            |                       |            |            |            |                   |            |                        |            |                  |            |                                                |            |                                                |            |                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

**See notes to theconsolidated financial statements.**

 

56

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**SYMMETRICOM,INC.CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**

 
| ** **                                                                         | ** ** | **Year ended**                            | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                         | ** ** | **July 1, 2007**                     | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| ** **                                                                         | ** ** | **(As restated, See  Note 19)** | ** ** | **(As restated, See  Note 19)** | ** ** | **(As restated, See  Note 19)** | ** ** |
| Cash  flows from operating activities:                                             |       |                                           |       |   |   |   |   |
| Net  income                                                                        |       | $                                              | 6,300      |   | $ | 64 |   | $ | 18,195 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                           |       |   |   |   |   |
| Impairment  of goodwill and intangibles                                            |       | —                                         |       | 8,161 |   | — |   |
| Acquired  in-process research and development                                      |       | 188                                            |       | — |   | — |   |
| Gain  from disposal of discontinued operations                                     |       | —                                         |       | — |   | (162 | ) |
| Depreciation  and amortization                                                     |       | 9,605                                          |       | 9,966 |   | 11,303 |   |
| Deferred  income taxes                                                             |       | 2,031                                          |       | (2,136 | ) | (3,204 | ) |
| Income  tax expense related to QoSmetrics liquidations                             |       | 3,110                                          |       | — |   | — |   |
| Gain  on sale of equity investments                                                |       | —                                         |       | — |   | (389 | ) |
| Loss  on disposal of fixed assets                                                  |       | 10                                             |       | 211 |   | 202 |   |
| Gain  on post-retirement benefit obligation                                        |       | (11                                            | )          | (65 | ) | (118 | ) |
| Stock-based  compensation                                                          |       | 6,393                                          |       | 4,620 |   | 1,001 |   |
| Non-cash  compensation                                                             |       | —                                         |       | — |   | 919 |   |
| Stock  option excess income tax benefit                                            |       | (361                                           | )          | — |   | 3,021 |   |
| Changes  in assets and liabilities, net of effects of acquisitions:                |       |                                           |       |   |   |   |   |
| Accounts  receivable                                                               |       | (3,134                                         | )          | (3,966 | ) | (108 | ) |
| Inventories                                                                        |       | (6,575                                         | )          | (2,662 | ) | 1,179 |   |
| Prepaids  and other assets                                                         |       | (1,397                                         | )          | 1,579 |   | (378 | ) |
| Accounts  payable                                                                  |       | (835                                           | )          | 1,873 |   | (3,131 | ) |
| Accrued  compensation                                                              |       | 3,000                                          |       | 1,265 |   | (599 | ) |
| Other  accrued liabilities                                                         |       | 2,377                                          |       | 429 |   | (555 | ) |
| Net  cash provided by operating activities                                         |       | 20,701                                         |       | 19,339 |   | 27,176 |   |
| Cash  flows from investing activities:                                             |       |                                           |       |   |   |   |   |
| Acquisition  and related costs, net of cash acquired                               |       | (23,385                                        | )          | (8,032 | ) | — |   |
| Purchase  of intangible assets                                                     |       | (2,006                                         | )          | — |   | — |   |
| Purchases  of short-term investments                                               |       | (225,368                                       | )          | (175,425 | ) | (134,734 | ) |
| Maturities  of short-term investments                                              |       | 193,603                                        |       | 158,349 |   | 58,716 |   |
| Purchases  of plant and equipment                                                  |       | (5,124                                         | )          | (9,443 | ) | (3,074 | ) |
| Proceeds  from sale of assets                                                      |       | —                                         |       | — |   | 1,585 |   |
| Net  cash used for investing activities                                            |       | (62,280                                        | )          | (34,551 | ) | (77,507 | ) |
| Cash  flows from financing activities:                                             |       |                                           |       |   |   |   |   |
| Repayment  of long-term obligations                                                |       | (2,160                                         | )          | (1,110 | ) | (1,148 | ) |
| Proceeds  from issuance of common stock                                            |       | 2,749                                          |       | 1,904 |   | 8,011 |   |
| Proceeds  from repayment of employee note                                          |       | —                                         |       | — |   | 555 |   |
| Proceeds  from convertible notes                                                   |       | —                                         |       | — |   | 116,151 |   |
| Stock  option excess income tax benefit                                            |       | 361                                            |       | 592 |   | — |   |
| Repurchase  of common stock                                                        |       | (3,993                                         | )          | (9,712 | ) | (1,833 | ) |
| Net  cash provided by (used for) financing activities                              |       | (3,043                                         | )          | (8,326 | ) | 121,736 |   |
| Effect  of exchange rate changes in cash                                           |       | 16                                             |       | 96 |   | 17 |   |
| Net  increase (decrease) in cash and cash equivalents                              |       | (44,606                                        | )          | (23,442 | ) | 71,422 |   |
| Cash  and cash equivalents at beginning of year                                    |       | 82,193                                         |       | 105,635 |   | 34,213 |   |
| Cash  and cash equivalents at end of year                                          |       | $                                              | 37,587     |   | $ | 82,193 |   | $ | 105,635 |   |
| Non-cash  investing and financing activities:                                      |       |                                           |       |   |   |   |   |
| Unrealized  loss on securities, net                                                |       | $                                              | 124        |   | $ | 67 |   | $ | 84 |   |
| Cash  payments for:                                                                |       |                                           |       |   |   |   |   |
| Interest                                                                           |       | $                                              | 4,266      |   | $ | 5,073 |   | $ | 544 |   |
| Income  taxes                                                                      |       | 1,812                                          |       | 1,173 |   | 1,427 |   |

 

**See notes to theconsolidated financial statements.**

 

57

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**SYMMETRICOM,INC.**

** **

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**Note 1—Summary ofSignificant Accounting Policies**

 

*Business*

 

Symmetricom, Inc.,incorporated in the state of Delaware, is a leading supplier of precise timingstandards to industry, government, utilities, research centers and aerospacemarkets. The company also supplies QoE (Quality of Experience) solutions that ****enable communicationservice providers to monitor the performance, as perceived by end users, ofIP-based video and other next generation network applications****.  Timing and synchronization products andservices include network synchronization systems and timing elements used bynetwork operators and users, governments and professional services. Suchproducts play an important role in the operation, bandwidth utilization, andquality of service of wireline, wireless and cable networks enabling ourcustomers to increase the reliability of their networks in today’s evolvingcommunications environment.

* *

*Principlesof Consolidation*

 

The consolidatedfinancial statements include the accounts of Symmetricom, Inc., and itswholly owned subsidiaries (“Symmetricom”, “we”, “our” or the “Company”). All significant intercompany accounts andtransactions are eliminated.

* *

*FiscalYear*

 

Our fiscal year is the52 or 53 weeks ending on the Sunday closest to June 30. Fiscal 2007 and2006 were 52-week fiscal years, and fiscal 2005 was a 53-week fiscal year.

* *

*Reclassification*

 

Certainreclassifications have been made to the prior period financial statements toconform to the current period presentation.  Deferred revenue of $1.1million as of July 2, 2006 that was previously reported as other accruedliabilities in current liabilities has been reclassified as long-termobligations. As of July 1, 2007, $1.1 million of deferred revenue wasincluded in long-term obligations.

* *

*Useof Estimates*

 

The preparation offinancial statements in conformity with generally accepted accountingprinciples in the United States of America requires management to makeestimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. These estimates include:

 

·                  Valuationof business combinations

·                  Revenuerecognition

·                  Allowancefor doubtful accounts

·                  Inventoryvaluation

·                  Accountingfor income taxes

·                  Valuationof goodwill and intangible assets

·                  Stockoptions

·                  Accrualsfor contingent liabilities

 

Actual results coulddiffer from these estimates.

 

58

----

 

*Cashand Cash Equivalents*

 

We consider all highlyliquid debt investments with a remaining maturity of three months or less whenpurchased to be cash and cash equivalents.

* *

*Short-termInvestments*

 

Short-term investmentsconsist of corporate debt securities that mature between three and 36 months.All of our short-term investments are classified as available-for-sale. Thesesecurities are carried at fair value with the unrealized gains and losses, netof taxes, reported as a component of stockholders’ equity.

 

The following tablesummarizes Symmetricom’s available-for-sale securities recorded as cash andcash equivalents or short-term investments:

 
| ** **                                   | ** ** | ** **              | ** ** | **Gross Unrealized** | ** ** | ** **          | ** ** |
|----------------------------------------------|------------|-------------------------|------------|---------------------------|------------|---------------------|------------|
| ** **                                   | ** ** | **Amortized Cost** | ** ** | **Gains (losses)**   | ** ** | **Fair Value** | ** ** |
| ** **                                   | ** ** | **(In thousands)** | ** ** |
| **July 1, 2007**                   | ** ** | ** **              | ** ** | ** **                | ** ** | ** **          | ** ** |
| Short-term  investments                      |       | $                       | 162,918    |                      | $          | (33                 | )          | $ | 162,885 |   |
| Less  amounts classified as cash equivalents |       | (27,421                 | )          | —                    |       | (27,421             | )          |
| Deferred  compensation plan assets           |       | 2,838                   |       | 257                       |       | 3,095               |       |
| Total  short term investments                |       | $                       | 138,335    |                      | $          | 224                 |       | $ | 138,559 |   |
|                                         |       |                    |       |                      |       |                |       |
| **July 2, 2006**                        |       |                    |       |                      |       |                |       |
| Short-term  investments                      |       | $                       | 170,968    |                      | $          | (143                | )          | $ | 170,825 |   |
| Less  amounts classified as cash equivalents |       | (66,859                 | )          | —                    |       | (66,859             | )          |
| Deferred  compensation plan assets           |       | 2,558                   |       | 172                       |       | 2,730               |       |
| Total  short term investments                |       | $                       | 106,667    |                      | $          | 29                  |       | $ | 106,696 |   |

 

The following tabledetails Symmetricom’s available-for-sale securities by type:

 
| ** **               | ** ** | **July 1, ** | ** ** | **July 2,** | ** ** |
|--------------------------|------------|------------------------|------------|------------------|------------|
| ** **               | ** ** | **2007**               | ** ** | **2006**         | ** ** |
| ** **               | ** ** | **(In thousands)**     | ** ** |
| Asset backed  securities |       | $                      | 40,935     |             | $          | — |   |
| Corporate  securities    |       | 44,247                 |       | 34,752           |       |
| Other  investments       |       | 7,515                  |       | —           |       |
| Mutual funds             |       | 3,095                  |       | 2,731            |       |
| Government  securities   |       | 16,979                 |       | 7,549            |       |
| Commercial paper         |       | 15,456                 |       | 39,230           |       |
| Auction rate  securities |       | 10,332                 |       | 22,434           |       |
|                     |       | $                      | 138,559    |             | $          | 106,696 |   |
|                          |            |                        |            |                  |            |  |  |  |

 

*FairValues of Financial Instruments*

 

The estimated fair valueof our financial instruments, which include cash and cash equivalents,short-term investments, accounts receivable, capital lease obligations,accounts payable, notes payable, and bonds payable, approximate their carryingamount. The recorded amount of our capital lease obligation approximates theestimated fair value based on an analysis of the present value of future leasepayments.

* *

*Concentrationsof Credit Risk*

 

Financial instruments,which potentially subject us to concentrations of credit risk, consistprincipally of cash and cash equivalents, short-term investments, and accountsreceivable. We place our investments with high-credit-quality corporations andfinancial institutions. Accounts receivable are derived primarily from sales totelecommunications service providers, original equipment manufacturers,government agencies, defense contractors, and distributors. Management believesthat its credit evaluation, approval, and monitoring processes mitigatepotential credit risks. However, we still have significant credit risks as ourcustomers currently tend to consolidate by mergers or acquisitions, which couldimpact their ability to pay.

* *

*Inventories*

 

Inventories are statedat the lower-of-cost (first-in, first-out) or market. We assess the valuationof all inventories, including raw materials, work-in-process, finished goodsand spare parts on a periodic basis. Obsolete inventory or inventory in excess ofmanagement’s estimated usage is written down to its estimated market value lesscosts to sell, if less than its cost. Inherent in the estimates of market valueare management’s estimates related to current economic trends, future demandand technological obsolescence. Inventories consist of:

 

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| ** **      | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** |
|-----------------|------------|----------------------------|------------|----------------------------|------------|
| ** **      | ** ** | **(In thousands)**    | ** ** |
| Raw  materials  |       | $                          | 16,699     |                       | $          | 15,354 |   |
| Work-in-process |       | 12,250                     |       | 9,043                      |       |
| Finished  goods |       | 10,008                     |       | 6,320                      |       |
| Inventories     |       | $                          | 38,957     |                       | $          | 30,717 |   |

 

*Property,Plant and Equipment, Net*

 

Property, plant andequipment are stated at cost. Depreciation and amortization are computed usingthe straight-line method based on the estimated useful lives of the assetsexcept for land as follows:

 
| Buildings  and improvements                 |   | 15 - 39 years                             |   |
|---------------------------------------------|--------|-------------------------------------------|--------|
| Leasehold  improvements                     |   | 5 -15 years, or life of  lease if shorter |   |
| Machinery,  equipment and computer software |   | 3 - 7 years                               |   |

 

Property, plant andequipment consists of the following:

 
| ** **                                 | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** |
|--------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                 | ** ** | **(In thousands)**    | ** ** |
| Property,  plant and equipment:            |       |                       |       |                       |       |
| Land                                       |       | $                          | 200        |                       | $          | 200 |   |
| Buildings  and improvements                |       | 16,273                     |       | 14,672                     |       |
| Machinery  and equipment                   |       | 29,253                     |       | 28,913                     |       |
| Computer  software                         |       | 8,927                      |       | 8,486                      |       |
| Leasehold  improvements                    |       | 17,690                     |       | 15,777                     |       |
|                                       |       | 72,343                     |       | 68,048                     |       |
| Accumulated  depreciation and amortization |       | (45,717                    | )          | (41,495                    | )          |
|                                       |       | $                          | 26,626     |                       | $          | 26,553 |   |

 

Building andimprovements includes $9.0 million of costs capitalized under a capital leasefor our facility in San Jose, California, which was completed in June 1997.As of July 1, 2007 and July 2, 2006, accumulated amortization forthis facility totaled $7.6 million and $6.9 million, respectively.

* *

*Goodwilland Other Intangible Assets*

 

We allocate the purchase price of acquiredcompanies to the tangible and intangible assets acquired and liabilitiesassumed, as well as in-process research and development based on theirestimated fair values. Such allocations require management to make significantestimations and assumptions, especially with respect to intangible assets.

 

Our accounting policy is to performimpairment tests in accordance with the SFAS No.142, Goodwill and OtherIntangible Assets, on an annual basis, and between annual tests in certaincircumstances, for each reporting unit using a discounted cash flow valuationmethod. Critical estimates in valuing certain intangible assets include, butare not limited to: future expected cash flows from customer contracts,customer lists, distribution agreements, acquired developed technologies andpatents; expected costs to develop the in-process research and development into

 

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commercially viable products and estimating cash flows from theprojects when completed; and the brand awareness and the market position of theacquired products and assumptions about the period of time the brand willcontinue to be used in the combined company’s product portfolio. Management’sestimates of fair value are based upon assumptions believed to be reasonable,but which are inherently uncertain and unpredictable.

 

In the third quarter of the fiscal 2006, werecorded a non-cash impairment charge of approximately $7.0 million for thewrite-down of the goodwill related to our Wireless/OEM business segment purchasedin connection with the Datum acquisition in October 2002. The impairment chargereflects changing business conditions in the wireless segment surroundingproduct pricing, gross margins, new product acceptance and the increasinglyprevalent use of wireless technologies that do not require a frequencyreference at the cell site, but receive the required synchronization referencesfrom central office. During the third quarter of fiscal 2006, there was animpairment indicator and we performed a goodwill impairment test on theWireless/OEM business segment since the product pricing pressures and grossmargin pressures discussed in prior quarters continued to decline in the thirdquarter of fiscal 2006 and we did not anticipate any improvement. For the sameperiods during fiscal 2007 and 2005, there were no impairment chargesassociated with goodwill.

 

*Long-livedAssets Including Other Intangible Assets Subject to Amortization*

 

The carrying value oflong-lived assets is evaluated whenever events or changes in circumstancesindicate that the carrying value of the asset may be impaired. An impairmentloss is recognized when estimated undiscounted future cash flows expected toresult from the use of the asset, including disposition, is less than thecarrying value of the asset. Impairment is measured as the amount by which thecarrying amount exceeds the fair value.

 

In the third quarter offiscal 2006, we recorded a non-cash impairment charge of approximately $1.2million for the write-down of the other intangibles related to our Wireless/OEMbusiness segment purchased in connection with the Datum acquisition in October 2002.During the third quarter of fiscal 2006, we decided to perform an intangibleimpairment test on the Wireless/OEM business segment since the product pricingand gross margin continued to decline in the third quarter of fiscal 2006, andwe did not anticipate any improvement. For the same periods during fiscal 2007and 2005, there were no impairment charges associated with intangible assets.

 

*ComprehensiveIncome*

 

SFAS No. 130,Reporting Comprehensive Income, establishes standards for reporting and displayof comprehensive income and its component. SFAS No.130 requires companies toreport comprehensive income that includes unrealized holding gains and lossesand other items that have previously been excluded from net income andreflected instead in stockholders’ equity.

 

Accumulated othercomprehensive income, consists of the following:

 
| ** **                                              | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
|---------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                              | ** ** | **(in  thousands)**        | ** ** |
| Foreign  currency translation adjustments, net of taxes |       | $                          | 262        |                       | $          | 246                        |       | $ | 150 |   |
| Unrealized  gain (loss) on investments, net of taxes    |       | 141                        |       | 17                         |       | (50                        | )          |
| Total  accumulated other comprehensive income           |       | $                          | 403        |                       | $          | 263                        |       | $ | 100 |   |

 

*Warranty*

 

Our standard warrantyagreement is one year from shipment. However, our warranty agreements arecontract and component specific and can range to twenty years for selectedcomponents. We offer extended warranty contracts to our customers. The extendedwarranty is offered on products that are less than eight years old. Theextended warranty contract is applicable for a maximum of nine years after theexpiration of the standard one-year warranty. The income from extended warrantycontracts is recognized ratably over the period of contract.

 

We accrue foranticipated warranty costs upon shipment. Our warranty reserve is based on thenumber of installed units, historical analysis of the volume of productreturned to us under the warranty program, management’s judgment regarding anticipatedrates of warranty claims and associated repair costs. We use the historicaldata to forecast our anticipated future warranty obligations.

* *

*Acquiredin-process research and development expenses*

 

During fiscal 2007, $0.2million of the purchase price of the TSC acquisition was allocated to purchasedin-process research and development expense based upon the values assigned tothe acquisitions. Projects that qualify as in-process research and developmentrepresent those that have not yet reached technological feasibility and have no

 

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alternative future use.Technological feasibility is defined as being equivalent to a beta-phaseworking prototype in which there is no remaining risk relating to the development.The value of these projects was determined by estimating the discounted netcash flows from the sale of the products resulting from the completion of theprojects, reduced by the portion of the revenue attributable to developedtechnology and the percentage of completion of the project.

 

The nature of theefforts to develop the purchased in-process research and development intocommercially viable products principally relates to the completion of allprototyping and testing activities that are necessary to establish that theproduct can meet its design specification including function, features andtechnical performance requirements. Therefore, the amount allocated toin-process research and development has been charged to operations.

* *

*SoftwareDevelopment Costs*

 

Costs for thedevelopment of new software and substantial enhancements to existing softwareare expensed as incurred until technological feasibility has been established,at which time any additional development costs would be capitalized inaccordance with SFAS No. 86, Computer Software to Be Sold, Leased, orOtherwise Marketed. We believe the current process for developing software isessentially completed concurrently with the establishment of technologicalfeasibility; accordingly, no costs have been capitalized to date.  Software cost for purchased software iscapitalized and amortized when the useful life has been determined.  During the fourth quarter of fiscal 2007, wecapitalized $2.0 million of purchased software for use in research anddevelopment and have not yet determined its useful life.

* *

*ForeignCurrency Translation*

 

The functional currencyof each of our international subsidiaries in the United Kingdom, China, France,and Hong Kong is the U.S. dollar, while in Germany, it is the Euro.

 

For our subsidiaries inwhich the U.S. Dollar is the functional currency, foreign currency denominatedassets and liabilities are translated at the year-end exchange rates, exceptfor inventories, prepaid expenses, and property and equipment, which aretranslated at historical exchange rates. Statements of operations aretranslated at the average exchange rates during the year except for thoseexpenses related to the balance sheet amounts, which are translated usinghistorical exchange rates. Net gains (losses) from these foreign exchangetransactions have not been material to our operating results for any of theperiods presented.

 

For our subsidiary inGermany, foreign currency denominated assets and liabilities are translated atthe year-end exchange rates, while revenue and expenses are translated ataverage rates prevailing during the year. Translation adjustments are reportedin other comprehensive income.

* *

*RevenueRecognition*

 

We recognize revenuewhen persuasive evidence of an arrangement exists, delivery has occurred orservices have been rendered, our price is fixed or determinable andcollectibility is reasonably assured. Our standard arrangement for our domesticand international customers includes a signed purchase order or contract and noright of return of delivered products.

 

We assess collectibilitybased on the creditworthiness of the customer and past transaction history. Weperform periodic credit evaluations of our customers and do not requirecollateral from our customers. However, for many of our internationalcustomers, we require an irrevocable letter of credit to be issued by thecustomer before the purchase order is accepted. If we determine that collectionof the invoice is not reasonably assured, we recognize the revenue at the timethat collection becomes reasonably assured, which is generally upon the receiptof cash. We commonly have transactions that involve sales of both product andservices to our customers. Product revenue is generated from the sale ofsynchronization and timing equipment with embedded software that is essentialto product functionality. We account for these transactions in accordance withthe rules applicable to software revenue recognition. Service revenue isrecognized as the services are performed provided collection of the relatedreceivable is reasonably 

 

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assured. Our sales todistributors are made under agreements allowing for returns or credits undercertain circumstances. Accordingly, we defer an estimate of returns fromdistributors based on a historical average of distributor returns. We recordcommission expense when orders are shipped, at which time the commission isboth earned and payable.

 

Revenue from contractsthat require development and manufacture in accordance with customerspecifications and have a lengthy development period may be categorized intotwo types: firm fixed price and cost-plus reimbursement. Revenue is recognizedunder the fixed price contracts using the percentage of completion method(cost-to-cost basis), principally based upon the costs incurred relative to thetotal estimated costs at completion on the individual contracts. Anyanticipated losses on contracts are charged to operations as soon as they aredeterminable. Revenue recognized under cost plus contracts is recognized on thebasis of direct and indirect costs incurred plus a negotiated profit calculatedas a percentage of costs or as a performance based award fee. Revenue fromlong-term contracts is reviewed periodically, with adjustments recorded in theperiod in which the revisions are made. A contract is determined to besubstantially complete when the physical deliverables are completed, shippedand accepted. Unbilled receivables totaled $3.0 as of July 1, 2007compared to $1.6 million as of July 2, 2006. All of unbilled receivablesas of July 1, 2007 are expected to be collected in fiscal 2008. Anyanticipated losses on contracts are charged to operations as soon as they aredeterminable.

* *

*Stock-BasedCompensation*

 

Prior to fiscal 2006, weaccounted for stock-based awards under the intrinsic value method, whichfollowed the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related Interpretations. Theintrinsic value method of accounting resulted in compensation expense forrestricted stock at fair value on date of grant based on the number of sharesgranted and the quoted price of our common stock, and for stock options to theextent option exercise prices were set below market prices on the date ofgrant. Also, to the extent we granted stock options or stock awards that weresubject to an exchange offer, other modifications or performance criteria, suchawards were subject to variable accounting treatment. To the extent stockawards were forfeited prior to vesting, the corresponding previously recognizedexpense related to the unvested portion of the awards was reversed as an offsetto operating expenses.

 

As of fiscal 2006, weadopted SFAS No. 123(R), Share-Based Payment, using the modifiedprospective method, which requires measurement of compensation cost for allstock-based awards at fair value on date of grant and recognition ofcompensation over the service period for awards expected to vest. The fairvalue of restricted stock is determined based on the number of shares grantedand the quoted price of our common stock, and the fair value of stock optionsis determined using the Black-Scholes valuation model, which is consistent withour valuation techniques previously utilized for options in footnotedisclosures required under SFAS No. 123, Accounting for Stock BasedCompensation, as amended by SFAS No. 148, Accounting for Stock-BasedCompensation Transition and Disclosure. Such value is recognized as expenseover the service period, net of estimated forfeitures, using the acceleratedmethod under SFAS No. 123(R). Because we adopted SFAS No. 123(R), weno longer have employee stock awards subject to variable accounting treatment.

 

SFAS No. 123(R) resultedin stock-based compensation expense of $4.6 million for the fiscal year ended July 2,2006, which includes the net cumulative impact of 5.94% estimated futureforfeitures in the determination of the period expense, rather than recordingforfeitures when they occur as previously permitted.

 

At July 2, 2006, the total compensation costrelated to unvested stock-based awards granted to employees, directors andconsultants under the Company’s stock option plans but not yet recognized wasapproximately $4.3 million, net of estimated forfeitures of $0.6 million. Thiscost will be amortized on an accelerated method basis over a period ofapproximately 1.1 years and will be adjusted for subsequent changes inestimated forfeitures.

 

Prior to the adoption of SFAS No. 123(R), cashretained as a result of tax deductions relating to stock-based compensation waspresented in operating cash flows, along with other tax cash flows, inaccordance with the provisions of the Emerging Issues Task Force (EITF) Issue No. 00-15,*Classification in the Statement of CashFlows of the Income Tax Benefit Received by a Company upon Exercise of aNonqualified Employee Stock Option.*SFAS No. 123(R) supersedesEITF Issue No. 00-15, amends SFAS No. 95, *Statement of Cash Flows,*and requires tax 

 

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benefitsrelating to excess stock-based compensation deductions to be prospectivelypresented in the statement of cash flows as financing cash inflows. There wereno excess tax benefits resulting from the exercise of stock-based compensationdeductions reported for financial reporting purposes for the fiscal periodended July 2, 2006.

 

On November 10,2005, the Financial Accounting Standards Board (FASB) issued FASB StaffPosition SFAS No. 123(R)-3 (FSP) Transition Election Related to Accountingfor Tax Effects of Share-Based Payment Awards.  Under the FSP, an entityshall follow either:

 

1.               Thetransition guidance for the additional paid-in capital pool (APIC pool) inparagraph 81 of SFAS No. 123(R), or

 

2.               Thealternative transition method described in the FSP.

 

Paragraph 81 of SFAS No. 123(R) indicatesthat, for purposes of calculating the pool of excess tax benefits available toabsorb tax deficiencies recognized subsequent to the adoption of SFAS No. 123(R),an entity shall include the net excess tax benefits that would have qualifiedas such had the entity adopted SFAS No. 123(R) for recognitionpurposes.

 

The alternativetransition method is a simplified method to establish the beginning balance ofthe APIC pool related to the tax effects of employee stock-based compensation,and to determine the subsequent impact on the APIC pool and ConsolidatedStatements of Cash Flows of the tax effects of employee stock-basedcompensation awards that are outstanding upon adoption of SFAS No. 123(R).

 

Based on our facts andcircumstances, we have elected to use the alternative transition method.

 

*Effect of Adoption of SFAS No. 123(R)*

 

The application of SFAS No. 123(R) had thefollowing effect on the reported amounts for the fiscal period ended July 2,2006 relative to amounts that would have been reported using the intrinsicvalue method under previous accounting:

 
| ** **                                            | ** ** | **Year ended**                                                   | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                            | ** ** | **July 2, 2006**                                            | ** ** |
| ** **                                            | ** ** | **As**                                                                | ** ** | **SFAS 123R** | ** ** |
| ** **                                            | ** ** | **Reported**                                                          | ** ** | **Adjustments** | ** ** |
| ** **                                            | ** ** | **(In thousands, except per share amounts)** | ** ** |
| Loss  before income taxes and discontinued operations |       | $                                                                     | (1,671     | ) | $ | (4,620 | ) |
| Income  tax benefit                                   |       | 814                                                                   |       | 1,709 |   |
| Loss  from continuing operations                      |       | $                                                                     | (857       | ) | $ | (2,911 | ) |
| Gain  from discontinued operations, net of tax        |       | 921                                                                   |       | — |   |
| Net  income (loss)                                    |       | $                                                                     | 64         |   | $ | (2,911 | ) |
| Earnings  (loss) per share—basic:                |       |                                                                  |       |   |   |
| Earnings  (loss) from continuing operations           |       | $                                                                     | (0.02      | ) | $ | (0.06 | ) |
| Earnings  from discontinued operations                |       | 0.02                                                                  |       | — |   |
| Net  earnings (loss)                                  |       | $                                                                     | —     |   | $ | (0.06 | ) |
| Weighted  average shares outstanding—basic       |       | 45,913                                                                |       | 45,913 |   |
|                                                  |       |                                                                  |       |   |   |
| Earnings  (loss) per share—diluted:              |       |                                                                  |       |   |   |
| Earnings  (loss) from continuing operations           |       | $                                                                     | (0.02      | ) | $ | (0.06 | ) |
| Earnings  from discontinued operations                |       | 0.02                                                                  |       | — |   |
| Net  earnings (loss)                                  |       | $                                                                     | —     |   | $ | (0.06 | ) |
| Weighted  average shares outstanding—diluted     |       | 46,791                                                                |       | 46,791 |   |

 

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| ** **                           | ** ** | **Year ended**        | ** ** |
|--------------------------------------|------------|----------------------------|------------|
| ** **                           | ** ** | **July 2, 2006** | ** ** |
| ** **                           | ** ** | **(In thousands)**    | ** ** |
| SFAS 123(R) impact:        |       |                       |       |
| Cost of products  and services       |       | $                          | 564        |   |
| Research and  development            |       | 481                        |       |
| Selling, general  and administrative |       | 3,575                      |       |
|                                 |       | $                          | 4,620      |   |

 

During fiscal 2005, prior to the adoption of SFAS123(R), the Company had adopted the disclosure only provisions of SFAS No. 123,*Accounting for Stock-Based Compensation.*TheCompany accounted for employee stock-based compensation using theintrinsic-value-based method of accounting as defined under AccountingPrinciples Board Opinion No. 25 (APB 25), “Accounting for Stock Issue toEmployees,” and its related interpretation. Accordingly, we recognized nocompensation expense in our consolidated statements of operations with respectto options awarded to our employees with exercise prices greater than or equalto the fair value of the underlying common stock at the date of grant. However,we recognized compensation expense in our consolidated statements of operationswith respect to restricted stock awarded to our employees. Had compensationcost for the Company’s stock-based compensation plans been determined using thefair-value method at the grant date for awards under those plans calculatedusing the Black-Scholes pricing model and recognized using the acceleratedmethod over the option vesting periods, the Company’s net income for the yearended July 3, 2005, would have been decreased to the pro forma amountsindicated below (in thousands, except per share data):

 
| ** **                                                                                                                                                              | ** ** | **Year ended**                                               | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                                                                              | ** ** | **July 3, 2005**                                        | ** ** |
| ** **                                                                                                                                                              | ** ** | **(In thousands, except per  share amounts)** | ** ** |
| Net income, as  reported                                                                                                                                                |       | $                                                                 | 18,195     |   |
| Add: Stock-based  employee compensation expense with respect to restricted stock awards  included in reported net income, net of related tax effects                    |       | 620                                                               |       |
| Less:  Stock-based employee compensation expense determined under fair value based  method for all awards (including the restricted stock), net of related tax  effects |       | (6,131                                                            | )          |
| Pro forma net  income                                                                                                                                                   |       | $                                                                 | 12,684     |   |
| Earnings (loss)  per share—basic:                                                                                                                                  |       |                                                              |       |
| As reported                                                                                                                                                             |       | $                                                                 | 0.40       |   |
| Pro forma                                                                                                                                                               |       | $                                                                 | 0.28       |   |
| Earnings (loss)  per share—diluted:                                                                                                                                |       |                                                              |       |
| As reported                                                                                                                                                             |       | $                                                                 | 0.39       |   |
| Pro forma                                                                                                                                                               |       | $                                                                 | 0.27       |   |

 

*NetIncome (Loss) Per Share*

* *

*Basic income (loss) per share iscomputed by dividing net income (loss) by the weighted average number of commonshares outstanding during the period. Diluted income (loss) per share iscalculated by dividing net income (loss) by the weighted average number ofcommon shares outstanding and common equivalent shares from dilutive stockoptions, warrants, and restricted stock using the treasury method, except whenantidilutive*.

 

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A reconciliation of thedenominator used in the calculation of basic and diluted net income (loss) pershare is as follows (in thousands):

 
| ** **                                                                   | ** ** | **Year ended**                                                   | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **July 1, 2007**                                            | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| ** **                                                                   | ** ** | **(In thousands, except per share amounts)** | ** ** |
| Numerator:                                                                   | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income  (loss) from continuing operations                                |       | $                                                                     | 6,058      |   | $ | (857 | ) | $ | 17,210 |   |
| Gain from  discontinued operations                                           |       | 242                                                                   |       | 921 |   | 985 |   |
| Net income                                                                   |       | $                                                                     | 6,300      |   | $ | 64 |   | $ | 18,195 |   |
|                                                                         |       |                                                                  |       |   |   |   |   |
| Shares  (Denominator):                                                       |       |                                                                  |       |   |   |   |   |
| Weighted average  common shares outstanding                                  |       | 46,208                                                                |       | 46,080 |   | 45,654 |   |
| Weighted average  common shares outstanding subject to repurchase            |       | (636                                                                  | )          | (167 | ) | (122 | ) |
| Weighted average  shares outstanding—basic                              |       | 45,572                                                                |       | 45,913 |   | 45,532 |   |
| Weighted average  dilutive share equivalents from stock options and warrants |       | 609                                                                   |       | 824 |   | 1,282 |   |
| Weighted average  common shares dilutive subject to repurchase               |       | 208                                                                   |       | 54 |   | 122 |   |
| Weighted average  shares outstanding—diluted                            |       | 46,389                                                                |       | 46,791 |   | 46,936 |   |
| Earnings per  share—basic:                                              |       |                                                                  |       |   |   |   |   |
| Earnings (loss)  from continuing operations                                  |       | $                                                                     | 0.13       |   | $ | (0.02 | ) | $ | 0.38 |   |
| Earnings from  discontinued operations                                       |       | 0.01                                                                  |       | 0.02 |   | 0.02 |   |
| Net earnings                                                                 |       | $                                                                     | 0.14       |   | $ | — |   | $ | 0.40 |   |
| Earnings per  share—diluted:                                            |       |                                                                  |       |   |   |   |   |
| Earnings (loss)  from continuing operations                                  |       | $                                                                     | 0.13       |   | $ | (0.02 | ) | $ | 0.37 |   |
| Earnings from  discontinued operations                                       |       | 0.01                                                                  |       | 0.02 |   | 0.02 |   |
| Net earnings                                                                 |       | $                                                                     | 0.14       |   | $ | — |   | $ | 0.39 |   |

 

Unvestedrestricted stock is subject to repurchase by the Company and therefore is notincluded in the calculation of the weighted-average shares outstanding forbasic earnings (loss) per share.

 

Thefollowing common stock equivalents were excluded from the net earnings (loss)per share calculation, as their effect would have been antidilutive:

 
| ** **                                                                                    | ** ** | **Year ended**        | ** ** |
|-----------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                                                    | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| ** **                                                                                    | ** ** | **(In thousands)**    | ** ** |
| Stock options  and warrants                                                                   |       | 3,067                      |       | 2,231 |   | 1,861 |   |
| Common shares  subject to repurchase                                                          |       | —                     |       | 1 |   | — |   |
| Total shares of  common stock excluded from diluted net earnings (loss) per share calculation |       | 3,067                      |       | 2,232 |   | 1,861 |   |

 

Weaccount for our contingent convertible notes in accordance with EITF 04-08, “TheEffect of Contingently Convertible Debt on Diluted Earnings Per Share,” whichrequires us to include the dilutive effect of the shares of our common stockissuable upon conversion of the outstanding convertible notes in our dilutedearnings per share calculation regardless of whether the market price triggeror other contingent conversion feature has been met. Because our Notes includea mandatory cash settlement feature for the principal payment, we apply thetreasury stock method. This method results in incremental dilutive shares whenthe average fair value of our common stock for a reporting period exceeds theinitial conversion price per share of $12.49. However, because our share pricedid not 

 

66

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exceed$12.49, no shares associated with the contingent convertible notes wereincluded in our diluted earnings per share as of July 1, 2007.

** **

**Note 2**—**Recent AccountingPronouncements**

 

In September 2006, the FASB issued SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans, an amendment of FASB Statements Nos. 87, 106, and 132(R). SFAS No. 158requires employers to recognize a net liability or asset and an offsettingadjustment to accumulated other comprehensive income to report the fundedstatus of defined benefit pension and other post-retirement benefit plans.Previous standards required employers to disclose the complete funded status ofits plans only in the notes to the financial statements. Additionally, SFAS No. 158requires employers to measure plan assets and obligations at their year-endbalance sheet date. Guidance relating to the recognition of the over or underfunded status of the plan and additional disclosure requirements is effectivefor periods ending after December 15, 2006.  Guidance relating to themeasurement date of the plans is effective for the years ending after December 15,2008. We determined that SFAS No. 158 does not have a material impact onour consolidated balance sheet, statement of operations or cash flows.

 

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements, which provides guidance for using fair value tomeasure assets and liabilities. The standard also responds to investors’requests for more information about (1) the extent to which companiesmeasure assets and liabilities at fair value, (2) the information used tomeasure fair value, and (3) the effect that fair-value measurements haveon earnings. SFAS No. 157 will apply whenever another standardrequires (or permits) assets or liabilities to be measured at fair value. Thestandard does not expand the use of fair value to any new circumstances.SFAS No. 157 is effective for financial statements issued for fiscalyears beginning after November 15, 2007, and interim periods within thosefiscal years.  We do not believe that SFAS No. 157 will have amaterial impact on our consolidated balance sheet or statement of operations.

 

In September 2006, the SEC issued StaffAccounting Bulletin (SAB) No. 108, Considering the Effects of Prior YearMisstatements when Quantifying Misstatements in Current Year FinancialStatements.  SAB No. 108 provides guidance on the considerationof the effects of prior year misstatements in quantifying current yearmisstatements for the purpose of a materiality assessment. SAB No. 108establishes an approach that requires quantification of financial statementerrors based on the effects of each of the company’s balance sheet andstatement of operations and the related financial statement disclosures.SAB No. 108 permits existing public companies to record thecumulative effect of initially applying this approach in the first year endingafter November 15, 2006 by recording the necessary correcting adjustmentsto the carrying values of assets and liabilities as of the beginning of thatyear with the offsetting adjustment recorded to the opening balance of retainedearnings. Additionally, the use of the cumulative effect transition methodrequires detailed disclosure of the nature and amount of each individual errorbeing corrected through the cumulative adjustment and how and when it arose. Wedo not believe that SAB No. 108 has a material impact on ourconsolidated balance sheet or statement of operations.

 

In June 2006,the FASB issued Interpretation Number (FIN) No. 48, Accounting forUncertainty in Income Taxes. FIN No. 48 applies to all tax positionswithin the scope of FASB Statement No. 109, applies a “more likely thannot” threshold for tax benefit recognition, identifies a defined methodologyfor measuring benefits and increases the disclosure requirements for companies.FIN No. 48 is mandatory for years beginning after December 15, 2006.We are still assessing the impact of the adoption of FIN No. 48, and havenot yet determined the impact that its adoption will have on the consolidatedfinancial statements. The final analysis will be completed in the first quarterof fiscal 2008.

 

67

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**Note 3—Acquisitions**

* *

*QoSmetrics*

 

On January 2,2007, we acquired QoSmetrics S.A., a privately held provider of quality ofexperience (QoE) solutions for IPTV (Internet Protocol Television).  QoSmetrics’ results are included in ourconsolidated statements of operations effective January 2, 2007.  We acquired QoSmetrics S.A. for itstechnology, which we believe we can use to develop a line of products andservices that will provide revenue growth in future years at a faster pace thanour historic lines of business. Moreover, its target customers, as well as certain of its proprietaryproduct features, are complementary with key parts of Symmetricom’s currentoperations.  The purchase price ofapproximately $16.8 million was paid in cash. The purchase price was allocated to the assets acquired and theliabilities assumed based on management’s estimate of the fair value forpurchase accounting purposes at the date of acquisition.  We utilized an outside valuation consultantto assist with the determination of the purchase price allocation, based on afair value of the intangible assets.

 

Thepurchase price was allocated to QoSmetrics’ assets and liabilities as follows(in thousands):

 
| Cash and cash  equivalents         |   | $      | 172    |   |
|------------------------------------|--------|--------|--------|--------|
| Accounts  receivable               |   | 607    |   |
| Inventories                        |   | 114    |   |
| Prepaids and  other current assets |   | 225    |   |
| Property, plant  and equipment     |   | 242    |   |
| Intangible  assets                 |   | 7,163  |   |
| Goodwill                           |   | 6,702  |   |
| Deferred tax  assets               |   | 5,508  |   |
| Deferred revenue                   |   | (123   | )      |
| Liabilities  assumed               |   | (1,634 | )      |
| Deferred tax  liabilities          |   | (2,141 | )      |
| Total purchase  price              |   | $      | 16,835 |   |

 

OnJanuary 2, 2007, we liquidated QoSmetrics Inc., a California corporation,and wholly owned subsidiary of QoSmetrics S.A., a French company.  On March 28, 2007, we liquidatedQoSmetrics S.A.  As a result of theseliquidations, we recorded a tax expense of $3.4 million, a reduction ingoodwill of $3.1 million, and an increase of $0.3 million in other accrued liabilities.

* *

*TimingSolutions Corporation*

 

On October 2,2006, we acquired Timing Solutions Corporation (TSC), a privately held companybased in Boulder, Colorado that provides high-performance time and frequencyproducts and services for government, aerospace and military markets. TSC’sresults are included in our consolidated statements of operations effective October 2,2006. We acquired TSC because it has a high-end timing technology that isfundamental to building our next generation products, which we believe willallow us to introduce new products into the market at a faster rate. Managementbelieves that this acquisition further strengthens the Company’s leadershipposition in the time and frequency technology field. The total purchase priceof approximately $8.6 million was paid in cash. The purchase price wasallocated to the assets acquired and the liabilities assumed based onmanagement’s estimate of the fair value for purchase accounting purposes at thedate of acquisition. We utilized an outside valuation consultant to assist withthe determination of the purchase price allocation, based on a fair value ofthe intangible assets.

 

68

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Thepurchase price was allocated to TSC’s assets and liabilities as follows (inthousands):

 
| Cash and cash  equivalents           |   | $      | 1,860  |   |
|--------------------------------------|--------|--------|--------|--------|
| Accounts  receivable                 |   | 612    |   |
| Inventories                          |   | 1,551  |   |
| Prepaids and  other current assets   |   | 301    |   |
| Property, plant  and equipment       |   | 217    |   |
| In-process  research and development |   | 188    |   |
| Intangible  assets                   |   | 4,454  |   |
| Goodwill                             |   | 2,028  |   |
| Deferred tax  liability              |   | (1,540 | )      |
| Liabilities  assumed                 |   | (1,089 | )      |
| Total purchase  price                |   | $      | 8,582  |   |

* *

*Acquisitionof Agilent’s cesium product line assets*

 

On August 1,2005, the Company acquired Agilent Technologies’ Frequency and Timing Standardsproduct line. This acquisition is expected to enhance the Company’s position inthe area of cesium clocks used primarily by official time authorities andmetrology institutes throughout the world and to further the Company’sleadership in generating high-precision frequency and timing referencesincluding rubidium oscillators, cesium clocks and hydrogen masers. The totalpurchase price of approximately $8.0 million was paid in cash. The purchaseprice was allocated to the assets acquired, including goodwill and theliabilities assumed, based on management’s preliminary estimate of the fairvalue for purchase accounting purposes at the date of acquisition. Managementdoes not expect significant revisions to the purchase price allocations for theacquired businesses.

 

Thepurchase price was allocated to Agilent’s assets and liabilities as follows (inthousands):

 
| Inventory                         |   | $     | 1,357  |   |
|-----------------------------------|--------|-------|--------|--------|
| Prepaid and  other current assets |   | 15    |   |
| Property, plant  and equipment    |   | 82    |   |
| Intangible  assets                |   | 3,354 |   |
| Goodwill                          |   | 3,691 |   |
| Liabilities  assumed              |   | (467  | )      |
| Total purchase  price             |   | $     | 8,032  |   |

 

69

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*ProForma Results of Operations*

 

The following unaudited pro forma informationpresents a summary of our consolidated results of operations as if the TimingSolutions Corporation and QoSmetrics S.A. acquisitions had taken place at thebeginning of each fiscal year presented:

 
| ** **                                     | ** ** | **Year ended**                                                   | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **July 1, 2007**                                            | ** ** | **July 2, 2006** | ** ** |
| ** **                                     | ** ** | **(In thousands, except per share amounts)** | ** ** |
| Net revenue                                    |       | $                                                                     | 211,368    |   | $ | 186,228 |   |
|                                           |       |                                                                  |       |   |   |
| Net income  (loss)                             |       | $                                                                     | 5,648      |   | $ | (3,148 | ) |
|                                           |       |                                                                  |       |   |   |
| Earnings (loss)  per share - basic:            |       |                                                                  |       |   |   |
| Net income  (loss)                             |       | $                                                                     | 0.12       |   | $ | (0.07 | ) |
| Weighted average  shares outstanding - basic   |       | 45,572                                                                |       | 45,913 |   |
|                                           |       |                                                                  |       |   |   |
| Earnings (loss)  per share - diluted:          |       |                                                                  |       |   |   |
| Net income  (loss)                             |       | $                                                                     | 0.12       |   | $ | (0.07 | ) |
| Weighted average  shares outstanding - diluted |       | 46,389                                                                |       | 45,913 |   |

 

The pro forma consolidated results of operationsincludes adjustments to net income (loss) to give effect to amortization of intangiblesacquired and excludes adjustments for integration and restructuring charges,and acquired in-process research and development, including their relatedincome tax effects as they are non-recurring.

 

On an after-tax basis, the twelve-month period endedJuly 1, 2007 includes an adjustment for amortization of intangibles of$0.6 million and excludes acquisition related costs for acquired in-processresearch and development of $0.2 million, and other integration andrestructuring charges of $0.5 million. On an after-tax basis, the twelve-monthperiod ended July 2, 2006 includes an adjustment for amortization ofintangibles of $1.7 million.

 

**Note 4—DiscontinuedOperations**

 

Duringthe third quarter of fiscal 2007, we discontinued the operation of our SpecialtyManufacturing/Other business segment. Specialty Manufacturing/Other was part of our TelecommunicationsSolutions Division.  This has beenaccounted for as a discontinued operation and, accordingly, the results ofoperations have been excluded from continuing operations in the consolidatedstatements of operations. During fiscal 2007, we recognized a $0.2 milliongain, net of taxes, all of which was attributable to income from discontinuedoperations. For fiscal 2007, revenue and pre-tax profit attributable to thisdiscontinued operation were $7.3 million and $0.4 million, respectively.

 

Duringfiscal 2005, we recognized a gain of $162,000, net of taxes, for final paymentfor sale of software related to the Trusted Time Division, which was discontinuedduring fiscal 2003.

 

70

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**Note 5—Other AccruedLiabilities**

 

Otheraccrued liabilities consists of the following:

 
| ** **                  | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** |
|-----------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                  | ** ** | **(In thousands)**    | ** ** |
| Other accrued  liabilities: |       |                       |       |                       |       |
| Income taxes  payable       |       | $                          | 5,477      |                       | $          | 4,529 |   |
| Deferred revenue            |       | 2,589                      |       | 2,148                      |       |
| Accrued expenses            |       | 7,036                      |       | 5,238                      |       |
| Accrued lease  loss         |       | 59                         |       | 109                        |       |
| Total                       |       | $                          | 15,161     |                       | $          | 12,024 |   |

 

**Note 6—Post-RetirementBenefit Obligations**

 

In connection with theDatum acquisition, we assumed Datum’s post-retirement health care benefitsplan. Post-retirement benefits are recognized over the employee’s serviceperiod based on 6.00% discount rate to the employee and the employee’sbeneficiaries after retirement. The health care plan was curtailed as of December 31,2002, and only existing retired participants and former Datum employees, nowemployed by Symmetricom and meeting the retirement eligibility requirements by December 31,2004, are eligible for participation. The health care plan is a contributoryplan.

 

Thefollowing sets forth the post-retirement program’s status reconciled withamounts reported in the consolidated balance sheet (in thousands):

 
| ** **                                                         | ** ** | **Year ended**        | ** ** |
|--------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                         | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| ** **                                                         | ** ** | **(In thousands)**    | ** ** |
| Beginning  balance accumulated post-retirement benefit obligations |       | $                          | 334        |   | $ | 415 |   | $ | 555 |   |
| Interest cost                                                      |       | 19                         |       | 26 |   | 28 |   |
| Actuarial gain                                                     |       | (11                        | )          | (65 | ) | (123 | ) |
| Benefit payments                                                   |       | (40                        | )          | (42 | ) | (45 | ) |
| Ending balance  accumulated postretirement benefit obligations     |       | $                          | 302        |   | $ | 334 |   | $ | 415 |   |

 

Netperiodic post-retirement benefit costs include only interest costs.  For fiscal 2007, 2006, and 2005, the interestcosts were $19,000, $26,000, and $28,000, respectively.

 

Our contribution to theplan is fixed for each eligible retiree. Therefore, fluctuations in health carecosts have no effect on the liability. Upon the demise of the eligible retiree,the coverage for the spouse of the retiree is terminated.

 

71

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**Note 7—Warranties**

 

Changesin our accrued warranty liability during fiscal 2007, 2006 and 2005 are asfollows:

** **
| ** **                               | ** ** | **Year ended**        | ** ** |
|------------------------------------------|------------|----------------------------|------------|
| ** **                               | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| ** **                               | ** ** | **(In thousands)**    | ** ** |
| Beginning  balance                       |       | $                          | 3,547      |   | $ | 3,338 |   | $ | 3,194 |   |
| Provision for  warranty for the year     |       | 2,351                      |       | 3,061 |   | 2,559 |   |
| Accruals related  to changes in estimate |       | (51                        | )          | (175 | ) | (13 | ) |
| Less: Actual  warranty costs             |       | (2,473                     | )          | (2,677 | ) | (2,402 | ) |
| Ending balance                           |       | $                          | 3,374      |   | $ | 3,547 |   | $ | 3,338 |   |

*** ***

**Note 8—Lease Commitments**

 

In November 2005,we entered into a First Amendment to Lease, effective as of October 27,2005, which amended our existing lease for approximately 117,739 square feet ofspace in an office building located in San Jose, California. The leased spaceserves as our corporate office. The amendment extended the termination date ofthe lease from April 15, 2009 to April 15, 2016. In addition, itprovides that, commencing December 1, 2005, basic annual rent (as definedin the lease) would be reduced to $1.7 million, subject to 4% annual increases commencingon April 15, 2006.  The buildingelement of the original lease, which was accounted for from the outset as acapital lease for a property with a cost of $9.0 million, continuesto be amortized over the initial lease period ending in April 2009, inaccordance with SFAS No. 13, Accounting for Leases.

 

Lease loss liabilitieswere created as a result of discontinuing operations and consolidations. As of July 1,2007 and July 2, 2006 the accrued lease loss liabilities wereapproximately $0.1 million and $0.3 million, respectively.

 

In addition, we leasecertain other facilities and equipment under operating lease agreements. Rentalexpense charged to operations was $2.8 million in 2007, $1.7 million in 2006,and $1.4 million in 2005. Future minimum lease payments as of July 1, 2007are as follows:

 
| ** **                                                    | ** ** | **Capital Lease**  | ** ** | **Operating Lease** | ** ** |
|---------------------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|
| ** **                                                    | ** ** | **(In thousands)** | ** ** |
| **For the  fiscal year:**                                     | ** ** | ** **              | ** ** | ** **               | ** ** |
| 2008                                                          |       | $                       | 1,576      |                     | $          | 3,183 |   |
| 2009                                                          |       | 1,325                   |       | 2,943                    |       |
| 2010                                                          |       | —                  |       | 3,848                    |       |
| 2011                                                          |       | —                  |       | 3,921                    |       |
| 2012                                                          |       | —                  |       | 4,051                    |       |
| Thereafter                                                    |       | —                  |       | 15,897                   |       |
| Total minimum  lease payments                                 |       | 2,901                   |       | $                        | 33,843     |   |
| Amount  representing interest (weighted average rate of 8.5%) |       | (204                    | )          |                     |       |
| Present value of  total minimum lease payments                |       | 2,697                   |       |                     |       |
| Current portion                                               |       | (1,411                  | )          |                     |       |
| Capital lease  obligation, net of current portion             |       | $                       | 1,286      |                     |       |   |

 

The total of minimalrentals to be received in the future under noncancelable subleases as of July 1,2007 was $1.6 million.

 

72

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** **

**Note 9—Goodwill andIntangible Assets**

* *

*Goodwill*

 

Changesin the carrying value of goodwill for the years ended July 1, 2007 and July 2,2006 are as follows for our reportable segments:

 
| ** **                        | ** ** | **Wireline **      | ** ** | **Wireless/OEM** | ** ** | **Timing, Test  and  Measurement** | ** ** | **Quality of  Experience  Assurance** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|-------------------------|------------|------------------|------------|-----------------------------------------|------------|--------------------------------------------|------------|-----------|------------|
|                              |       | **(In thousands)** |       |
| Balances as of  July 3, 2005 |       | $                       | 27,917     |             | $          | 6,963                                   |       | $                                          | 14,368     |      | $          | — |   | $ | 49,248 |   |
| Addition (see  Note 3)            |       | —                  |       | —           |       | 3,614                                   |       | —                                     |       | 3,614     |       |
| Impairment of  goodwill           |       | —                  |       | (6,963           | )          | —                                  |       | —                                     |       | (6,963    | )          |
| Balances as of  July 2, 2006 |       | $                       | 27,917     |             | $          | —                                  |       | $                                          | 17,982     |      | $          | — |   | $ | 45,899 |   |
| Additions (see  Note 3)           |       | —                  |       | —           |       | 2,105                                   |       | 6,702                                      |       | 8,807     |       |
| Balances as of  July 1, 2007 |       | $                       | 27,917     |             | $          | —                                  |       | $                                          | 20,087     |      | $          | 6,702 |   | $ | 54,706 |   |

 

In the third quarter ofthe fiscal 2006, we recorded a non-cash impairment charge of approximately $7.0million for the write-down of the goodwill related to our Wireless/OEM businesssegment purchased in connection with the Datum acquisition in October 2002.The impairment charge reflects changing business conditions in the wirelesssegment surrounding product pricing, gross margins, new product acceptance andthe increasingly prevalent use of wireless technologies that do not require afrequency reference at the cell site, but receive the required synchronizationreferences from central office.   Duringthe third quarter of fiscal 2006, there was an impairment indicator and weperformed a goodwill impairment test on the Wireless/OEM business segment sincethe product pricing pressures and gross margin pressures discussed in priorquarters continued to decline in the third quarter of fiscal 2006 and we didnot anticipate any improvement.

 

Critical estimates invaluing certain intangible assets include, but are not limited to: futureexpected cash flows from customer contracts, customer lists, distributionagreements, acquired developed technologies and patents; expected costs todevelop the in-process research and development into commercially viableproducts and estimating cash flows from the projects when completed; and thebrand awareness and the market position of the acquired products andassumptions about the period of time the brand will continue to be used in thecombined company’s product portfolio. Our estimates of fair value are basedupon assumptions believed to be reasonable, but which are inherently uncertainand unpredictable.

 

Potential goodwillimpairment is measured based upon this two-step process. An internal evaluationidentified the need to record an impairment loss for the Wireless/OEM segmentin the third quarter of fiscal 2006 using a discounted cash flow valuationmethod. We performed our most recent annual goodwill impairment test as of July 1,2007 and no impairment losses were recorded based on these evaluations.

* *

*Intangible Assets*

 

In the third quarter offiscal 2006, we recorded a non-cash impairment charge of approximately $1.2million for the write-down of the other intangibles related to our Wireless/OEMbusiness segment purchased in connection with the Datum acquisition in October 2002.During the third quarter of fiscal 2006, there was an impairment indicator andwe performed an intangible impairment test on the Wireless/OEM business segmentsince the product pricing pressures and gross margin pressures discussed inprior quarters continued to decline in the third quarter of fiscal 2006 and wedid not anticipate any improvement.

 

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The carrying value oflong-lived assets is evaluated whenever events or changes in circumstancesindicate that the carrying value of the asset may be impaired. An impairmentloss is recognized when estimated undiscounted future cash flows expected toresult from the use of the asset, including disposition, is less than thecarrying value of the asset. Impairment is measured as the amount by which thecarrying amount exceeds the fair value.

 

Other intangible assetsare recorded at cost, less accumulated amortization. Other intangible assets asof July 1, 2007 and July 2, 2006 consist of:

 
| ** **                        | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Intangible  Assets** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|-------------------------------|------------|-----------------------------|------------|
| ** **                        | ** ** | **(in thousands)**          | ** ** |
| Purchased technology              |       | $                           | 22,671     |                          | $          | 15,515                      |       | $ | 7,156 |   |
| Customer lists, trademarks, other |       | 3,973                       |       | 2,929                         |       | 1,044                       |       |
|                              |       |                        |       |                          |       |                        |       |
| Total as of July 2, 2006     |       | $                           | 26,644     |                          | $          | 18,444                      |       | $ | 8,200 |   |
|                              |       |                        |       |                          |       |                        |       |
| Purchased technology              |       | $                           | 30,514     |                          | $          | 18,192                      |       | $ | 12,322 |   |
| Customer lists, trademarks, other |       | 9,801                       |       | 4,393                         |       | 5,408                       |       |
|                              |       |                        |       |                          |       |                        |       |
| Total as of July 1, 2007     |       | $                           | 40,315     |                          | $          | 22,585                      |       | $ | 17,730 |   |

 

The estimated future amortization expense isas follows:

 
| **Fiscal year:**   | ** ** | **(in thousands)** | ** ** |
|-------------------------|------------|-------------------------|------------|
| ** **              | ** ** | ** **              | ** ** |
| 2008                    |       | $                       | 3,510      |   |
| 2009                    |       | 3,106                   |       |
| 2010                    |       | 2,796                   |       |
| 2011                    |       | 2,581                   |       |
| 2012                    |       | 2,029                   |       |
| Thereafter              |       | 1,703                   |       |
|                    |       |                    |       |
| Total  amortization (1) |       | $                       | 15,725     |   |

 

----

(1) Does not include $2.0 million of purchasedtechnology where we have not yet determined the useful life.

 

Intangible asset amortization expense forfiscal 2007, 2006 and 2005 was approximately $4.1 million, $4.1 million, and$4.5 million, respectively.

 

*Agilent Technologies*

 

Increases in the other intangible assetsduring fiscal 2006 primarily resulted from the acquisition of AgilentTechnologies’ Frequency and Timing Standards product line, which included $2.6million in purchased technology, $0.2 million in backlog and $0.5 million incustomer relationships. The $0.2 million in backlog was fully amortized in thefirst quarter of fiscal 2006.

 

74

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For the intangibles related to AgilentTechnologies’ Frequency and Timing Standards product line, the weighted-averageamortization period in total is 8 years, 9 months. The weighted-averageamortization period by major intangible asset class is as follows:

·                  Customer relationships – 10 years

·                  Developed technology – 9 years

·                  Backlog – less than 1 year

 

Increases in other intangible assets duringfiscal 2007 resulted from the acquisition of TSC and the acquisition ofQoSmetrics.

 

*Timing SolutionsCorporation*

 

Increases in intangible assets related to TSCincluded $1.8 million relating to customer relationships, $1.4 million relatingto developed technology, $1.0 million relating to backlog, and $0.2 millionrelating to trade names. The weighted-average amortization period in total is 6years, 6 months.  The weighted-averageamortization period by major intangible asset class is as follows:

 

·                  Customer relationships – 11 years, 9months

·                  Developed technology – 4 years, 9months

·                  Backlog – 1 year

·                  Trade Names – 3 years, 9 months

* *

*QoSmetrics*

 

Increases in intangible assets related toQoSmetrics included $1.3 million relating to customer relationships, $4.4million relating to developed technology, and $1.5 million relating to tradenames. The weighted-average amortization period in total is 5 years, 6months.  The weighted-averageamortization period by major intangible asset class is as follows:

 

·                  Customerrelationships – 5 years, 6 months

 

·                  Developedtechnology – 5 years, 6 months

 

·                  Trade Names –5 years, 6 months

 

75

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**Note 10—Income Taxes**

 

Theprovision of federal, state and foreign income tax expense on income fromcontinuing operations consists of the following:

 
| ** **                                                     | ** ** | **Year ended, ** | ** ** |
|----------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                     | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| ** **                                                     | ** ** | **(In thousands)**    | ** ** |
| Income (loss)  from continuing operations before income taxes: |       |                       |       |   |   |   |   |
| Domestic                                                       |       | $                          | 14,141     |   | $ | (2,119 | ) | $ | 17,471 |   |
| Foreign                                                        |       | (495                       | )          | 448 |   | 1,817 |   |
| Total                                                          |       | 13,646                     |       | (1,671 | ) | 19,288 |   |
|                                                           |       |                       |       |   |   |   |   |
| Provision for  income taxes:                                   |       |                       |       |   |   |   |   |
|                                                           |       |                       |       |   |   |   |   |
| Current:                                                       |       |                       |       |   |   |   |   |
| Federal                                                        |       | $                          | 1,320      |   | $ | 309 |   | $ | 821 |   |
| State                                                          |       | 116                        |       | (108 | ) | 191 |   |
| Puerto Rico                                                    |       | 322                        |       | 445 |   | 847 |   |
| Foreign                                                        |       | 2,820                      |       | 47 |   | 635 |   |
| Total                                                          |       | 4,578                      |       | 693 |   | 2,494 |   |
| Deferred:                                                      |       |                       |       |   |   |   |   |
| Federal                                                        |       | 3,724                      |       | (1,288 | ) | (297 | ) |
| State                                                          |       | (839                       | )          | (419 | ) | 210 |   |
| Puerto Rico                                                    |       | 96                         |       | 200 |   | (345 | ) |
| Foreign                                                        |       | 29                         |       | — |   | 16 |   |
| Total                                                          |       | 3,010                      |       | (1,507 | ) | (416 | ) |
| Total provision  (benefit)                                     |       | $                          | 7,588      |   | $ | (814 | ) | $ | 2,078 |   |

 

Thetax provision (benefit) attributable to continuing operations and discontinuedoperations, included in the consolidated statements of operations, is asfollows:

 
| ** **                     | ** ** | **Year ended,**                   | ** ** |
|--------------------------------|------------|----------------------------------------|------------|
| ** **                     | ** ** | ** July 1, 2007 ** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| ** **                     | ** ** | **(In thousands)**                | ** ** |
| Tax provision  (benefit) from: |       |                                   |       |   |   |   |   |
| Continuing  operations         |       | $                                      | 7,588      |   | $ | (814 | ) | $ | 2,078 |   |
| Discontinued  operations       |       | 167                                    |       | 521 |   | 724 |   |
| Total provision  (benefit)     |       | $                                      | 7,755      |   | $ | (293 | ) | $ | 2,802 |   |

 

Theeffective income tax rate differs from the federal statutory income tax rate asfollows:

 
| ** **                                           | ** ** | **Year ended,**       | ** ** |
|------------------------------------------------------|------------|----------------------------|------------|
| ** **                                           | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Federal  statutory income tax (benefit) expense rate |       | 35.0                       | %          | (35.0 | )% | 35.0 | % |
| Federal tax  benefit of Puerto Rico operations       |       | (2.5                       | )          | (115.0 | ) | (27.9 | ) |
| Puerto Rico  taxes                                   |       | 3.1                        |       | 38.6 |   | 2.6 |   |
| State income  taxes, net of federal benefit          |       | (5.7                       | )          | (33.1 | ) | 1.7 |   |
| Taxes on  QoSmetrics liquidation                     |       | 25.0                       |       | — |   | — |   |
| Goodwill                                             |       | —                     |       | 99.7 |   | — |   |
| Other                                                |       | 0.7                        |       | (4.1 | ) | (0.6 | ) |
| Effective income  tax rate                           |       | 55.6                       | %          | (48.9 | )% | 10.8 | % |

 

76

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The principal components of deferred taxassets and liabilities are as follows:

 
| ** **                        | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** |
|-----------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                        | ** ** | **(In thousands)**    | ** ** |
| Deferred tax  assets:             |       |                       |       |                       |       |
| Net operating  loss carryforwards |       | $                          | 18,126     |                       | $          | 23,315 |   |
| Tax credit  carryforwards         |       | 13,767                     |       | 11,621                     |       |
| Reserves and  accruals            |       | 4,798                      |       | 6,759                      |       |
| Depreciation and  amortization    |       | 13,916                     |       | 12,719                     |       |
|                              |       | 50,607                     |       | 54,414                     |       |
| Valuation  allowance              |       | (2,822                     | )          | (2,822                     | )          |
| Total deferred  tax assets        |       | 47,785                     |       | 51,592                     |       |
| Deferred tax  liabilities -       |       |                       |       |                       |       |
| Unremitted  Puerto Rico earnings  |       | 530                        |       | 1,177                      |       |
| Net deferred tax  assets          |       | $                          | 47,255     |                       | $          | 50,415 |   |

 

Netdeferred tax assets are comprised of the following:

 
| ** **               | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** |
|--------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **               | ** ** | **(In thousands)**    | ** ** |
| Current assets           |       | $                          | 4,798      |                       | $          | 6,759 |   |
| Non-current  assets      |       | 42,791                     |       | 44,275                     |       |
| Non-current  liabilities |       | (334                       | )          | (619                       | )          |
| Net deferred tax  assets |       | $                          | 47,255     |                       | $          | 50,415 |   |

 

Asof July 2, 2007, for federal income tax purposes, we had regular netoperating loss carryforwards of approximately $52.6 million, which will expirein years 2023 through 2025. We had California regular net operating losscarryforwards of approximately $5.2 million, which will expire in years 2013through 2015.

 

Also, we had federalresearch and development tax credit carryforwards of approximately $6.5 millionthat will expire in the years 2008 through 2027, alternative minimum tax creditcarryforwards of approximately $3.7 million that have no expiration date, andapproximately $0.5 million of foreign tax credits which will expire in2017.  Additionally, for state income taxpurposes, we had research and development tax credit carryforwards ofapproximately $3.2 million that have no expiration date.

 

During fiscal 2007, wereviewed the realizability of deferred tax assets and determined that $0.8million of the deferred tax assets related to stock option exercises were morelikely than not to be realized. Accordingly, we recognized these deferred taxassets with a corresponding increase to common stock. We have provided avaluation allowance for certain deferred tax assets because we have determinedthat it is more likely than not that we will not have sufficient taxable incometo realize these tax assets. At June 30, 2007, the valuation allowance of$2.8 million was attributable to the tax benefit of potentially expiring taxcredits stemming from stock option transactions, which will be credited tocommon stock if realized rather than as a reduction of the tax provision.

 

Duringfiscal 2007, Symmetricom Puerto Rico, a wholly-owned subsidiary, moved itsplace of legal organization from Delaware to Bermuda in a transaction intendedto be a tax-free restructuring. We are in the process 

 

77

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of submitting a ruling request to the Internal Revenue Service toconfirm the tax-free treatment. If granted, the effect of the ruling would befor the Puerto Rico subsidiary to be treated as a branch of Symmetricom, Inc.effective as of July 2006 and, accordingly, for the profits of the PuertoRico subsidiary to be taxable to Symmetricom, Inc. We are undertaking thisruling request based upon our subsequent review of the 2006 restructuring.

 

Ifthe ruling request is granted, the effective tax rate for fiscal 2008 is estimatedto be approximately 25.0%.  If the rulingrequest is not granted, the tax provision would be increased by a change to ourdeferred tax assets of approximately $15.2 million resulting in an estimatedeffective tax rate of 221.0%.  Throughthe end of fiscal 2006, the Puerto Rico subsidiary was taxed under Section 936of the U.S. Internal Revenue Code, which exempted qualified Puerto Rico sourceearnings, subject to various limitations, from regular federal income tax. Section 936expired as of the end of fiscal 2006.

** **

**Note 11—Contingencies**

 

Weformerly leased a tract of land for our operations in Texas. Those operationsinvolved the use of solvents and, at the end of the lease, we remediated anarea where the solvents had been deposited on the ground and obtainedregulatory approval for that remedial activity. In 1996, an environmental investigation of the property detected thosesame contaminants in groundwater in excess of current regulatory standards. Thegroundwater contamination has migrated to some adjacent properties. We haveentered into the Texas Natural Resource Conservation Commission’sVoluntary Cleanup Program (the “Voluntary Cleanup Program”) to obtainregulatory approval for closure of this site and a release from liability tothe State of Texas for subsequent landowners and lenders.  We have notified adjacent property ownersaffected by the contamination of our participation in the Voluntary CleanupProgram. On May 20, 2004, we received a demand from the owner of severaladjacent lots for damages in the amount of $1.3 million, as well as seeking anindemnity for the contamination and a promise to remediate thecontamination. On March 14, 2006, the adjacent property ownerfiled suit in Probate Court No. 1, Travis County, Texas (**Anna B. Miller,Individually and as Executrix of the Estate of Robert L. Miller, et al. vs.Austron, Inc., et al.)**, seeking damages.  Wehave not yet been served in this matter. We are continuing towork on the remediation of the formerly leased site as well asthe adjacent properties and intend to defend this lawsuit vigorously. Asof July 1, 2007, we had an accrual of $0.5 million for remediation costsand other ongoing monitoring costs.

 

Under theindemnification provisions of the Company’s standard sales contracts, theCompany agrees to defend the customer against third party claims assertinginfringement of certain intellectual property rights, which may includepatents, copyrights, trademarks or trade secrets, and to pay any judgmentsentered on such claims against the reseller/customer. The exposure to theCompany under these indemnification provisions is generally limited to thetotal amount paid by the customer under the agreement. However, certainagreements include indemnification provisions that could potentially expose theCompany to losses in excess of the amount received under the agreement. Todate, there have been no claims under such indemnification provisions. As such,the Company believes the estimated fair value of these indemnificationagreements is not material.

 

We are also a party tocertain other claims in the normal course of our operations. While the resultsof these claims cannot be predicted with any certainty, we believe that thefinal outcome of these matters will not have a material adverse effect on ourfinancial position and results of operations.

** **

**Note 12—Related PartyTransactions**

 

In March 1998, weloaned an officer $500,000 in the form of an interest-free full-recoursepromissory note. The entire principal balance is due and payable on March 25,2008. The note is secured by a deed of trust for the officer’s personalresidence. As of July 1, 2007 the entire principal balance is outstanding.

 

During fiscal 2007, 2006and 2005, we paid a total of  $0, $7,500and $12,500, respectively, for consulting fees to four directors of Symmetricomin addition to their regular director compensation for attendance at Board andCommittee meetings.

 

78

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During fiscal 2006, wesold products and services to Arris Group for a total of approximately$175,000, and acquired equipment for approximately $2,000. The CEO of ArrisGroup, Mr. Robert Stanzione, is a director of the Company.

 

**Note 13—Long-TermObligations**

 
| ** **                         | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** |
|------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                         | ** ** | **(In thousands)**    | ** ** |
| Long-term  obligations:            |       |                       |       |                       |       |
| Deferred revenue                   |       | $                          | 1,089      |                       | $          | 1,050 |   |
| Capital lease                      |       | 2,697                      |       | 3,913                      |       |
| Lease loss  accrual, net           |       | 86                         |       | 145                        |       |
| Lease accrual                      |       | 422                        |       | 151                        |       |
| Conditional  grant                 |       | 136                        |       | —                     |       |
| Bond payable                       |       | 2,405                      |       | 2,405                      |       |
| Convertible  subordinate notes (1) |       | 120,000                    |       | 120,000                    |       |
| Post-retirement  benefits, net     |       | 262                        |       | 292                        |       |
| Less—current  maturities      |       | (1,547                     | )          | (1,286                     | )          |
| Total                              |       | $                          | 125,550    |                       | $          | 126,670 |   |

 

----

(1)  See Note 18 – Subsequent Events.

 

Wehave no maturities of debt within the next five years. The Bond Payable of $2.4million and Convertible Subordinate Notes of $120.0 million, which compriselong-term debt, do not mature until 2021 and 2025, respectively.

 

***Capital Lease***

 

On November 18,2005, we entered into a First Amendment to Lease, effective as of October 27,2005, which amended that certain Lease dated June 10, 1996 betweenSymmetricom and Nexus Equity II LLC, as successor in interest to Nexus Equity, Inc.,for approximately 117,739 square feet of space in an office building located inSan Jose, California. The leased space serves as our principal executiveoffice.

 

The amendment extendedthe termination date of the lease from April 15, 2009 to April 15,2016. In addition, it provides that, commencing December 1, 2005, basicannual rent (as defined in the lease) will be reduced to $1.7 million, subjectto 4% annual increases commencing on April 15, 2006.  The building element of the original lease,which was accounted for from the outset as a capital lease for aproperty with a cost of $9.0 million, continues to be amortized over theinitial lease period ending in April 2009, in accordance with SFAS No. 13,Accounting for Leases.

 

***Convertible Subordinated Notes***

 

On June 8,2005, we sold $120 million of contingent convertible subordinated notes (the “Notes”),which mature on June 15, 2025 and bear interest at the rate of 3.25% perannum. Interest on the Notes is payable semi-annually in June and December ofeach year beginning on December 15, 2005. The Notes are unsecuredobligations and are subordinated in right of payment to all of our existing andfuture senior debt, including our indebtedness under our senior creditfacilities. The Notes are structurally subordinated to all indebtedness and liabilitiesof our subsidiaries.

 

79

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TheNotes are convertible, at the holder’s option, prior to the maturity date intocash and, if applicable, shares of our common stock in the followingcircumstances:

 

·                  Prior to June 15, 2023, if the common stock pricefor a least 20 trading days in the period of 30 consecutive days ending on thelast trading day of the calendar quarter preceding the quarter in which theconversion occurs is more than 125% of the conversion price of the Notes ineffect on that 30th trading day;

 

·                  On or after June 15, 2023, at all times on orafter any date on which the common stock price is more than 125% of the thencurrent conversion price;

 

·                  During the five consecutive business-day periodfollowing any five consecutive trading-day period in which the trading pricefor the Notes for each such trading day was less than 95% of the average of thesale price of our common stock during such five trading-day period multipliedby the then current conversion rate;

 

·                  If we have called the particular Notes for redemptionand the redemption has not yet occurred; or

 

·                  Upon the occurrence of specified corporatetransactions.

 

Holdersmay convert any outstanding Notes into cash and, if applicable, shares of ourcommon stock at an initial conversion price per share of $12.49, which wasdetermined based on the reported closing price of our common stock of $9.91 pershare on June 2, 2005.

 

Also,on or after June 20, 2012, we may redeem some or all of the Notes at anytime or from time to time at a redemption price of 100% of the principal amountof the Notes, plus accrued and unpaid interest (including liquidated damages,if any) up to but not including the date of redemption, payable in cash.Holders may require us to repurchase all or a portion of their Notes on June 15,2012, 2015 and 2020 for a repurchase price equal to 100% of the principalamount of the Notes, plus accrued and unpaid interest (including liquidateddamages, if any) up to but not including the date of repurchase, payable incash, in the event of certain change of control events related to us.

 

We mayfrom time to time repurchase or redeem all or a portion of the Notes, ifnecessary, to comply with NASDAQ marketplace rule 4350(i)(1)(D). We mayundertake such repurchase from time to time through privately negotiated oropen market transactions or other available means.

 

Inconnection with the issuance of these Notes, Symmetricom recorded bond fees ofapproximately $3.8 million, which are being amortized using the straight-linemethod over a period of seven years until fiscal 2012.

*** ***

***Massachusetts Development Finance AgencyBond***

 

Inconnection with the acquisition of Datum in October 2002, we assumed Datum’sliability relating to an industrial development bond that was issued by theMassachusetts Development Finance Agency on June 1, 2001, to finance theexpansion by Datum of its manufacturing facility in Beverly, Massachusetts. Thebond matures on May 1, 2021, and the balance is $2.4 millionas of July 1, 2007.The bond is collateralized by a line of credit with Wells Fargo Bank.

 

**Note 14—Benefit Plans**

* *

*401(k) Plan*

 

The Company has a 401(k) plan(the “Plan”) that allows eligible U.S. and Puerto Rico employees to contributeup to 50 percent of their annual compensation to the Plan, subject to certain limitations.The employees’ funds are not directly invested in shares of the Company’scommon stock. Each employee directs the investment of the funds across a seriesof mutual funds. Effective in fiscal 2004, Symmetricom matched up to $0.50 per$1.00 deferred up to 3% of eligible compensation. An additional match of $1.00per $1.00 deferred up to 1% of eligible compensation will be made based uponachievement of company profit performance goals. Employee contributions vestimmediately.

 

80

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Employer matchingcontributions vest ratably over three years. Symmetricom made matchingcontribution payments of $0.5 million, $0.5 million and $0.7 million in fiscal2007, 2006 and 2005, respectively.

 

*DeferredCompensation Plan*

 

The Company has adeferred compensation plan that allows outside directors and certain U.S.employees to contribute up to 100% of their compensation, provided that theircontribution does not reduce their salary to an amount that is less than the amountnecessary to pay applicable employment taxes and other withholding obligations.The Board of Directors is authorized to make discretionary contributions to theaccounts of participants. No discretionary contributions were made in fiscal2007, 2006, and 2005.

 

**Note 15—Stockholders’Equity**

 

*StockOptions and Awards*

 

Symmetricomhas equity benefit plans under which employees, directors and consultants maybe granted non-qualified and incentive options to purchase shares of our commonstock and restricted stock. One of these plans was amended in fiscal 2003, inconnection with the tender offer during the fourth quarter of fiscal 2003, toeffectively provide that restricted stock could be granted and repurchased forno cash purchase price. Stock appreciation rights may also be granted underthis plan; however, none have been granted to date.  All options have beengranted at the fair market value of our common stock on the date of grant andgenerally vest over three years.

 

Effective August 4, 2005, the Symmetricom Boardof Directors approved a change in the terms for stock options granted on andafter August 4, 2005 under the employee stock option plans to provide thatthe life of a new stock option will be 5 years instead of 10 years.

 

On October 26, 2006 at our annual meeting ofshareholders, the shareholders approved the 2006 Incentive Award Plan thatincluded an additional 3.7 million shares for future issuance.  For theyear ended July 1, 2007, we granted non performance-based options topurchase 1.2 million shares of Symmetricom’s common stock, and awarded 0.7million shares of restricted stock.  In addition we grantedperformance-based options to purchase 0.3 million shares.  Our right torepurchase restricted shares generally lapses over the same three-year term asthe vesting period applicable to the stock options. We received $2.7 millionfrom the exercise of stock options during the year ended July 1, 2007.

 

Werecorded stock-based compensation expenses of $6.4 million in fiscal 2007, $4.6million in fiscal 2006, and $1.0 million in fiscal 2005.  At July 1, 2007, the total compensationcost related to unvested stock-based awards granted to employees, directors andconsultants under the Company’s stock option plans but not yet recognized wasapproximately $7.7 million, net of estimated forfeitures of $ 0.6 million.

 

81

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The following table details stock option and awardactivity for fiscal years 2007, 2006, and 2005:

 
| ** **                           | ** ** | ** **                                    | ** ** | **Non Performance-based Options  Outstanding** | ** ** | **Performance-based Options  Outstanding** | ** ** | **Restricted Stock Outstanding** | ** ** |
|--------------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------------------|------------|-------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                           | ** ** | ** **                                    | ** ** | ** **                                               | ** ** | ** **                                      | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                           | ** ** | **Shares**                                    | ** ** | ** **                                               | ** ** | **Weighted**                                    | ** ** | ** **                                 | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **                           | ** ** | **Available**                                 | ** ** | **Number of**                                       | ** ** | **Average**                                     | ** ** | **Number of**                         | ** ** | **Average** | ** ** | **Number of** | ** ** | **Grant-Date** | ** ** |
| ** **                           | ** ** | **For Grant**                            | ** ** | **Shares**                                               | ** ** | **Exercise Price**                         | ** ** | **Shares**                                 | ** ** | **Exercise Price** | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| ** **                           |       | **(In  thousands, except per share amounts)** |       |
| Balances at  June 27, 2004      |       | 3,037                                         |       | 4,990                                                    |       | $                                               | 5.88       |                                       | —     |   | $ | — |   | 286 |   | $ | 4.82 |   |
| Granted - options                    |       | (1,259                                        | )          | 1,259                                                    |       | 8.04                                            |       | —                                     |       | — |   | — |   | — |   |
| Exercised                            |       | —                                        |       | (1,619                                                   | )          | 4.95                                            |       | —                                     |       | — |   | — |   | — |   |
| Vested                               |       | —                                        |       | —                                                   |       | —                                          |       | —                                     |       | — |   | (145 | ) | 4.79 |   |
| Canceled                             |       | 305                                           |       | (305                                                     | )          | 6.70                                            |       | —                                     |       | — |   | (19 | ) | 6.29 |   |
| Expired.                             |       | (69                                           | )          | —                                                   |       | —                                          |       | —                                     |       | — |   | — |   | — |   |
| Balances at  July 3, 2006       |       | 2,014                                         |       | 4,325                                                    |       | $                                               | 6.81       |                                       | —     |   | $ | — |   | 122 |   | $ | 4.63 |   |
| Granted - options                    |       | (739                                          | )          | 739                                                      |       | 9.03                                            |       | —                                     |       | — |   | — |   | — |   |
| Granted -  restricted shares         |       | (220                                          | )          | —                                                   |       | —                                          |       | —                                     |       | — |   | 220 |   | 9.31 |   |
| Exercised                            |       | —                                        |       | (402                                                     | )          | 5.02                                            |       | —                                     |       | — |   | — |   | — |   |
| Vested                               |       | —                                        |       | —                                                   |       | —                                          |       | —                                     |       | — |   | (122 | ) | 4.63 |   |
| Canceled                             |       | 263                                           |       | (263                                                     | )          | 9.30                                            |       | —                                     |       | — |   | (36 | ) | 9.42 |   |
| Expired                              |       | (1                                            | )          | —                                                   |       | —                                          |       | —                                     |       | — |   | — |   | — |   |
| Balances at  July 2, 2006       |       | 1,317                                         |       | 4,399                                                    |       | $                                               | 7.22       |                                       | —     |   | $ | — |   | 184 |   | $ | 9.28 |   |
| 2006 Plan                            |       | 3,700                                         |       | —                                                   |       | —                                          |       | —                                     |       | — |   | — |   | — |   |
| Granted - options                    |       | (1,212                                        | )          | 1,212                                                    |       | 8.18                                            |       | —                                     |       | — |   | — |   | — |   |
| Granted -  performance-based options |       | (295                                          | )          | —                                                   |       | —                                          |       | 295                                        |       | 8.53 |   | — |   | — |   |
| Granted -  restricted shares         |       | (725                                          | )          | —                                                   |       | —                                          |       | —                                     |       | — |   | 725 |   | 7.74 |   |
| Exercised                            |       | —                                        |       | (556                                                     | )          | 4.95                                            |       | —                                     |       | — |   | — |   | — |   |
| Vested                               |       | —                                        |       | —                                                   |       | —                                          |       | —                                     |       | — |   | (45 | ) | 8.37 |   |
| Canceled                             |       | 158                                           |       | (158                                                     | )          | 9.05                                            |       | —                                     |       | — |   | (20 | ) | 8.59 |   |
| Expired.                             |       | (3                                            | )          | —                                                   |       | —                                          |       | —                                     |       | — |   | — |   | — |   |
| Balances at  July 1, 2007       |       | 2,940                                         |       | 4,897                                                    |       | $                                               | 7.66       |                                       | 295        |   | $ | 8.53 |   | 844 |   | $ | 8.03 |   |
|                                      |            |                                               |            |                                                          |            |                                                 |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |

 

*Stock Options*

 

Thetotal number of in-the-money options outstanding and exercisable as of July 1,2007 was as follows:

 
| ** **                        | ** ** | ** **         | ** ** | **Weighted**    | ** ** | ** **              | ** ** | ** **   | ** ** | ** **         | ** ** | ** **         | ** ** |
|-----------------------------------|------------|--------------------|------------|-----------------|------------|-------------------------|------------|--------------|------------|--------------------|------------|--------------------|------------|
| ** **                        | ** ** | ** **         | ** ** | **Average**     | ** ** | ** **              | ** ** | ** **   | ** ** | ** **         | ** ** | ** **         | ** ** |
| ** **                        | ** ** | ** **         | ** ** | **Remaining**   | ** ** | **Weighted**            | ** ** | **7/1/2007** | ** ** | **Intrinsic**      | ** ** | **Aggregate**      | ** ** |
| ** **                        | ** ** | **Number of** | ** ** | **Contractual** | ** ** | **Average**             | ** ** | **Closing**  | ** ** | **Value**          | ** ** | **Intrinsic**      | ** ** |
| **Option**                        | ** ** | **Shares**         | ** ** | **Life**        | ** ** | **Exercise Price** | ** ** | **Price**    | ** ** | **Per Share** | ** ** | **Value**          | ** ** |
| ** **                        | ** ** | **(In thousands)** | ** ** | **(In years)**  | ** ** | ** **              | ** ** | ** **   | ** ** | ** **         | ** ** | **(In thousands)** | ** ** |
| Oustanding at July 1,  2007  |       | 2,859              |       | 4.39            |       | $                       | 6.39       |         | $          | 8.40               |       | $                  | 2.01       |   | $ | 5,751 |   |
| ** **                        | ** ** | ** **         | ** ** | ** **      | ** ** | ** **              | ** ** | ** **   | ** ** | ** **         | ** ** | ** **         | ** ** |
| Exercisable at July 1,  2007 |       | 1,762              |       | 3.94            |       | $                       | 5.70       |         | $          | 8.40               |       | $                  | 2.70       |   | $ | 4,757 |   |

 

The aggregate intrinsic value in the preceding tablerepresents the total pre-tax value of stock options outstanding as of July 1,2007, based on our common stock closing price of $8.40 on July 1, 2007,which would have been received by the option holders had all option holdersexercised their options as of that date.

 

As of July 1, 2007,  July 2, 2006, and July 3, 2005, thenumber of shares and weighted average exercise prices of exercisable optionswere 2,751,953 at $7.14, 1,567,540 at $4.59, and 2,387,119 at $5.75,respectively.

 

The total intrinsic value of options exercisedduring fiscal 2007, 2006, and 2005 was $1.9 million, $1.6 million,  and $8.4 million, respectively.

 

Theweighted average grant-date fair value of options granted was $3.00 in 2007,$3.67 in 2006 and $5.11 in 2005. Our calculations were made using the Black-Scholesoption-pricing model. The fair value of our stock-based

 

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awardsto employees was estimated assuming no expected dividend and the followingweighted-average assumptions for fiscal 2007, 2006 and 2005:

 
| ** **                | ** ** | **Stock Option Plans** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **2007**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| Expected life  (in years) |       | 3.2                              |       | 3.1 |   | 4.8 |   |
| Expected  dividends       |       | —                           |       | — |   | — |   |
| Risk-free  interest rate  |       | 4.7                              | %          | 4.6 | % | 4.2 | % |
| Volatility                |       | 46.7                             | %          | 57.3 | % | 77.1 | % |

 

Priorto July 3, 2005, we used our historical volatility as its basis toestimate expected volatility.  In lightof recent accounting guidance related to stock options, we reevaluated thevolatility assumptions used to estimate the value of employee stock optionsgranted in fiscal 2006. We determined that historical and implied volatilityrelated to publicly traded options is more reflective of market conditions anda better indicator of expected volatility than historical volatility only.

* *

*Performance Awards*

 

Duringfiscal 2007, we granted 0.3 million shares of performance stock options tocertain employees.  The number of stockoptions ultimately vested depends on actual business performance measuredagainst certain targets such as backlog, revenue, and profitability forspecific areas of the Company’s business. Once the targets are met, the options in each performance tranche willvest immediately.  If any target is notmet by June 30, 2009, the options relating to the target will becancelled.

* *

*Restricted Stock Awards*

 

Ourrestricted stock awards are grants that entitle the holder to acquire shares ofrestricted common stock with certain designated prices or at no cost on a timeor performance basis. The shares of restricted stock cannot be sold, pledged,or otherwise disposed of until the award vests and any unvested shares may bereacquired by us following the awardees’ termination of service. The restrictedstock awards typically vest on the first, second or third anniversary of thegrant date or on a graded vesting schedule over the designated service periodwith certain conditions and restrictions.

* *

*StockRepurchase Program*

 

On August 11, 2005,the Board of Directors authorized management to repurchase up to approximately2.6 million shares of our common stock pursuant to a repurchase program establishedin fiscal 2002, adding 2.0 million shares to the program previouslyauthorized. There were approximately 46.5 million shares of Symmetricomcommon stock outstanding as of July 1, 2007.

 

During fiscal 2007, werepurchased 0.5 million shares of common stock pursuant to the repurchaseprogram for an aggregate price of approximately $4.0 million.  A further10,511 shares were repurchased to cover the cost of taxes on vested restrictedstock. Upon termination of certain employees, 19,800 shares of restricted stockwere forfeited pursuant to existing agreements.

 

On August 8, 2007,the Board of Directors authorized management to repurchase up to approximately2.9 million shares of Symmetricom common stock, adding 2.0 million shares to apreviously authorized program.

 

83

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*PreferredStock*

 

We have 500,000 sharesof $0.0001 par value preferred stock authorized, of which 200,000 shares havebeen reserved for issuance in connection with our preferred stock rights plan.The right entitles the holder to purchase from the Company one one-thousandthof a share of Series A Participating Preferred Stock at a price of$72.82.The rights were distributed at the rate of one right for each share ofcommon stock as a non-taxable dividend and will expire August 2011. Therights will be exercisable only in the event that a person or group acquires15% or more of our outstanding common stock.

 

*Warrants*

 

On October 16,2001, we acquired certain assets and products from Telmax CommunicationsCorporation (“Telmax”), a developer of telecommunications equipment. Thepurchase price of the transaction included a warrant to purchase 300,000 sharesof Symmetricom’s common stock with an exercise price of $7.00 per share andexpiring on October 16, 2006.  On October 2, 2006 Telmaxexercised the warrant and received 36,346 shares pursuant to the net exerciseprovision based on an average price of $7.965 per share.

 

**Note 16—Business SegmentInformation**

 

Symmetricom is organizedinto five reportable segments that are within three divisions:

* *

*TelecomSolutions Division*

 

There are threereportable segments within the Telecom Solutions Division:

 

·                  *Wireline Products* consist principally of BuildingIntegrated Timing Supply, or BITS, based on quartz, rubidium and GlobalPositioning System (GPS) technologies. Our Wireline Products provide highlyaccurate and uninterruptible timing to meet the synchronization requirements oftelecommunication networks.

 

·                  *Wireless/OEM Products* includes our OEM base station timingproducts that are designed to deliver stable timing to cellular/PCS basestations through a GPS receiver to capture cesium-based time signals producedby GPS satellites.

 

·                  *Global Services*offers a broad portfolio of services forour customers around the world.

 

*Timing,Test and Measurement Division*

 

The Timing, Test andMeasurement Division products are precision time and frequency systems that areimportant to communications systems of wireline, wireless, satellite andcomputer network technologies for government, power utilities, aerospace,defense and enterprise markets.

* *

*Qualityof Experience Assurance Division*

 

The Quality ofExperience (QoE) Assurance Division products are hardware and software-basedprobes (and/or embedded agents) that are distributed throughout an IP (InternetProtocol) network in order to monitor network and application performance, andparticularly to correlate how those factors impact end users’ QoE.  The primary application for thesesystem-level solutions is for IPTV (Internet Protocol Television), VoD (videoon demand), ITV (Internet television), and other IP-based video deliverymechanisms.

 

For each of our segments,we have separate financial information, including gross profit amounts, whichare evaluated regularly by the Chief Operating Decision Maker  in deciding how to allocate resources and inassessing performance. We do not allocate assets or specific operating expensesto these individual operating segments. Therefore, the segment informationreported here includes only net revenue and gross profit.

 

84

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| ** **                                           | ** ** | **Year ended**                                   | ** ** |
|------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                           | ** ** | **July 1, 2007**                            | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| ** **                                           | ** ** | **(In thousands, except percentages)** | ** ** |
| Net revenue:                                         |       |                                                  |       |   |   |   |   |
| Telecom  Solutions Division:                         |       |                                                  |       |   |   |   |   |
| Wireline  Products                                   |       | $                                                     | 93,908     |   | $ | 80,636 |   | $ | 83,129 |   |
| Wireless/OEM  Products                               |       | 26,672                                                |       | 23,893 |   | 27,723 |   |
| Global Services                                      |       | 14,627                                                |       | 12,539 |   | 9,712 |   |
| Timing, Test and  Measurement Division               |       | 72,672                                                |       | 59,044 |   | 58,824 |   |
| Quality of  Experience Assurance Division            |       | 501                                                   |       | — |   | — |   |
| Total net  revenue                                   |       | $                                                     | 208,380    |   | $ | 176,112 |   | $ | 179,388 |   |
| Cost of sales:                                       |       |                                                  |       |   |   |   |   |
| Telecom  Solutions Division:                         |       |                                                  |       |   |   |   |   |
| Wireline Products                                    |       | $                                                     | 40,098     |   | $ | 35,931 |   | $ | 35,657 |   |
| Wireless/OEM  Products                               |       | 19,515                                                |       | 18,703 |   | 19,516 |   |
| Global Services                                      |       | 10,636                                                |       | 6,205 |   | 5,547 |   |
| Timing, Test and  Measurement Division               |       | 39,484                                                |       | 30,786 |   | 27,442 |   |
| Quality of  Experience Assurance Division            |       | 103                                                   |       | — |   | — |   |
| Other cost of  sales*                                |       | 3,542                                                 |       | 5,975 |   | 3,899 |   |
| Total cost of  sales                                 |       | $                                                     | 113,378    |   | $ | 97,600 |   | $ | 92,061 |   |
| Gross profit:                                        |       |                                                  |       |   |   |   |   |
| Telecom  Solutions Division:                         |       |                                                  |       |   |   |   |   |
| Wireline  Products                                   |       | $                                                     | 53,810     |   | $ | 44,705 |   | $ | 47,472 |   |
| Wireless/OEM  Products                               |       | 7,157                                                 |       | 5,190 |   | 8,207 |   |
| Global Services                                      |       | 3,991                                                 |       | 6,334 |   | 4,165 |   |
| Timing, Test and  Measurement Division               |       | 33,188                                                |       | 28,258 |   | 31,382 |   |
| Quality of  Experience Assurance Division            |       | 398                                                   |       | — |   | — |   |
| Other cost of  sales*                                |       | (3,542                                                | )          | (5,975 | ) | (3,899 | ) |
| Total gross  profit                                  |       | $                                                     | 95,002     |   | $ | 78,512 |   | $ | 87,327 |   |
|                                                 |       |                                                  |       |   |   |   |   |
| Gross margin:                                        |       |                                                  |       |   |   |   |   |
| Telecom  Solutions Division:                         |       |                                                  |       |   |   |   |   |
| Wireline  Products                                   |       | 57.3                                                  | %          | 55.4 | % | 57.1 | % |
| Wireless/OEM  Products                               |       | 26.8                                                  | %          | 21.7 | % | 29.6 | % |
| Global Services                                      |       | 27.3                                                  | %          | 50.5 | % | 42.9 | % |
| Timing, Test and  Measurement Division               |       | 45.7                                                  | %          | 47.9 | % | 53.3 | % |
| Quality of  Experience Assurance Division            |       | 79.4                                                  | %          | NA |   | NA |   |
| Other cost of  sales as percentage of total revenue* |       | (1.7                                                  | )%         | (3.4 | )% | (2.2 | )% |
| Total gross  margin                                  |       | 45.6                                                  | %          | 44.6 | % | 48.7 | % |

 

----

*                    Includesamortization of purchased technology, impairment of intangibles and applicableintegration, and restructuring charges.

 

85

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Our export sales accounted for 29%, 30%and 35%, of our net revenue in fiscal 2007, 2006 and 2005 respectively. Thegeographical components of revenue are as follows:

 
| ** **         | ** ** | **Year ended**        | ** ** |
|--------------------|------------|----------------------------|------------|
| ** **         | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| United States      |       | 71                         | %          | 70 | % | 65 | % |
| International:     |       |                       |       |   |   |   |   |
| Asia               |       | 9                          | %          | 10 | % | 11 | % |
| Europe             |       | 11                         | %          | 11 | % | 16 | % |
| Canada             |       | 4                          | %          | 3 | % | 2 | % |
| Latin America      |       | 3                          | %          | 4 | % | 5 | % |
| Rest of the  world |       | 2                          | %          | 2 | % | 1 | % |

 

In fiscal 2007, two customers eachaccounted for 13.7% and 12.7% of our net revenue in fiscal 2007, or revenues of$28.5 million and $26.5 million, respectively. No customer accounted for 10.0% or more of our net revenue in fiscal2006 and 2005.

 

**Note 17—Integration andRestructuring Charges**

 

During fiscal 2007 we recordedintegration and restructuring charges totaling $0.8 million related to theacquisitions of TSC and QoSmetrics. During fiscal 2006 we recorded integrationand restructuring charges totaling $1.2 million related to the acquisition ofAgilent Technologies’ Frequency and Timing Standards product line. Thesecharges were recorded as cost of sales and paid out in their respective years.

 

The following tables show the details ofthe restructuring cost accruals, which consist of facilities and severancecosts, for the years ended July 1, 2007 and July 2, 2006. Theadjustments are for reclassifications of facility and benefit accruals:

 
| ** **                                                     | ** ** | **Balance at**     | ** ** | ** **    | ** ** | ** **   | ** ** | **Balance at** | ** ** |
|----------------------------------------------------------------|------------|-------------------------|------------|---------------|------------|--------------|------------|---------------------|------------|
| ** **                                                     | ** ** | **July 3,**        | ** ** | **Expense**   | ** ** | ** **   | ** ** | **July 2,**    | ** ** |
| ** **                                                     | ** ** | **2005**                | ** ** | **Additions** | ** ** | **Payments** | ** ** | **2006**            | ** ** |
| ** **                                                     | ** ** | **(in thousands)** | ** ** |
| Facilities  (October 2002 to June 2003)              |       | $                       | 544        |          | $          | —       |       | $                   | (544       | ) | $ | — |   |
| Lease loss  accrual (fiscal 2004)                              |       | 402                     |       | —        |       | (148         | )          | 254                 |       |
| Total facilities                                               |       | 946                     |       | —        |       | (692         | )          | 254                 |       |
| All other  integration and restructuring changes (fiscal 2004) |       | 700                     |       | —        |       | (122         | )          | 578                 |       |
| All other  integration and restructuring changes (fiscal 2006) |       | —                  |       | 1,154         |       | (1,154       | )          | —              |       |
| Total                                                          |       | $                       | 1,646      |          | $          | 1,154        |       | $                   | (1,968     | ) | $ | 832 |   |

 
| ** **                                                     | ** ** | **Balance at**     | ** ** | ** **    | ** ** | ** **   | ** ** | **Balance at** | ** ** |
|----------------------------------------------------------------|------------|-------------------------|------------|---------------|------------|--------------|------------|---------------------|------------|
| ** **                                                     | ** ** | **July 2,**        | ** ** | **Expense**   | ** ** | ** **   | ** ** | **July 1,**    | ** ** |
| ** **                                                     | ** ** | **2006**                | ** ** | **Additions** | ** ** | **Payments** | ** ** | **2007**            | ** ** |
| ** **                                                     | ** ** | **(in thousands)** | ** ** |
| Lease loss  accrual (fiscal 2004)                              |       | $                       | 254        |          | $          | —       |       | $                   | (109       | ) | $ | 145 |   |
| All other  integration and restructuring changes (fiscal 2004) |       | 578                     |       | —        |       | (96          | )          | 482                 |       |
| All other  integration and restructuring changes (fiscal 2007) |       | —                  |       | 773           |       | (773         | )          | —              |       |
| Total                                                          |       | $                       | 832        |          | $          | 773          |       | $                   | (978       | ) | $ | 627 |   |

 

86

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The accrued balance ofthe $0.1 million lease loss accrual for facilities as of July 1, 2007 willbe paid over the next five years.  Weexpect to incur additional integration and restructuring charges amounting to$1.0 million for the QoSmetrics acquisition.

 

**Note18—Subsequent Events**

 

On May 7,2008, we received a notice of acceleration from the trustee under the indenturegoverning our $120.0 million principal amount of 3.25% Senior ContingentConvertible Subordinated Notes due 2025. The notice states that our failure to file our Quarterly Report on Form 10-Qfor the quarter ended December 30, 2007 violates certain provisions of theindenture.  The acceleration letterdeclares that the principal amount outstanding under the Notes, together withany accrued and unpaid interest, and fees and expenses, are immediately due andpayable.  This notice of accelerationrelates to the trustee’s and certain bondholders’ previous notice received bythe Company on or about March 3, 2008 stating that our failure to file ourQuarterly Report on Form 10-Q for the quarter ended December 30, 2007with the SEC violates provisions of the indenture.  We believe we are not in default under theindenture.  We also believe that no eventof default entitling holders to accelerate has occurred with respect to thenotes.  We believe the indenture requiresus to provide to the trustee, copies of the reports we are required to filewith the SEC, such as our quarterly and annual reports, within 15 days offiling such reports with the SEC rather than the date such reports are due tobe filed with the SEC.

 

 

**Note 19— Restatement ofConsolidated Financial Statements**

 

***Correction of an error related topresentation of purchases and maturities of short- term investments(“Adjustment #1”)***

 

Purchasesof short-term investments and maturities of short-term investments that werepreviously reported net in the Consolidated Statements of Cash Flows have beencorrected to present the gross activity for the years ended July 2, 2006,and July 3, 2005.

 

87

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***Correction of anerror in accounting for accrued liabilities related to inventory receipts(“Adjustment #2”)***

 

Subsequent to the issuance of the Company’s financialstatements for the year ended July 1, 2007, our Audit Committee of theBoard of Directors, following a review initiated by our Audit Committee withthe assistance of independent legal counsel and a forensic accounting firm,concluded that there were errors in accounting for accrued liabilities relatedto inventory receipts and our financial statements for the fiscal years andinterim periods from the fiscal year ended June 30, 2002 through fiscalyear ended July 1, 2007 and for the first quarter of fiscal 2008 ended September 30,2007. As a result, accounts payable balances, cost of sales, income taxprovision (benefit), deferred tax assets and retained earnings for the periodsaffected have been restated.  Inaddition, the segment information has been adjusted to reflect changes to costof sales and gross profit.

 

88

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The cumulative effect ofthe error on retained earnings as of June 27, 2004 was $437,000.  The following is a summary of the significanteffects of the restatements on the Company’s consolidated balance sheets asof  July 1, 2007 and July 2, 2006 and itsconsolidated statements of operations and cash flows for the fiscal years endedJuly 1, 2007, July 2, 2006 and July 3, 2005.

 
| ** **                                          | ** ** | **As of July 1, 2007** | ** **              | **As of July 2, 2006** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------|-------------------------|--------------------------------------------|------------|
| ** **                                          | ** ** | **As Previously**                     | ** **              | **Adjustment**                             | ** ** | **As** | ** ** | **As  Previously** | ** ** | **Adjustment** | ** ** | **As** | ** ** |
| ** **                                          | ** ** | **Reported**                               | ** **              | **#2**                                     | ** ** | **Restated** | ** ** | **Reported** | ** ** | **#2** | ** ** | **Restated** | ** ** |
| ** **                                          | ** ** | ** **                                 | **(In thousands)** | ** **                                 | ** ** | ** ** | **(In thousands)** | ** ** | ** ** |
| **Consolidated Balance Sheet Data:** | ** ** | ** **                                 | ** **              | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Deferred  taxes and other assets                    |       | $                                          | 46,152                  |                                       | $          | (92 | ) | $ | 46,060 |   | $ | 48,405 |   | $ | 23 |   | $ | 48,428 |   |
| Total  assets                                       |       | 409,279                                    |                    | (92                                        | )          | 409,187 |   | 392,418 |   | 23 |   | 392,441 |   |
| Accounts  payable                                   |       | 13,197                                     |                    | (248                                       | )          | 12,949 |   | 13,359 |   | 62 |   | 13,421 |   |
| Total  current liabilities                          |       | 47,215                                     |                    | (248                                       | )          | 46,967 |   | 40,568 |   | 62 |   | 40,630 |   |
| Total  liabilities                                  |       | 173,099                                    |                    | (248                                       | )          | 172,851 |   | 167,857 |   | 62 |   | 167,919 |   |
| Retained  earnings                                  |       | 48,707                                     |                    | 156                                        |       | 48,863 |   | 42,602 |   | (39 | ) | 42,563 |   |
| Total  stockholders’ equity                    |       | 236,180                                    |                    | 156                                        |       | 236,336 |   | 224,561 |   | (39 | ) | 224,522 |   |
| Total  liabilities and stockholders’ equity    |       | 409,279                                    |                    | (92                                        | )          | 409,187 |   | 392,418 |   | 23 |   | 392,441 |   |
|                                                     |            |                                            |                         |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                     | ** ** | **Year ended July 1, 2007**                       | ** ** | **Year ended July 2, 2006**                       | ** ** | **Year ended July 3, 2005**                       | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **As Previously**                                                | ** ** | **Adjustment**                                                        | ** ** | **As**                                                                | ** ** | **As  Previously** | ** ** | **Adjustment** | ** ** | **As** | ** ** | **As  previously** | ** ** | **Adjustment** | ** ** | **As** | ** ** |
| ** **                                     | ** ** | **Reported**                                                          | ** ** | **#2**                                                                | ** ** | **Restated**                                                          | ** ** | **Reported** | ** ** | **#2** | ** ** | **Restated** | ** ** | **Reported** | ** ** | **#2** | ** ** | **Restated** | ** ** |
| ** **                                     | ** ** | **(In thousands, except per share amounts)** | ** ** | **(In thousands, except per share amounts)** | ** ** | **(In thousands, except per share amounts)** | ** ** |
| **Consolidated Statement of Operations Data:** | ** ** | ** **                                                            | ** ** | ** **                                                            | ** ** | ** **                                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  revenue                                   |       | $                                                                     | 208,380    |                                                                  | $          | —                                                                |       | $ | 208,380 |   | $ | 176,112 |   | $ | — |   | $ | 176,112 |   | $ | 179,388 |   | $ | — |   | $ | 179,388 |   |
| Gross  profit                                  |       | 94,692                                                                |       | 310                                                                   |       | 95,002                                                                |       | 79,710 |   | (1,198 | ) | 78,512 |   | 86,884 |   | 443 |   | 87,327 |   |
| Operating  income (loss)                       |       | 8,928                                                                 |       | 310                                                                   |       | 9,238                                                                 |       | (2,968 | ) | (1,198 | ) | (4,166 | ) | 17,737 |   | 443 |   | 18,180 |   |
| Income  tax provision (benefit)                |       | 7,473                                                                 |       | 115                                                                   |       | 7,588                                                                 |       | (371 | ) | (443 | ) | (814 | ) | 1,914 |   | 164 |   | 2,078 |   |
| Net  income                                    |       | 6,105                                                                 |       | 195                                                                   |       | 6,300                                                                 |       | 819 |   | (755 | ) | 64 |   | 17,916 |   | 279 |   | 18,195 |   |
| Basic  net earnings per share                  |       | 0.13                                                                  |       | 0.01                                                                  |       | 0.14                                                                  |       | 0.02 |   | (0.02 | ) | — |   | 0.39 |   | 0.01 |   | 0.40 |   |
| Diluted  net earnings per share                |       | 0.13                                                                  |       | 0.01                                                                  |       | 0.14                                                                  |       | 0.02 |   | (0.02 | ) | — |   | 0.38 |   | 0.01 |   | 0.39 |   |
|                                                |            |                                                                       |            |                                                                       |            |                                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

89

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| ** **                                     | ** ** | **Year ended July 1, 2007** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                     | ** ** | **As  Previously**                              | ** ** | **Adjustment** | ** ** | ** ** | ** ** | **Adjustment** | ** ** | **As** | ** ** |
| ** **                                     | ** ** | **Reported**                                    | ** ** | **#1 *** | ** ** | **Total** | ** ** | **#2** | ** ** | **Restated** | ** ** |
| ** **                                     | ** ** | **(In thousands)**                         | ** ** |
| **Consolidated Statement of Cash Flows Data:** |       |                                            |       |   |   |   |   |   |   |   |   |
|                                           |       |                                            |       |   |   |   |   |   |   |   |   |
| Net  income                                    |       | $                                               | 6,105      |   | $ | — |   | $ | 6,105 |   | $ | 195 |   | $ | 6,300 |   |
| Deferred  income taxes                         |       | 1,916                                           |       | — |   | 1,916 |   | 115 |   | 2,031 |   |
| Accounts  payable                              |       | (525                                            | )          | — |   | (525 | ) | (310 | ) | (835 | ) |
| Net  cash provided by operating activities     |       | 20,701                                          |       | — |   | 20,701 |   | — |   | 20,701 |   |
|                                           |       |                                            |       |   |   |   |   |   |   |   |   |
| Purchases  of short-term investments           |       | (225,368                                        | )          | — |   | (225,368 | ) | — |   | (225,368 | ) |
| Maturities  of short-term investments          |       | 193,603                                         |       | — |   | 193,603 |   | — |   | 193,603 |   |
| Net  cash used for investing activities        |       | (62,280                                         | )          | — |   | (62,280 | ) | — |   | (62,280 | ) |
|                                                |            |                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                     | ** ** | **Year ended July 2, 2006** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                     | ** ** | **As  Previously**                              | ** ** | **Adjustment** | ** ** | ** ** | ** ** | **Adjustment** | ** ** | **As** | ** ** |
| ** **                                     | ** ** | **Reported**                                    | ** ** | **#1 *** | ** ** | **Total** | ** ** | **#2** | ** ** | **Restated** | ** ** |
| ** **                                     | ** ** | **(In thousands)**                         | ** ** |
| **Consolidated Statement of Cash Flows Data:** |       |                                            |       |   |   |   |   |   |   |   |   |
|                                           |       |                                            |       |   |   |   |   |   |   |   |   |
| Net  income                                    |       | $                                               | 819        |   | $ | — |   | $ | 819 |   | $ | (755 | ) | $ | 64 |   |
| Deferred  income taxes                         |       | (1,693                                          | )          | — |   | (1,693 | ) | (443 | ) | (2,136 | ) |
| Accounts  payable                              |       | 675                                             |       | — |   | 675 |   | 1,198 |   | 1,873 |   |
| Net  cash provided by operating activities     |       | 19,339                                          |       | — |   | 19,339 |   | — |   | 19,339 |   |
|                                           |       |                                            |       |   |   |   |   |   |   |   |   |
| Purchases  of short-term investments           |       | (77,726                                         | )          | (97,699 | ) | (175,425 | ) | — |   | (175,425 | ) |
| Maturities  of short-term investments          |       | 60,650                                          |       | 97,699 |   | 158,349 |   | — |   | 158,349 |   |
| Net  cash used for investing activities        |       | (34,551                                         | )          | — |   | (34,551 | ) | — |   | (34,551 | ) |
|                                                |            |                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                     | ** ** | **Year ended July 3, 2005** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                     | ** ** | **As  Previously**                              | ** ** | **Adjustment** | ** ** | ** ** | ** ** | **Adjustment** | ** ** | **As** | ** ** |
| ** **                                     | ** ** | **Reported**                                    | ** ** | **#1 *** | ** ** | **Total** | ** ** | **#2** | ** ** | **Restated** | ** ** |
| ** **                                     | ** ** | **(In thousands)**                         | ** ** |
| **Consolidated Statement of Cash Flows Data:** |       |                                            |       |   |   |   |   |   |   |   |   |
|                                           |       |                                            |       |   |   |   |   |   |   |   |   |
| Net  income                                    |       | $                                               | 17,916     |   | $ | — |   | $ | 17,916 |   | $ | 279 |   | $ | 18,195 |   |
| Deferred  income taxes                         |       | (3,368                                          | )          | — |   | (3,368 | ) | 164 |   | (3,204 | ) |
| Accounts  payable                              |       | (2,688                                          | )          | — |   | (2,688 | ) | (443 | ) | (3,131 | ) |
| Net  cash provided by operating activities     |       | 27,176                                          |       | — |   | 27,176 |   | — |   | 27,176 |   |
|                                           |       |                                            |       |   |   |   |   |   |   |   |   |
| Purchases  of short-term investments           |       | (83,478                                         | )          | (51,256 | ) | (134,734 | ) | — |   | (134,734 | ) |
| Maturities  of short-term investments          |       | 7,460                                           |       | 51,256 |   | 58,716 |   | — |   | 58,716 |   |
| Net  cash used for investing activities        |       | (77,507                                         | )          | — |   | (77,507 | ) | — |   | (77,507 | ) |
|                                                |            |                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(*) This correction wasmade in the original filing of the financial statements on Form 10-K.

 

**Item 9.      *Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure***

 

Not applicable.

 

**Item 9A.****        *****Controls andProcedures***

 

Asdisclosed in the Explanatory Note on page 3 of this Form 10-K/A andin Note 19 of our consolidated financial statements included in this Form 10-K/A,the Audit Committee of the Board of Directors of the Company,

 

90

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following a reviewinitiated by the Audit Committee with the assistance of independent legalcounsel and a forensic accounting firm, concluded that, due to errors inaccounting for accrued liabilities related to inventory receipts, the Company’sfinancial statements for the fiscal years and interim periods from the fiscalyear ended June 30, 2002 through its fiscal year ended July 1, 2007and for the first quarter of fiscal 2008 ended September 30, 2007 shouldno longer be relied upon.  These errorswere due to a design deficiency in the reconciliation and review process. Tocorrect this material weakness in the internal control environment, managementis in the process of instituting changes in its controls and procedures to ensurethat the accrued receipts account is properly reconciled and reviewed in thefuture.

 

*Evaluationof Disclosure Controls and Procedures*

 

On August 31,2007 we filed Form 10-Q/A to amend our Form 10-Q for the quarterended March 31, 2007, to correct a misstatement in our original filing. Inthat Form 10-Q/A, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934) were not effective.Because a material weakness in our control environment existed during thefourth quarter of fiscal 2007 and was not discovered until after July 1,2007, our Chief Executive Officer and Chief Financial Officer concluded thatour disclosure controls and procedures were not effective as of July 1,2007.   Additionally, in connection withthe filing of this Form 10-K/A, we carried out a re-evaluation under thesupervision and with the participation of management, including our ChiefExecutive Officer and our Chief Financial Officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures. Based on theresults of the initial assessment and the re-evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were not effective as of July 1, 2007 because of the materialweakness described above and the previously disclosed material weaknessdescribed in the Form 10-Q/A for the quarter ended March 31, 2007.

* *

*Changesin Internal Control Over Financial Reporting*

 

Therehave not been any changes in the Company’s internal control over financialreporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act) during the most recent fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting, except for instituting a new process in ouraccounting procedures to help ensure the completeness and accuracy of therecording of expenses for outsourced labor. This was done to address a materialweakness identified by management in the fourth quarter of 2007 that led us torestate our second quarter results, and file a Form 10-Q/A to amend our Form 10-Qfor the quarter ended December 31, 2006.

 

Duringthe first quarter of fiscal year 2008, we implemented a new financial policyand procedure for the treatment of complex transactions. We believe thatimplementation of this policy and compliance to this process will remediate thematerial weakness in our control environment that existed in the fourth quarterof fiscal 2007.

* *

*Management’sReport on Internal Control Over Financial Reporting*

 

TheCompany’s management is responsible for establishing and maintaining adequateinternal control over financial reporting as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act. Under the supervision and with theparticipation of the Company’s management, including our principal executiveofficer and principal financial officer, the Company conducted an evaluation ofthe effectiveness of its internal control over financial reporting based oncriteria established in the framework in *InternalControl—Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on this evaluation, the Company’smanagement concluded that its internal control over financial reporting was noteffective as of July 1, 2007, because of material weaknesses involving theinsufficient review of significant and unusual transactions relating toaccounting for income taxes and errors in accounting for accrued liabilitiesrelated to inventory receipts.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risks that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

91

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The Company’s independentregistered public accounting firm has audited management’s assessment of theeffectiveness of the Company’s internal control over financial reporting as of July 1,2007 as stated in their report.

 

**Item 9B*.****           **Other Information*

 

**None**

 

**92**

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**REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board of Directorsand Stockholders of

Symmetricom, Inc.

San Jose, California

 

We have auditedmanagement’s assessment, included in the accompanying Management’s Report onInternal Control Over Financial Reporting, that Symmetricom, Inc. and itssubsidiaries (the “Company”) did not maintain effective internal control overfinancial reporting as of July 1, 2007, because of the effect of materialweaknesses identified in management’s assessment based on criteria establishedin Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission. The Company’s management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting.  Our responsibility is to express an opinionon management’s assessment and an opinion on the effectiveness of the Company’sinternal control over financial reporting based on our audit.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects.  Our audit includedobtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we considered necessary in the circumstances.  We believe that our audit provides areasonable basis for our opinion.

 

A company’s internalcontrol over financial reporting is a process designed by, or under thesupervision of, the company’s principal executive and principal financialofficers, or persons performing similar functions, and effected by the company’sboard of directors, management, and other personnel to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles.  Acompany’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of the inherentlimitations of internal control over financial reporting, including thepossibility of collusion or improper management override of controls, materialmisstatements due to error or fraud may not be prevented or detected on atimely basis.  Also, projections of anyevaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

A material weakness is adeficiency, or a combination of deficiencies, in internal control over financialreporting such that there is a reasonable possibility that a materialmisstatement of the annual or interim financial statements will not beprevented or detected on a timely basis. The following material weaknesses havebeen identified and included in management’s assessment: insufficient review ofsignificant and unusual transactions relating to accounting for income taxesand errors in accrued liabilities related to inventory receipts.

 

These material weaknesseswere considered in determining the nature, timing, and extent of audit testsapplied in our audit of the consolidated financial statements and financialstatement schedule as of and for the year ended July 1, of the Company andthis report does not affect our report on such financial statements andfinancial statement schedule.

 

93

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In our opinion,management’s assessment that the Company did not maintain effective internalcontrol over financial reporting as of July 1, 2007, is fairly stated, inall material respects, based on the criteria established in InternalControl—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission. Also in our opinion, because of the effects of the material weaknesses describedabove on the achievement of the objectives of the control criteria, the Companyhas not maintained effective internal control over financial reporting asof  July 1, 2007, based on thecriteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission.

 

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated financial statements and financial statementschedule as of and for the year ended July 1, 2007, of the Company and ourreport dated September 25, 2007, except for Notes 18 and Note 19 for whichthe dates are May 7, 2008 and June 17, 2008, respectively, expressed anunqualified opinion on those financial statements and financial statementschedule.

 

**/s/ DELOITTE & TOUCHE LLP**

San Jose, California 

September 25, 2007and June 17, 2008 as to the effects of the material weakness for errors inaccrued liabilities relating to inventory.

 

94

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**PART III**

 

**Item 10.****                                                   *****Directors,Executive Officers and Corporate Governance***

 

(a)                                  Executive Officers

 

See the section entitled “Executive Officers ofSymmetricom” in Part I of this report.

 

(b)                                 Directors

 

The information required by this item is incorporatedby reference from the information under the caption “Election ofDirectors—Nominees” contained in the Company’s Proxy Statement to be filed withthe Securities and Exchange Commission (the “SEC”) in connection with thesolicitation of proxies for the Company’s 2007 Annual Meeting of Shareholdersto be held on October 25, 2007 (the “Proxy Statement”).

 

(c)                                  Section 16(a) BeneficialOwnership Reporting Compliance

 

Section 16(a) of the Securities Exchange Actof 1934, as amended (the “Exchange Act”), requires a company’s directors,officers and beneficial owners of more than 10% of any class of equitysecurities of the company registered pursuant to section 12 of the Exchange Actto file with the SEC- initial reports of beneficial ownership and reports ofchanges in ownership of Common Stock and other equity securities of Symmetricomregistered pursuant to section 12 of the Exchange Act. This information iscontained in the section called “Section 16(A) Beneficial OwnershipReporting Compliance” in the Proxy Statement and is incorporated herein byreference.

 

(d)                                 Code of Ethics

 

We have adopted a written code of ethics that appliesto all of our employees and to our Board of Directors. A copy of the code isavailable on our website at *http://www.symmetricom.com*and is attached as an exhibit to this report.

 

(e)                                  Corporate Governance

 

The information required by this item is incorporatedby reference from the information under the captions “Election ofDirectors—Audit Committee” and “Election of Directors—Nominating and GovernanceCommittee” contained in the Proxy Statement.

 

**Item11.****                                                   *****ExecutiveCompensation***

 

The information required by this item is incorporatedby reference from the information under the captions “Election ofDirectors—Nominees,” “Executive Officer Compensation,” “Election ofDirectors—Director Compensation,” and “Certain Transactions” contained in theProxy Statement.

 

**Item12.****                                                   *****SecurityOwnership of Certain Beneficial Owners and Management and Related StockholdersMatters***

 

The information required by this item is incorporatedby reference from the information under the caption “Other Information—ShareOwnership by Principal Stockholders and Management” contained in the ProxyStatement.

 

**Item13.****                                                   *****CertainRelationships and Related Transactions, and Director Independence***

 

The information required by this item is incorporatedby reference from the information under the caption “Certain Transactions”contained in the Proxy Statement.

 

**Item14.****                                                   *****PrincipalAccounting Fees and Services***

 

The information requiredby this item is included in “Ratification of Appointment of Registered PublicAccounting Firm of the Company” in our Proxy Statement.

** **

**95**

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**PART IV**

 

**Item 15.**                   Exhibits andFinancial Statement Schedules

 

(a)  *Financial Statements and Financial Statement Schedule*

 

1.   *Financial Statements.**  *Reference ismade to the Index to Consolidated Statements of Symmetricom, Inc. underItem 8 of Part II hereof.

 

2.   *Financial Statement Schedules*.   The following financial statementschedule of Symmetricom for the years ended July 1, 2007, July 2,2006, and July 3, 2005, is filed as part of this report on Form 10-K/Aand should be read in conjunction with the financial statements: ScheduleII—Valuation and Qualifying Accounts and Reserves. All other schedules havebeen omitted because they are not applicable, not required, or the requiredinformation is included in the Consolidated Financial Statements or notesthereto.

 

3.   *Exhibits.**  *See Item 15(b) below.Each management contract or compensatory plan or arrangement required to befiled has been identified.

 

(b)  *Exhibits*

 
| **Exhibit No.** | ** ** | **Description of Exhibits**                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **           | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 2.1                  |       | Agreement and Plan of  Merger dated May 22, 2002, among the Registrant, Datum Inc., a Delaware  corporation, and Dublin Acquisition Subsidiary, Inc., a Delaware  corporation (incorporated by reference from Exhibit 2.1 to the  Registrant’s current report on Form 8-K filed May 24, 2002).                                                                                                                                                                 |
|                 |       | The following Exhibits  and schedules to the Agreement and Plan of Merger have been omitted. The  Registrant will furnish copies of the omitted schedules and Exhibits to the  Commission upon request:                                                                                                                                                                                                                                                                                      |
|                 |       | Company Disclosure  Schedule                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                 |       | Parent Disclosure  Schedule                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                 |       | Schedule 1.1                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                 |       | Schedule 2.2(d) (if  applicable)                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                 |       | Exhibit A-1  Form of Support Agreement—Company                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                 |       | Exhibit A-2  Form of Support Agreement—Parent                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                 |       | Exhibit B  Form of Lockup Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                 |       | Exhibit C  Form of Affiliate Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 2.2                  |       | Agreement and Plan of  Merger, dated January 3, 2002, among the Registrant and  Symmetricom, Inc. a California corporation (incorporated by reference  from Exhibit 2.1 to the Registrant’s current report on Form 8-K  filed January 9, 2002).                                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 2.3                  |       | Agreement and Plan of  Merger, dated as of March 27, 2002, together with the First Amendment  thereto dated as of June 26, 2002, among the Registrant,  TrueTime, Inc. and Sco-TRT Acquisition, Inc. (incorporated by  reference from Exhibit 2.1 to the Registrant’s current report on  Form 8-K filed April 1, 2002 and Annex B to the Registrant’s  registration statement on Form S-4 (file no. 333-92392) filed  July 15, 2002). |
|                 |       | The following Exhibits  and schedules to the Agreement and Plan of Merger have been omitted. The  Registrant will furnish copies of the omitted schedules and Exhibits to the  Commission upon request:                                                                                                                                                                                                                                                                                      |
|                 |       | Disclosure Schedule                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                 |       | Schedule  2.2(d) (if applicable)                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                 |       | Schedule 7.13(a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                 |       | Exhibit C—Form of  Extended Employment Agreement                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                 |       | Exhibit D—Form of  Three Month Employment Agreement                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.1(i)               |       | Amended and Restated Certificate  of Incorporation of the Registrant (incorporated by reference from  Exhibit 3.1 to the Registrant’s current report on Form 8-K filed  January 9, 2002).                                                                                                                                                                                                                                                                           |

 

96

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| 3.1(ii) |   | Amended and Restated  Bylaws of the Registrant (incorporated by reference from Exhibit 3.1 to  the Registrant’s current report on Form 8-K filed August 10, 2005).                                                                                                                                                                            |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 4.1     |   | Form of Common  Stock Certificate (incorporated by reference from Exhibit 4.1 to the  Registrant’s annual report on Form 10-K filed August 30, 2002).                                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 4.2     |   | Rights Agreement dated  as of August 9, 2001 between the Registrant and Mellon Investor Services  (incorporated by reference from Exhibit 4.1 to the Registrant’s  registration statement on Form 8-A (file no. 000-02287) filed  August 9, 2001).                                                                                       |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 4.3     |   | Indenture, dated as of  June 8, 2005, between the Registrant and Wells Fargo Bank, National  Association, as Trustee (incorporated by reference from Exhibit 4.1 to  the Registrant’s current report on the Form 8-K filed June 8,  2005).                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 4.4     |   | Form of 31⁄4%  Contingent Convertible Subordinated Notes due 2025 (incorporated by reference  to Exhibit A to Exhibit 4.3 hereof).                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.2#   |   | 1999 Director Stock  Option Plan, as amended through December 28, 2005 and forms of  agreements thereunder (incorporated by reference from Exhibit 99.3 to  the Registrant’s 1999 proxy statement filed September 23, 1999 and  Exhibit 10.2 to the Registrant’s quarterly report on Form 10-Q  filed February 13, 2001). |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.3#   |   | Amendment to the  Symmetricom, Inc. 1999 Director Stock Option Plan effective  December 28, 2005 and form of option agreement thereunder (incorporated  by reference from Exhibits 10.1 and 10.2 to the Registrant’s quarterly report  on Form 10-Q filed February 8, 2006).                                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.4#   |   | 1999 Employee Stock  Option Plan, as amended through October 23, 2001, and forms of  agreements thereunder (incorporated by reference from Exhibit 99.1 to  the Registrant’s proxy statement filed September 23, 1999 and  Exhibit 10.1 to the Registrant’s quarterly report on Form 10-Q  filed February 13, 2001).      |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.5#   |   | Amendment to the  Symmetricom, Inc. 1999 Employee Stock Option Plan effective May 28,  2003 (incorporated by reference from Exhibit (d)(6) to the  Registrant’s tender offer statement on Schedule TO, filed May 28, 2003).                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.6#   |   | 2002 Stock Option Plan  (incorporated by reference from Exhibit 4.1 to Registrant’s registration  statement on Form S-8 (file no. 333-97599) filed August 2, 2002).                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.7    |   | Lease Agreement by and  between the Registrant and Nexus Equity, Inc. dated June 10, 1996  (incorporated by reference from Exhibit 10.14 to the Registrant’s annual  report on Form 10-K filed September 17, 1996).                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.8    |   | First Amendment to  Lease by and between the Registrant and Nexus Equity II LLC, as successor in  interest to Nexus Equity, Inc., dated November 18, 2005, effective  as of October 27, 2005 (incorporated by reference from Exhibit 10.2  to the Registrant’s current report on Form 8-K filed November 22,  2005).           |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.9    |   | Form of  Indemnification Agreement (incorporated by reference from Exhibit 10.6  to the Registrant’s annual report on Form 10-K filed August 30,  2002).                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.10#  |   | Symmetricom, Inc.  Deferred Compensation Plan effective October 1, 1999 (incorporated by  reference from Exhibit 10.4 to the Registrant’s quarterly report on  Form 10-Q filed May 15, 2001).                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.14#  |   | Promissory Note Secured  by Deed of Trust issued by Thomas W. Steipp to the Registrant dated  January 25, 1999 (incorporated by reference from Exhibit 10.29 to  the Registrant’s quarterly report on Form 10-Q filed February 4,  1999).                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                              |
| 10.15#  |   | Rider to Deed of Trust  by Thomas W. Steipp and Debra L. Steipp, as Trustor, to First American Title  Insurance Company, as Trustee, for the benefit of Symmetricom, Inc., as  Beneficiary (incorporated by reference from Exhibit 10.30 to the  Registrant’s quarterly report on Form 10-Q filed February 4, 1999).                     |

 

97

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| 10.16# |   | Employment Agreement  between the Registrant and Thomas W. Steipp dated July 1, 2001 (incorporated  by reference from Exhibit 10.18 to the Registrant’s annual report on  Form 10-K filed September 20, 2001).                                                                                                                               |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.17# |   | Change of Control  Retention Agreement between the Registrant and Thomas W. Steipp dated  July 1, 2001 (incorporated by reference from Exhibit 10.19 to the  Registrant’s annual report on Form 10-K filed September 20, 2001).                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.19# |   | Form of Executive  Severance Benefits Agreement between the Company and each of William Slater,  Nancy J. Shemwell, Dale A. Pelletier, Bruce K. Bromage, William H.  Minor, Jr. and David Cox (incorporated by reference from  Exhibit 10.1 to the Registrant’s current report on Form 8-K filed  May 23, 2006).                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.20# |   | Form of Restricted  Stock Award Agreement (incorporated by reference from Schedule A to Exhibit (a)(1)(ii) to  the Registrant’s tender offer statement on Schedule TO filed  May 28, 2003).                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.21# |   | Form of Restricted  Stock Award Agreement under Symmetricom, Inc. 1999 Employee Stock Option  Plan, amended effective August 4, 2005 (incorporated by reference from  Exhibit 10.21 to the Registrant’s annual report on Form 10-K filed  September 13, 2006).                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.22  |   | Standard Industrial  Lease between Manor Development Co. and TrueTime, Inc. (incorporated  herein by reference from Exhibit 10.9 to TrueTime, Inc.’s  registration statement on Form S-1 (file no. 333-90269)).                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.23  |   | Standard  Industrial/Commercial Single-Tenant Lease—Net, dated as of January 24,  2000, by and between Cooperhill Development Corporation and  TrueTime, Inc. (incorporated by reference from Exhibit 10.1 to  TrueTime, Inc.’s quarterly report on Form 10-Q for the quarter  ended March 30, 2000).                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.24  |   | Amendment to the  Standard Industrial/Commercial Single-Tenant Lease—Net, dated as of  January 24, 2000, by and between Cooperhill Development Corporation and  TrueTime, Inc. (incorporated by reference from Exhibit 10.7 to  TrueTime, Inc.’s annual report on Form 10-K for the fiscal year  ended September 30, 2000).   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.25  |   | Standard Industrial  Sublease dated as of December 11, 2000 by and between Innovadyne  Technologies, Inc. and TrueTime, Inc. (incorporated by reference  from Exhibit 10.1 to TrueTime, Inc.’s quarterly report on  Form 10-Q for the quarterly period ended December 31, 2000).                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.26  |   | Lease Intended as  Security dated as of April 30, 2001 by and between Bank of America and  TrueTime, Inc. (incorporated by reference from Exhibit 10.1 to  TrueTime, Inc.’s quarterly report on Form 10-Q for the quarterly  period ended June 30, 2001).                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.28# |   | Datum Inc.’s Savings  and Retirement Plan, as amended to date (incorporated by reference from  Exhibit 10.19 to Datum Inc.’s annual report on Form 10-K for the  fiscal year ended December 31, 1991).                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.37# |   | Service Agreement, by  and between the Company and Eric van der Kaay (incorporated by reference from  Exhibit 10.3 to the Registrant’s quarterly report on Form 10-Q  filed May 14, 2003).                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.39  |   | Loan and Trust  Agreement, dated May 1, 2001, among Massachusetts Development Finance  Agency, Frequency and Time Systems, Inc. and Wells Fargo Brokerage  Services, LLC (incorporated by reference from Exhibit 10.57 to Datum  Inc.’s quarterly report on Form 10-Q for the quarterly period ended  June 30, 2001).                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.40  |   | Bond Purchase Agreement  dated May 1, 2001, among Wells Fargo Brokerage Services, LLC, Frequency  and Time Systems, Inc. and Wells Fargo Bank Minnesota, National  Association, as trustee (incorporated by reference from Exhibit 10.58 to  Datum Inc.’s quarterly report on Form 10-Q for the quarterly period  ended June 30, 2001). |

 

98

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| 10.41  |   | Remarketing Agreement,  dated May 1, 2001, among Wells Fargo Brokerage Services, LLC, Frequency  and Time Systems, Inc. and Wells Fargo Bank Minnesota, National  Association, as trustee (incorporated by reference to Exhibit 10.59 to  Datum Inc.’s quarterly report on Form 10-Q for the quarterly period  ended June 30, 2001). |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.42  |   | Credit Agreement dated  May 1, 2004, between the Registrant and Wells Fargo Bank, National  Association (incorporated by reference from Exhibit 10.39 to the  Registrant’s annual report on Form 10-K filed September 12, 2005).                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.43  |   | Revolving Line of  Credit Note dated June 1, 2005, between the Registrant and Wells Fargo  Bank, National Association (incorporated by reference from Exhibit 10.40  to the Registrant’s annual report on Form 10-K filed September 12,  2005).                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.44  |   | First Amendment to  Credit Agreement dated June 1, 2005, between the Registrant and Wells  Fargo Bank, National Association (incorporated by reference from  Exhibit 10.41 to the Registrant’s annual report on Form 10-K filed  September 12, 2005).                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.45  |   | Second Amendment to  Credit Agreement dated August 19, 2005, between the Registrant and Wells  Fargo Bank, National Association (incorporated by reference from  Exhibit 10.45 to the Registrant’s annual report on Form 10-K filed  September 13, 2006).                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.46  |   | Third Amendment to  Credit Agreement dated July 3, 2006, between the Registrant and Wells  Fargo Bank, National Association (incorporated by reference from  Exhibit 10.46 to the Registrant’s annual report on Form 10-K filed  September 13, 2006).                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
| 10.47# |   | 2006 Incentive Award  Plan and forms of agreements thereunder (incorporated by reference from  Appendix A to the Registrant’s 2006 Proxy Statement filed with the Commission  on September 25, 2006 and Exhibit 4.4 to the Registrant’s  registration statement on Form S-8 (file no. 333-138546) filed  November 9, 2007).          |
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
| 14     |   | Code of Ethics  (incorporated by reference to Exhibit 14.1 of the Registrant’s current  report on Form 8-K filed August 10, 2005).                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
| 21.1   |   | Subsidiaries of the  Registrant (incorporated by reference to the same numbered exhibit to the  Company’s Annual Report on Form 10-K for the year ended July 1,  2007, filed on September 25, 2007).                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
| 23.1   |   | Consent of Independent  Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
| 24.1   |   | Power of Attorney  (incorporated by reference from the signature page to the Registrant’s  annual report on Form 10-K filed on September 25, 2007).                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
| 31     |   | Certification of Chief  Executive Officer and Chief Financial Officer Pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                               |
| 32     |   | Certification Pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                     |

 

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#                               Management contract or compensatory planor arrangement

 

(c) *  Financial Statement Schedules*

 

SeeItem 15(a)(2) above.

** **

**99**

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**SCHEDULEII**

 

**SYMMETRICOM,INC.**

 

**VALUATIONAND QUALIFYING ACCOUNTS AND RESERVES**

**(Inthousands)**

 
| ** **                                   | ** ** | **Balance at**   | ** ** | **Charged to** | ** ** | ** **              | ** ** | ** **                | ** ** |
|----------------------------------------------|------------|-----------------------|------------|---------------------|------------|-------------------------|------------|---------------------------|------------|
| ** **                                   | ** ** | **Beginning of** | ** ** | **Costs and**  | ** ** | ** **              | ** ** | **Balance at**       | ** ** |
| ** **                                   | ** ** | **Year**              | ** ** | **Expenses**        | ** ** | **Deductions (1)** | ** ** | **End of Year** | ** ** |
| Year  ended July 1, 2007:               |       |                  |       |                |       |                    |       |                      |       |
| Accrued  warranty expense                    |       | $                     | 3,547      |                | $          | 2,300                   |       | $                         | 2,473      |   | $ | 3,374 |   |
| Allowance  for doubtful accounts             |       | $                     | 888        |                | $          | 349                     |       | $                         | 130        |   | $ | 1,107 |   |
| Allowance  for excess and obsolete inventory |       | $                     | 4,916      |                | $          | 1,705                   |       | $                         | 2,089      |   | $ | 4,532 |   |
| Year  ended July 2, 2006:               |       |                  |       |                |       |                    |       |                      |       |
| Accrued  warranty expense                    |       | $                     | 3,338      |                | $          | 2,886                   |       | $                         | 2,677      |   | $ | 3,547 |   |
| Allowance  for doubtful accounts             |       | $                     | 874        |                | $          | 173                     |       | $                         | 159        |   | $ | 888 |   |
| Allowance  for excess and obsolete inventory |       | $                     | 4,913      |                | $          | 1,743                   |       | $                         | 1,740      |   | $ | 4,916 |   |
| Year  ended July 3, 2005:               |       |                  |       |                |       |                    |       |                      |       |
| Accrued  warranty expense                    |       | $                     | 3,194      |                | $          | 2,546                   |       | $                         | 2,402      |   | $ | 3,338 |   |
| Allowance  for doubtful accounts             |       | $                     | 763        |                | $          | 295                     |       | $                         | 184        |   | $ | 874 |   |
| Allowance  for excess and obsolete inventory |       | $                     | 5,617      |                | $          | 934                     |       | $                         | 1,638      |   | $ | 4,913 |   |

 

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** **(1)          Deductions representcosts charged or amounts written off against the reserve or allowance.

 

100

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**SIGNATURES**

** **

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|                      | SYMMETRICOM, INC. |
|---------------------------|-------------------|
|                      |              |
| Date: June 17,  2008 | By:               | /s/    THOMAS  W. STEIPP |
| ** **                | ** **        | **Thomas  W. Steipp** |
| ** **                | ** **        | **Chief  Executive Officer** |
| ** **                | ** **        | **(Principal  Executive Officer)** |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 
| **Signatures**                               | ** ** | **Title**                             | ** ** | **Date**             |
|----------------------------------------------|------------|---------------------------------------|------------|----------------------|
| ** **                                   | ** ** | ** **                            | ** ** | ** **           |
| /s/    THOMAS  W. STEIPP |       | Chief  Executive Officer (Principal   |       | June   17, 2008 |
| **Thomas W. Steipp**                         | ** ** | Executive Officer) and  Director      |       |                 |
| ** **                                   | ** ** |                                  |       |                 |
|                                         |       | Executive  Vice President Finance and |       | June   17, 2008 |
|                                         |       | Administration, Chief  Financial      |       |                 |
| /s/    WILLIAM  SLATER   |       | Officer, and Secretary                |       |                 |
| **William Slater**                           | ** ** | (Principal Financial  and             |       |                 |
| ** **                                   | ** ** | Accounting Officer)                   |       |                 |
| ** **                                   | ** ** |                                  |       |                 |
| ** **                                   | ** ** |                                  |       |                 |
| /s/    *                 |       | Chairman  of the Board                |       | June   17, 2008 |
| **Robert T. Clarkson**                       | ** ** | ** **                            | ** ** | ** **           |
| ** **                                   | ** ** | ** **                            | ** ** | ** **           |
| /s/    *                 |       | Director                              |       | June   17, 2008 |
| **Alfred Boschulte**                         | ** ** | ** **                            | ** ** | ** **           |
| ** **                                   | ** ** | ** **                            | ** ** | ** **           |
| /s/    *                 |       | Director                              |       | June   17, 2008 |
| **James Chiddix**                            | ** ** | ** **                            | ** ** | ** **           |
| ** **                                   | ** ** | ** **                            | ** ** | ** **           |
| **/**s/    *             | ** ** | Director                              |       | June   17, 2008 |
| **Elizabeth A. Fetter**                      | ** ** | ** **                            | ** ** | ** **           |
| ** **                                   | ** ** | ** **                            | ** ** | ** **           |
| /s/   *                       |       | Director                              |       | June   17, 2008 |
| **Robert M. Neumeister Jr.**                 | ** ** | ** **                            | ** ** | ** **           |
| ** **                                   | ** ** | ** **                            | ** ** | ** **           |
| /s/   *                       |       | Director                              |       | June   17, 2008 |
| **Richard W. Oliver**                        |       |                                  |       |                 |
| ** **                                   | ** ** |                                  |       |                 |
| /s/    *                 |       | Director                              |       | June   17, 2008 |
| **Richard N. Snyder**                        | ** ** | ** **                            | ** ** | ** **           |
| ** **                                   | ** ** | ** **                            | ** ** | ** **           |
| /s/    *                 |       | Director                              |       | June   17, 2008 |
| **Robert J. Stanzione**                      | ** ** | ** **                            | ** ** | ** **           |
|                                         |       |                                  |       |                 |
| *****By: /s/ William Slater                  | ** ** | Attorney  in-Fact                     |       | June   17, 2008 |
| **William Slater**                           | ** ** | ** **                            | ** ** | ** **           |

 

101

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