**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-K**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe fiscal year ended July 1, 2007**

**or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe transition period from                to               **

**Commissionfile number 0-02287**

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**SYMMETRICOM, INC.**

(Exact name of registrantas 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’stelephone number, 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**                |

 

**Securitiesregistered pursuant to Section 12(g) of the Act:None**

**Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes**o  Nox

**Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes**o  Nox

**Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.**   Yes x   No o

**Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K (§29.405 of this chapter) isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by referencein Part III of this Form 10-K or any amendment to this Form 10-K.**   o

**Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):**

| **Large accelerated  filer    ****o** | **Accelerated  filer    ****x** | **Non-accelerated  filer    ****o** |
|-----------------------------------------------------------|-----------------------------------------------------|---------------------------------------------------------|

 

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

The aggregate market valueof the voting and non-voting common stock held by non-affiliates of theRegistrant, computed by reference to the closing price at which the CommonStock was sold on December 31, 2006, as reported on the NASDAQ StockMarket LLC (formerly the NASDAQ National Market) was approximately$409,107,852. This calculation does not reflect a determination that suchpersons are affiliates of the Registrant for any other purpose.

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

Portions of the ProxyStatement for the Registrant’s 2007 Annual Meeting of Stockholders areincorporated by reference in Part III of this Form 10-K.

 

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**SYMMETRICOM, INC.FORM 10-KFor the Fiscal Year Ended July 1, 2007INDEX**
|                   | ** ** | ** **                                                                                                              | ** ** | ** ** | **Page**   | ** ** |   |
|-------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|--------|
| ** **        | ** ** | **PART I**                                                                                                         | ** ** | ** ** | ** ** |
| **Item 1.**  |       | Business                                                                                                                |       | 3          |       |
| **Item  1A.**     |       | Risk  Factors                                                                                                           |       | 13         |       |
| **Item 1B.**      |       | Unresolved Staff Comments                                                                                               |       | 26         |       |
| **Item 2.**  |       | Properties                                                                                                              |       | 26         |       |
| **Item 3.**  |       | Legal  Proceedings                                                                                                      |       | 27         |       |
| **Item 4.**  |       | Submission of Matters to a Vote of Security Holders                                                                     |       | 27         |       |
| ** **        |       | **PART II**                                                                                                        |       |       |       |
| **Item 5.**  |       | Market for Registrant’s Common Equity, Related Stockholder  Matters and Issuer Purchases of Equity Securities |       | 28         |       |
| **Item 6.**  |       | Selected Financial Data                                                                                                 |       | 30         |       |
| **Item 7.**  |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                             |       | 31         |       |
| **Item 7A.** |       | Quantitative and Qualitative Disclosures about Market  Risk                                                             |       | 47         |       |
| **Item 8.**  |       | Consolidated Financial Statements and Supplementary  Data                                                               |       | 49         |       |
| **Item 9.**  |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                                   |       | 87         |       |
| **Item 9A.** |       | Controls and Procedures                                                                                                 |       | 87         |       |
| **Item 9B.** |       | Other  Information                                                                                                      |       | 87         |       |
| ** **        |       | **PART III**                                                                                                       |       |       |       |
| **Item 10.** |       | Directors, Executive Officers and Corporate Governance                                                                  |       | 89         |       |
| **Item 11.** |       | Executive Compensation                                                                                                  |       | 89         |       |
| **Item 12.** |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters                         |       | 89         |       |
| **Item 13.** |       | Certain Relationships and Related Transactions, and  Director Independence                                              |       | 89         |       |
| **Item 14.** |       | Principal Accountant Fees and Services                                                                                  |       | 89         |       |
| ** **        |       | **PART IV**                                                                                                        |       |       |       |
| **Item 15.** |       | Exhibits and Financial Statement Schedules                                                                              |       | 90         |       |
|              |       | Signatures                                                                                                              |       | 96         |       |
|                   |            |                                                                                                                         |            |            |            |            |        |  |

 

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**PART I**

**FORWARD-LOOKINGINFORMATION**

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

*These risks anduncertainties include, but are not limited to, risks relating to generaleconomic conditions in the markets we address and the telecommunications marketin general, risks related to the development of our new products and services,the effects of competition and competitive pricing pressure, uncertaintiesassociated with changing intellectual property laws, developments in andexpenses related to litigation, increased competition in our markets, inabilityto obtain sufficient amounts of key components, the rescheduling orcancellations of key customer orders, the loss of a key customer, the effectsof new and emerging technologies, the risk that excess inventory may result inwrite-offs, price erosion and decreased demand, fluctuations in the rate ofexchange of foreign currency, changes in our effective tax rate, the impact oninvestor confidence due to material weaknesses in our controls over financialreporting, potential short-term investment losses and other risks due to creditmarket dislocation, changes in accounting for convertible debt, the taxtreatment of the restructuring of our Puerto Rico subsidiary, market acceptanceof our new products and services, technological advancements, undetected errorsor defects in our products, the risks associated with our international sales,geopolitical risks and risk of terrorist activities, the risks associated withattempting to integrate other companies and businesses we acquire, and therisks set forth below in item 1A, “Risk Factors.”*

*Theseforward-looking statements speak only as of the date hereof. We expresslydisclaim any obligation or undertaking to release publicly any updates orrevisions to any forward-looking statements contained herein to reflect anychange in our expectations with regard thereto or any change in events,conditions or circumstances or on which any such statement is based.*

*In the sections ofthis report entitled “Business” and “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Factors That May AffectResults,” all references to “Symmetricom,” “we,” “us,” and “our” meanSymmetricom, Inc. and its subsidiaries, except where it is made clear thatthe term means only the 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 totrademarks of other corporations and organizations in this document.*

**Item 1.**                        *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 a 24-hourperiod. Our clocks tell us the time of day and allow us to measure the timeinterval between when an event starts and when it stops. The difference betweenconventional time measuring devices and our precise time products lies in theaccuracy of the measurements. To place 

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the accuracy of our clocksin perspective, if a clock accumulates a 40 billionth of a second time errorover a 24-hour period, it will require more than 500,000 years toaccumulate an error of one second.

During fiscal 2007, inconnection with the acquisition of QoSmetrics, S.A., we entered a new businessand formed the Quality of Experience Assurance Division. This business developsproducts for use in the IPTV market that search for network impairments andreview 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 thetelephone number is (408) 433-0910.

Our website is located at *www.symmetricom.com*. We make available,free of charge on or through our website, our recorded conference calls, ourannual report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K, and amendments to those reports filedor furnished pursuant to Section 13(a) or 15(d) of the ExchangeAct as soon as practical after we electronically file such material, or furnishit, to the SEC. Information contained or referenced on our website is notincorporated by reference into and does not form a part of this Form 10-K.

**Industry Background**

The markets servedby Symmetricom include:

·       Telecommunicationsand cable markets;

·       Wireless/OEMtelecommunications equipment manufacturers; and

·       Aerospace, defense,metrology and enterprise.

***Reportable Segments***

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

*Telecom SolutionsDivision*

·       WirelineProducts;

·       Wireless/OEM(original equipment manufacturer) Products;

·       Global Services

*Timing, Test andMeasurement Division*

*Quality ofExperience Assurance Division*

Information as to netrevenue and gross profit margin attributable to each of these reportablesegments for each year in the three-year period ended July 1, 2007, iscontained in Note 16 of the notes to 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 office; networkmanagement and monitoring software; and synchronization subsystems for OEMintegration. Symmetricom holds patents in advanced control 

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algorithms for deploymentsutilizing the Global Positioning System (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 serviceproviders and helped others develop future plans for such efforts. The carriersand operators 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) productsthat are foundational to the operation of certain types of cellular basestations.

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 segmentprovides services for Symmetricom’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, thedivision continued to emphasize government program business in secure mobile,satellite, and wireline communications, as well as other defense platformupgrades including destroyers, submarines, and Unmanned Aerial Vehicles (UAVs).Key customers of the division included Boeing, DISA, Lockheed Martin, NorthropGrumman, Raytheon, and various military procurement and service agencies. Newproducts introduced during the fiscal year included a line of Phase Noise andAllan Deviation Test Sets and several new time distribution systems which camefrom the TSC acquisition as well as a new ruggedized TCXO oscillator family, anIEEE-1588 test and validation solution, new module capabilities for ourXLi GPS Time and Frequency Receiver family and two new models in our SyncServernetwork time server family.

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

During fiscal 2007, weacquired QoSmetrics S.A., a privately held provider of quality of experience(QoE) solutions for IPTV (Internet Protocol Television). This acquisitionbecame the foundation of our new Quality of Experience (QoE) Assurance Division.QoE provides hardware and software-based probes and/or embedded agents that aredistributed throughout an IP (Internet Protocol) network in order to monitornetwork and application performance. The primary applications for thesesystem-level solutions are to ensure end users’ Quality of Experience, or QoE,for IPTV (Internet Protocol Television) service. In 

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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 of operations.

***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, we anticipatethat this cycle could take at least several years to complete. The cableinfrastructure market has an emerging requirement for synchronization withincable vendors’ equipment for which we have developed a line of synchronizationproducts.

We have developed aproduct, called TimeCreator, for the cable market, which we believe, will beneeded as cable providers move to next 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 systemproducts are built on atomic clock (such as cesium and rubidium) and GPStechnologies. The products belong to one of 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 of TimePictra, thecarrier class HP-UX based system, and TimeScan, the PC-based system.

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

***Wireless/OEM Market:***

Symmetricom’s Wireless/OEMproducts are sold into the wireless market. Wireless telecommunications networksconsist of numerous cells located throughout a service area. In a wirelessnetwork, calls are segmented, transmitted over the air, and reassembled by areceiver within the network. Certain engineering requirements demand a highlevel of synchronization at the base station. Our products are primarily soldinto CDMA-based implementations throughout the world.

***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 productswe provide are:

·       *Rubidium atomic oscillators*with various performance 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 flexibleGPS-disciplined time and frequency platforms optimized for WiMAX and otherapplications that require precise frequency or time. Our Time module isdesigned to be integrated into existing communications and transmissionequipment used in WiMAX mobile base station timing, broadcast (DVB, DVB-H, DAB,DTV), satellite communications equipment, and cellular base stations (CDMA,TDMA, UMTS for GPS based timing).

***Global Services Market and Products***

***Global Services Market:***

We market our services exclusivelyto customers who purchase our products.

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***Global Services Products:***

Our Global Servicesorganization provides lifecycle services for Symmetricom 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 are designed to helpcustomers minimize staff and expenses necessary for ongoing support of theirSymmetricom products. These include 24 x 7 technical support, traditionalreturn-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.

·       *Consulting and other professional services—*Our consultingservices assist customers in planning new sync communications networks anddeveloping growth or disaster recovery plans for existing sync networks.

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

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

The aerospace, defense,metrology, and enterprise markets require precision time and frequencyinstruments and reference standards. Time and frequency solutions include GPSand time code instrumentation products, bus level timing cards, andprecision frequency references (atomic standards). IP network timing productsinclude dedicated network time servers and management and monitoring softwarethat synchronizes the timing on enterprise networks. Space, defense, andavionics applications include highly reliable and ruggedized components andsystems designed to address specific customer requirements.

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

We offer a widevariety of precision time and frequency products sold primarily to theaerospace, defense, metrology and enterprise sectors. These products cangenerally be divided into the following broad 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 broad line of precision timing products in theform of plug-in cards for computers. These cards provide precise timingcapabilities to computers equipped with common bus components. We also offersoftware development tools to speed the integration of these cards intosoftware applications.

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·       *Enterprise Network Time Servers*—Wemanufacture several products for enterprise network time distribution. Thesebring entire networks 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 and processingtime 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*—We provide a line ofTime and Frequency test solutions including a family of Phase Noise and AllanDeviation Test Sets designed to measure critical performance specifications ofprecision time and frequency signals and sources.

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

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

As traditional telephoneand broadband access services become increasingly competitive, communicationservice providers (CSPs) are investing in advanced services that are vital togenerate new revenue streams. Delivering services such as IPTV, Video on Demand(VoD), 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.

***Quality of Experience Assurance Products:***

·       *Network Probes**:*   Linuxserver-based components of Symmetricom’s QoE solution provide a benchmark (aMOS, or mean opinion score) that enables service providers to monitor anddiagnose the perceptual impact of video, voice or data quality impairments thatmay be introduced by transmission over an IP network or perhaps by artifactsintroduced from various encoding methodologies.

·       *Software Agents:  *Our software agentsprovide comprehensive, real time diagnostics and are resident on either an enduser’s PC or other customer premise equipment (CPE) such as set-top boxes(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:  *Collecting realtime information from network probes and software agents, management softwareenables network administrators to diagnose critical issues as they arise,minimize support costs, monitor service level agreements (SLAs), and improveand refine network services on an ongoing basis. Key Performance Indicators(KPIs), MOS scores, traps, alarms, and other performance-related data areaggregated in a highly optimized and proprietary manner, and then stored in anintegrated structured query language (SQL) database. This software platform istypically deployed in a highly integrated fashion with an industry-standard OSSalready in use by the customer.

·       *V-Factor®:  *This product technology is at the core ofdelivering perceptual quality metrics for IP-based video in a no-referencesystem architecture. Based upon the Moving Picture Quality Metric (MPQM) modeland adapted specifically for end-to-end video and audio quality scoring, it isthe 

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first video qualitymetric that takes into account both network and content impairments. V-Factor-basedsoftware products can be embedded into a variety of network nodes and types ofequipment that include network processors, IP-DSLAMs, test probes, STBs, PCs,home gateways, etc.

**Sales Operations**

We sell our productsdirectly to customers, and through domestic and international distributors, aswell as systems integrators and manufacturer sales representatives. In theUnited States, our wireline and cable products are primarily sold through ourown sales force to ILECs, PTTs, CLECs, other telephone companies, wirelessservice providers, cable operators, Internet Service Providers (ISPs) and OEMs. Ourinstrumentation products are primarily sold through manufacturer salesrepresentatives, and our enterprise products are primarily sold throughtelesales and the internet. Internationally, we market and sell our productsthrough our internal sales force, 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 such licensewill be acceptable to us. In addition, the laws of certain countries in whichour 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 a third party toobtain and use our proprietary information without authorization or to developsimilar 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.

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We also have copyrights onour software products, product documentation, marketing materials,and other documentation and materials. We rely on these copyrights toprotect our rights in our copyrighted materials. We can provide no assurance,however, that our copyrighted materials will not be infringed. In addition,effective copyright protection may not be available in every country in whichour products are distributed.

**Manufacturing**

Our manufacturing processfor standard products consists primarily of assembly and test performed by ourmanufacturing sites in Aguadilla, Puerto Rico; Beverly, Massachusetts;Tuscaloosa, Alabama; San Jose, California and Hofolding, Germany. In addition,custom and semi-custom instrumentation products are developed, assembled, andtested in Santa Rosa, California and Boulder, Colorado. The Boulder, Coloradoand Santa Rosa, California facilities are registered to ISO900:2000, while ourBeverly, Massachusetts; Aguadilla, Puerto Rico and San Jose, California(engineering processes) are upgraded to meet the TL 9000 quality systemstandard (an advanced telecommunications standard for manufacturing andengineering). Our Beverly, Massachusetts facility is also registered to AS9100which certifies the design, development, and production of high precision timeand frequency references for commercial military and space markets.

**Backlog**

Our backlog consists offirm orders that have yet to be 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 million backlog at July 1, 2007, $43.4 million, $6.1million and $2.3 million is estimated to be shippable within six months, fromsix to 12 months and after 12 months, respectively. Most orders included inbacklog can be rescheduled or cancelled by customers without significantpenalty. Historically, a substantial portion of net revenue in any fiscalperiod has been derived from orders received during that fiscal period. Ourbacklog may also be affected by the cancellation or delay of customer orders,the overall condition of the telecommunications industry, overall worldwideeconomic conditions and the cyclical nature of customer demand in each of ourmarkets.

**Key Customers andExport 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 theconversion to United States dollars of accounts receivable and accounts payablearising from international operations may, in the future, contribute tofluctuations in our business and operating results. Sales and purchaseobligations denominated in foreign currencies have not been significant. We donot currently engage in currency hedging activities or derivative arrangementsbut may do so in the future to the extent that foreign currency transactionsbecome more significant.

**Competition**

Competition in thetelecommunications industry is intense. Some of our competitors or potentialcompetitors are well established and have significant financial, manufacturing,technical and marketing resources. Competitors of our synchronization productsinclude Emrise Corp., Frequency Electronics, Inc., Huawei Technologies Co.Ltd., and Oscilloquartz SA. Competitors of our Wireless/OEM products include 

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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.

**Research andDevelopment**

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 productdevelopment centers are in Camarillo, California; San Jose, California; SantaRosa, California; Beverly, Massachusetts and Austin, Texas.

**GovernmentRegulation**

The telecommunicationsindustry is subject to domestic and foreign regulatory policies regardingpricing, taxation and tariffs, which may adversely impact the demand for ourproducts. These policies are continuously reviewed and subject to change by thevarious governmental agencies. We are also subject to government regulationsand standards for our products.

**EnvironmentalRegulation**

Our operations are subjectto numerous foreign, federal, state and local environmental regulations relatedto the storage, use, discharge and disposal of toxic, volatile or otherwisehazardous chemicals and materials used in our manufacturing process andproducts. Failure to comply with such regulations could result in a suspensionor cessation of our operations, or could subject us to significant futureliabilities. See “Item 3. Legal Proceedings” and “Item 1A. Risk Factors—Ouroperating results may be adversely affected as a result of our requiredcompliance with the adopted European Union Directives on Waste Electrical andElectronic Equipment and their Restriction of the Use of Hazardous Substancesin electrical and electronic equipment, as well as other standards around theworld.”

**Sources andAvailability of Raw Materials**

We endeavor to usestandard parts and components, which are generally available from multiplesources. We make significant purchases of parts and components from third-partysuppliers. Certain parts used in our manufacturing process are single sourced.

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**Employees**

At July 1, 2007, wehad 951 employees, including 608 in manufacturing, 131 in engineering and 212in sales, marketing, service and general and administration. This headcountrepresents an increase of 86 employees over the prior year, which includes72 employees added for the QoSmetrics S.A. and TSC acquisitions that closed infiscal year 2007. None of our employees are represented by a labor union, andwe have experienced no work stoppages. We believe that our employee relationsare good.

**Executive Officersof Symmetricom**

Followingis a list of our executive officers as of July 1, 2007 and brief summariesof their business experience over the last five years. All officers, includingexecutive officers, are appointed annually by the Board of Directors at itsmeeting following the annual meeting of stockholders. We are not aware of anyofficer who was appointed to the office pursuant to any arrangement orunderstanding with 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*has served as Chief Executive Officer ofSymmetricom since December 1998. Mr. Steipp served as Chief ExecutiveOfficer and Chief Financial Officer of Symmetricom from December 1998 toOctober 1999. Mr. Steipp served as President and Chief OperatingOfficer, Telecom Solutions, a division of Symmetricom, from March 1998 toDecember 1998.

*Mr. Slater*has served as Executive Vice President Financeand Administration, Chief Financial Officer and Secretary of Symmetricom sinceJuly 2006. Mr. Slater served as Chief Financial Officer and Secretaryof Symmetricom from August 2000 to June 2006.

*Dr. Bromage*has served as Executive Vice President andGeneral Manager of the Timing, Test and Measurement Division sinceApril 2004. Dr. Bromage joined Symmetricom in April 2002 andserved as Vice President, Strategic Planning and Alliances from April 2002to April 2004.

*Ms. Shem*well joinedSymmetricom in October 2004 as Senior Vice President GlobalSales & Support and in July 2006 became Executive Vice PresidentGlobal Sales & Support. From 2003 to 2004 Ms. Shemwell wasAcquisition Partner/Consulting Affiliate at the Canux Group. From 2001 to 2002Ms. Shemwell was President and CEO of Jovial Test Equipment.

*Mr. Cox*hasserved as Executive Vice President and GeneralManager, QoE Assurance Division, since October 2006. Mr. Cox joinedSymmetricom as Vice President of Corporate Development in April 2006. FromJanuary 2006 to February 2006, Mr. Cox was the CEO ofNorwegian-based mobile search firm Stochasto ASA. From July 2002 toDecember 2005, Mr. Cox was an independent consultant providingstrategy consulting services to start-up companies and private equity firms.

**Item1A.**                *Risk Factors*

***The new Quality ofExperience Assurance Division will incur substantial losses***

During fiscal 2007, inconnection with our acquisition of QoSmetrics, S.A., we entered a new businessand formed the Quality of Experience Assurance Division. This business developsand sells products for 

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use inIP-based video markets that may require monitoring for network performance andthe assurance of the quality of video delivery. We are currently investing inthis business to develop products for this emerging market. This market maynever develop and, if it does develop, our products may not be successful. Ifeither of these occurs, then we will have incurred substantial losses in QoEover the course of several years and in a future period we would have to writeoff and expense substantial amounts of goodwill and intangibles. This businesswill incur substantial losses to develop and market products. There is noassurance that these products will attain market acceptance.

***Investor confidence and share value may be adverselyimpacted by material weaknesses in our controls over financial reporting***

Section 404 of theSarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of ourinternal controls over financial reporting and to include a management reportassessing the effectiveness of our internal controls over financial reportingin all annual reports. Section 404 also requires our independentregistered public accounting firm to attest to, and report on, management’sassessment of our internal controls over financial reporting.

During fiscal 2007, weidentified two material weaknesses in our controls over financial reporting. Bothmaterial weaknesses resulted in quarterly restatements in fiscal 2007, one forthe second quarter and the other for the third quarter. One of the materialweaknesses was remediated prior to year end. Since the other material weaknesswas not remediated prior to July 1, 2007, our management has determinedthat our internal control over financial reporting was not effective as of July 1,2007. We cannot assure you that we will not identify other material weaknessesin our internal controls in the future. As a result, we may experience a lossof public confidence, which could have an adverse effect on our business, financialcondition and stock price.

We will need to continueto evaluate, upgrade and enhance our internal controls. Because of inherentlimitations, our internal control over financial reporting may not prevent ordetect misstatements, errors or omissions, and any projections of anyevaluation of effectiveness of internal controls to future periods are subjectto the risk that controls may become inadequate because of changes inconditions or that the degree of compliance with our policies or procedures maydeteriorate. We cannot be certain in future periods that other controldeficiencies that may constitute one or more “significant deficiencies” (asdefined by the relevant auditing standards) or material weaknesses in ourinternal control over financial reporting, will not be identified. If we failto maintain the adequacy of our internal controls, including any failure toimplement or difficulty in implementing required new or improved controls, ourbusiness and results of operations could be harmed, the results of operationswe report could be subject to adjustments, we could fail to be able to providereasonable assurance as to our financial results or the effectiveness of ourinternal controls or meet our reporting obligations and there could be a materialadverse effect on the price of our securities.

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

Aspart of our business strategy we have engaged in acquisitions in the past,including the acquisitions of TrueTime and Datum, and other smalleracquisitions, and continue to evaluate other acquisition opportunities thatcould provide additional product or service offerings, technologies oradditional industry expertise. Acquisitions involve risks, which include thefollowing:

·       wemay be exposed to unknown liabilities of the acquired business;

·       wemay incur significant write-offs;

·       wemay experience problems in combining the acquired operations, technologies orproducts;

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·       wemay not realize the revenue and profits that we expect the acquired businessesto generate;

·       wemay not achieve the cost savings we hope to obtain from combining the acquiredoperations with ours;

·       wemay experience regulatory difficulties and unbudgeted expenses in attempting tocomplete an acquisition;

·       wemay encounter unanticipated acquisition or integration costs that could causeour quarterly or annual operating results to fluctuate;

·       wemay incur substantial penalties if we do not relocate manufacturing operationsas scheduled;

·       ourmanagement’s attention may be diverted from our core business;

·       ourexisting business relationships with suppliers and customers may be impaired;

·       wemay not be successful in entering new markets in which we have no or limited experience;

·       keyemployees of the acquired businesses may have expertise and know-how, and wemay not be able to retain some of these key employees, and some of them mayjoin or start competing businesses;

·       ourearnings per share may be diluted if we pay for an acquisition with equitysecurities; and

·       wemay not be able to repay our debt used to make acquisitions.

We cannot assure you thatwe will be able to successfully integrate any business, products, technologiesor personnel from any recent or future acquisitions. If we fail to successfullyintegrate acquisitions or to achieve any anticipated benefits of anacquisition, our operations and business could be harmed. Additionally, we mayexperience difficulty integrating and managing the acquired businessoperations. For these reasons, we cannot be certain what effect acquisitionsmay have on our business, financial condition and results of operations.

***We may be requiredto record additional goodwill and intangible impairment charges in futurequarters***

As of July 1, 2007,we had recorded goodwill with a net book value of $54.7 million related tovarious acquisitions, most recently QoSmetrics S.A and Timing SolutionsCorporation. We test for impairment at least annually, and more frequentlywhenever evidence of impairment exists. For example, we performed a goodwillimpairment test on our Wireless/OEM business segment as of March 31, 2006and determined that goodwill was impaired by approximately $7.0 million. If ourfuture financial performance or other events indicate that the value of ourrecorded goodwill is impaired, we may record additional impairment charges thatcould have a material adverse effect on our reported results.

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

We invest excess funds inspecific instruments and issuers approved for inclusion in our cash andshort-term investment accounts. Our investment criteria are to invest only intop tier quality investments or federally sponsored investments. Top tierquality investments are determined by our investment advisor in conjunctionwith ratings of those investments provided by outside ratings agencies as wellas our investment advisor’s internal credit specialists. Our cash consists ofovernight instruments and instruments that will mature within ninety days afterthe end of our fiscal quarter. Our short-term investment portfolio consists ofinstruments that mature between ninety-one days and three years after the endof our fiscal quarter.

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Basedupon recent events in the credit market, we may be impacted by the followingrisks:

·       Wemay experience temporary or permanent declines in the value of certaininstruments which would be reflected in our financial statements;

·       Wemay experience rating agency downgrades of instruments we currently own whichmay degrade our portfolio quality and cause us to take impairment charges;

·       Wemay not be able to reasonably value our investments if there is not a liquidresale market for those instruments;

·       Wemay experience 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

·       Our3.25% Contingent Convertible Subordinated Notes, principal value $120,000,000,due 2025 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.

Inaddition to the above risks, the recent events in the credit market may alsoimpact our customers, and we may be impacted by the following risks:

·       Wemay experience lower revenues if our customers decide to reduce their capitalspending plans;

·       Customersmay delay payments to us reducing our operating cash flow; and

·       We may experience anincrease in accounts receivable write-offs if customers are unable to pay theirobligations.

***The accounting method for convertible debt securitieswith net share settlement, like our convertible notes, is expected to change***

For the purpose ofcalculating diluted earnings per share, a convertible debt security providingfor net share settlement of the conversion value and meeting specifiedrequirements under Emerging Issues Task Force, or EITF, Issue No. 00-19,“Accounting for Derivative Financial Instruments Indexed to, and PotentiallySettled in, a Company’s Own Stock,” is accounted for similar to non-convertibledebt, with the stated coupon constituting interest expense and any sharesissuable upon conversion of the security being accounted for under the treasurystock method. The effect of the treasury stock method is that the sharespotentially issuable upon conversion of the convertible notes that we sold in June 2005are not included in the calculation of our earnings per share except to theextent that the conversion value of the notes exceeds their principal amount,in which event we are treated for earnings per share purposes as having issuedthe number of shares of our common stock necessary to settle the conversion.For fiscal year 2007, the conversion value did not exceed the face value andtherefore no additional shares are included in the calculation of our earningsper share.

On July 25, 2007, theFASB held a meeting to discuss, among other things, the accounting method fornet share settled securities. As a result of the meeting, the FASB voted toadopt a new method for accounting for net share settled securities under whichthe debt and equity components of the security would be bifurcated andaccounted for separately. The effect of this change is that the equitycomponent would be included in the paid-in-capital section of stockholders’equity on an issuer’s balance sheet and the value of the equity component wouldbe treated as original issue discount for purposes of accounting for the debtcomponent of the notes. As a result, net income attributable to our commonstockholders is expected to be reduced by recognizing accretion of thediscounted carrying value of the convertible debt 

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securityto its face amount as additional interest expense. The diluted earnings pershare calculation would continue to be calculated based on the treasury stockmethod. Moreover, the FASB will require that the new method be implementedretroactively.

The FASB has not yetpublished its final decision with respect to this proposed change to accountingtreatment so there remains uncertainty as to the full impact of this accountingchange.

We also cannot predict anyother changes in GAAP that may be made affecting accounting for convertibledebt securities. Any change in the accounting method for convertible debtsecurities could have an adverse impact on our reported or future financialresults. These impacts could adversely affect the trading price of our commonstock and in turn negatively impact the trading price of the convertible notesand increase the likelihood that the notes will be redeemed for cash in thefirst redemption period in 2012.

***Existing common stockholders may experience dilutionin connection 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 stockholdersmay experience dilution in connection with the sale in June 2005 of $120million worth of convertible notes if our stock price reaches $12.49 or moreper share. For example, to the extent the share price exceeds $12.49, thedifference would be multiplied by 9.6 million shares and then divided by theshare price to determine the number of shares due to noteholders. For instance,if the stock price was $15.00, the conversion value would be $2.51 ($15.00 less$12.49) multiplied by 9.6 million shares or $24.1 million which would bedivided by the share price of $15.00 to provide 1.6 million additional sharesto noteholders. These 1.6 million shares, when added to our number of sharesoutstanding, would dilute our earnings per share.

In addition, asopportunities present themselves, we may enter into financing or similararrangements in the future, including the issuance of debt securities,preferred stock or common stock. If we issue common stock or securitiesconvertible into common stock, our common stockholders will experiencedilution.

***We may perform increasing amounts of research anddevelopment and manufacturing offshore to lower cost; these efforts may impactour ability to deliver products to our customers, complete research and developmentprojects on a timely basis, and cause potential misappropriation of ourintellectual property***

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

We must comply with andare affected by laws and regulations relating to the award, administration andperformance of U.S. government contracts. Government contract laws andregulations affect how we do business and, in some instances, impose addedcosts on our business. A violation of specific laws and regulations could resultin the imposition of fines and penalties or the termination of our contracts ordebarment from bidding on contracts. In order to administer certain U.S.government contracts we are required to have employees with Top Secret SecurityClearance. Because we have a limited number of employees with such clearance,the loss of these employees could adversely affect our ability to administerthese contracts. We must also have auditors from our independent registeredpublic accounting firm with proper security clearance levels to perform anannual audit of revenue for these transactions.

***We have direct orindirect sales pursuant to contracts with U.S. government agencies, which canbe terminated at the convenience of the government, and our revenue woulddecline if the government terminated these contracts***

Approximately 15% to 20%of our net revenue has been generated from sales to U.S. government agencieseither directly or indirectly through subcontracts. Government-relatedcontracts and subcontracts are subject to standard provisions for terminationat the convenience of the government. In such event, 

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however,we are generally entitled to reimbursement of costs incurred on the basis ofwork completed plus other amounts specified in each individual contract. Thesecontracts and subcontracts are either fixed-price or cost reimbursablecontracts. Fixed-price contracts provide fixed compensation for specified work.Under cost reimbursable contracts, we agree to perform specified work in returnfor reimbursement of costs (to the extent allowable under governmentregulations) and a specified fee. In general, while the risk of loss is greaterunder fixed-price contracts than under cost reimbursable contracts, thepotential for profit under fixed-price contracts is greater than under costreimbursable contracts. In addition, delays in approvals of the annual defensebudget or supplemental funding bills may also impact government sales.

***We have relied andmay continue to rely on a limited number of customers for a significant portionof our net revenue, and our revenue could decline due to the delay of customerorders or cancellation of existing orders***

During fiscal 2007, twocustomers each accounted for more than 10% of our revenue. We expect lowerlevels of revenue from these two large customers in the first half of fiscal2008 and results for this period will be adversely impacted. We expect that wewill continue to depend on a relatively small number of customers for asubstantial portion of our net revenue for the foreseeable future. The timingand level of sales to our largest customers have fluctuated significantly inthe past and are expected to continue to fluctuate significantly in the future.The loss of one or more of our significant customers, or a significant reductionor delay in sales to any customer, may harm our business and operating results.For instance, our Wireline revenue in 2006 decreased by $2.5 million in partbecause one large customer ordered less product in fiscal 2006 than 2005 as itcompleted a major project. Major customers also have significant leverage andmay attempt to change the terms, including pricing, upon which we do business,which could also 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 ourproducts are characterized by:

·       rapidlychanging technology;

·       evolvingindustry standards; and

·       changesin 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 orenhanced products also requires that we manage a smooth transition from olderproducts to new products. Delays in new product development or delays inproduction startup could reduce our sales.

***Thetelecommunications and government markets are highly competitive, and if we areunable to compete successfully in our markets, our revenue 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 

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includeBrandywine Communications, EndRun Technologies, Frequency Electronics, Inc.,Meinberg, Temex and Trak Systems, Inc. (a Veritas Corporation subsidiary).Competitors of our Quality of Experience Assurance products include Brix,Ineoquest, JDS Uniphase, Agilent Technologies, Tektronix and Telchemy. Inaddition, the Telecommunications Act of 1996 permits ILECs to manufacturetelecommunications equipment, which may result in increased competition. Ourability to compete successfully in the future will depend on many factorsincluding:

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

·       ourability to compete with competitors that perform low-cost research anddevelopment offshore;

·       ourresponse to the entry of new competitors into our markets or the introductionof new products by our competitors;

·       theaverage selling 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;

·       ourability to keep pace with changing technology and customer requirements;

·       ourcontinued improvement of existing products;

·       thetimely development or acquisition of new or enhanced products;

·       thetiming of new product introductions by our competitors or us; and

·       changesin worldwide market and economic conditions.

Some of our competitors orpotential 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 incustomer requirements, to devote greater resources to the development,promotion and sale of products, or to deliver competitive products at lowerprices. We expect to continue to experience pricing pressures from ourcompetitors in all of our markets. If we are unable to compete by deliveringnew products or by delivering competitive products at lower prices, we couldlose market share and our revenue could decline.

***Our quarterly and annual operating results havefluctuated in the past and will likely continue to fluctuate in the future,which could cause our stock price to decline and result in losses to ourinvestors***

Webelieve that period-to-period comparisons of our operating results may not be agood indication 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:

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

·       restructuringand integration-related charges;

·       goodwillimpairment charges related to acquisitions;

·       ourability to obtain sufficient supplies of sole or limited source components atcommercially reasonable prices;

·       changesin our products or mix of sales to customers;

·       thepossibility that, despite our having been approved as a supplier in requestsfor proposals from several major wireline customers, these proposals will notresult in any purchases;

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·       ourability to manage fluctuations in manufacturing yields of rubidium oscillatorsand cesium tubes;

·       ourability to manage the level and value of our inventories in relation to salesvolume;

·       ourability to accurately anticipate the volume and timing of customer orders orcustomer cancellations;

·       ourability to collect receivables from our customers, including those in thetelecommunications industry;

·       thegain or loss of significant customers;

·       fluctuationsin government spending for infrastructure investment;

·       timingof purchases from customers on projects, for example Verizon and AT&T, maybe impacted due to spending delays, availability of resources for installation,and delays in new product availability;

·       ourability to introduce new products in new and existing markets on a timely andcost-effective basis;

·       customerdelays in qualification of new products;

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

·       ourability to manage 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;

·       ourability to timely implement changes developed as a result of our processimprovement projects without negatively impacting operations;

·       ourability to manage fluctuations in the average selling prices of our products;

·       ourability to manage the long sales cycle associated with our products;

·       ourability to manage cyclical conditions in the telecommunications industry;

·       ourability to retain key employees, which could affect our ability to sell,develop and deliver our products;

·       reducedrates of growth of telecommunications services;

·       customersmay delay upgrading their old equipment with our new products;

·       ourability to establish in a timely fashion subsidiaries in new geographicregions, which our customers or potential customers may require to do businesswith us in those regions;

·       internationalcustomers may delay purchasing products;

·       customersin the wireless market may delay adding new base stations which require ourproducts;

·       customersmay experience labor strikes which could result in reduced sales volume;

·       customersin the wireless 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

·       aglobal pandemic, 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 of

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productionand sales to achieve and maintain reasonable gross profit margins and netearnings. If we increase the volume of product manufacturing by outside sourcesand decrease our internal production, we could incur higher fixed costs (perunit) 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 of thesemarkets may depend on changes in general economic and regulatory conditions,conditions related to the markets in which we compete, changes in regulatoryconditions, legislation, export rules or conditions, interest rates andfluctuations in the business cycle for any particular market segment. If ourquarterly or annual operating results do not meet the expectations ofsecurities analysts and investors, the trading price of our common stock coulddecline significantly.

***If we incur net losses or substantially lower profitin the future, 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 createuncertainty about the realizability of our $47.3 million net deferred taxassets. If we record a valuation allowance against our deferred tax assets, wewould record an additional tax expense, which would reduce net earnings. Inaddition, uncertainties about the realizability of our deferred tax assetscould limit our ability to recognize future deferred tax assets on our balancesheet and correspondingly reduce net earnings. At the end of each fiscalquarter, our management reviews the results of operations for that quarter andforecasts for the remainder of the fiscal year and future years to determine ifit is more likely than not that a valuation allowance for the deferred taxassets is needed.

***The tax treatmentof the restructuring of our Puerto Rico subsidiary may negatively impact our netearnings***

In July 2006,Symmetricom Puerto Rico, a wholly-owned subsidiary, moved its place of legalorganization from Delaware to Bermuda in a transaction intended to be atax-free restructuring. We are in the process of submitting a ruling request tothe Internal Revenue Service to confirm the tax-free treatment. We areundertaking this ruling request based upon our subsequent review of the 2006restructuring. Although ruling requests of this nature are considered routineand we believe that it is more likely than not that the ruling will be granted,we cannot assure you that the ruling will 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 56.4% for fiscal 2007.

If the ruling isnot granted, then:

·       wewould be required to take a one-time, non-cash charge to our deferred taxassets of approximately $15.2 million;

·       SymmetricomPuerto Rico would continue its election to indefinitely reinvest its future earningsoutside of the United States and not repatriate future earnings back toSymmetricom, Inc.; and

·       theeffective tax rate for fiscal 2008 would be approximately 221.0%, compared toan effective tax rate of approximately 56.4% for fiscal 2007. The largeincrease in the effective tax rate for fiscal 2008 would be due primarily tothe one-time $15.2 million charge.

Prior to fiscal 2007,Symmetricom Puerto Rico had elected to report its U.S. taxes under Section 936of the United State Internal Revenue Code. This election exempted qualifiedPuerto Rico earnings from regular federal income taxes, subject to variouslimitations. Section 936 expired at the end of fiscal 2006.

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***We purchase certainkey components from single or limited sources and could lose sales if thesesources fail to fulfill our needs***

We have limited suppliers for a number of ourcomponents. If single source components were to become unavailable onsatisfactory terms, we would be required to purchase comparable components fromother sources. If for any reason we could not obtain comparable replacementcomponents from other sources in a timely manner, our business, results ofoperations and financial condition could be harmed. In addition, some of oursuppliers require long lead times to deliver requested quantities ofcomponents. If we are unable to obtain sufficient quantities of components, wecould experience delays or reductions in product shipments, which could alsohave a material adverse effect on our business, results of operations and financialcondition. Due to rapid changes in technology, on occasion, one or more of thecomponents used in our products could become unavailable, resulting inunanticipated 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 ordesign flaws, 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 defectsmay be 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 ourreputation, legal action by our customers, failure to attract new customers,and increased service and warranty costs. The occurrence of any of thesefactors could cause our net revenue to decline.

***Our criticalbusiness and manufacturing facilities in Puerto Rico; Beverly, Massachusetts;San Jose, California; Santa Rosa, California; Camarillo, California;Tuscaloosa, Alabama, and Boulder, Colorado, as well as many of our customersand suppliers, are located near known hurricane zones, earthquake fault zones,and flood plains, and the occurrence of these events or other catastrophicdisasters could cause damage to our facilities and equipment, which couldrequire us, as well as our customers and suppliers to cease, curtail or disruptoperations***

***Capacityconstraints, systems failures or security breaches could prevent access to ourcomputer systems, which could interrupt our business and harm our dailyoperations***

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 andinfrastructure to offer internal personnel enhanced services, capacity,features and functionality. Our ability to provide high-quality service dependson the efficient 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 

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recoveryplan, it may not completely prevent any system failure or security breach thatcauses an interruption in our business and daily operations.

***If we fail toprotect our intellectual property, our competitive position could be weakenedand 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 ourproprietary rights. These measures may not provide sufficient protection forour trade secrets 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 mayassert intellectual property infringement claims, which would be difficult todefend, costly and may result in our loss of significant 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 are subject to numerous international,federal, state and local environmental regulations related to the storage, use,labeling, discharge, disposal and human exposure to toxic, volatile orotherwise hazardous chemicals used in our manufacturing process. While we havenot experienced any significant effects on our operations from environmentalregulations, changes in these regulations may require additional capitalexpenditures or restrict our ability to expand our operations. Failure tocomply with such regulations could result in suspension or cessation of ouroperations or could subject us to significant liabilities. We could also besubject to fines and civil or criminal sanctions, third-party propertydamage or personal injury claims, or could be required to incur substantialinvestigation or remediation costs, if we were to violate or become liableunder environmental laws. Liability under environmental laws can be joint andseveral and without regard to comparative fault. Although, we periodicallyreview our facilities and internal operations for compliance with applicableenvironmental regulations, these reviews are necessarily limited in scope andfrequency and may not reveal all potential instances of noncompliance, possibleinjury or possible contamination. There can be no assurance that violations ofenvironmental laws or regulations will not occur in the future as a result ofthe inability to obtain permits, human error, equipment failure or othercauses. The liabilities arising from any noncompliance with environmentalregulations, or liability resulting from accidental contamination or injuryfrom toxic or hazardous chemicals could result in liability that exceeds ourresources. The risk of liabilities increases as we acquire 

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other companies, such asDatum, which use, or have used, hazardous substances at various current orformer facilities.

A manufacturing facility previously operated by Datumin Austin, Texas is undergoing remediation for known subsurface contaminationat that facility and adjoining properties. We believe that we will incurmonitoring costs for years to come in connection with this subsurfacecontamination. Further, we have received a demand from adjoining landowner andmay be subject to claims from other adjoining landowners, in addition to claimsfor remediation, and the amount of these costs and the extent of our exposureto these demands and claims cannot be determined 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 operatingresults may be adversely affected as a result of our required compliance withthe adopted European Union Directives on Waste Electrical and ElectronicEquipment and the Restriction of the Use of Hazardous Substances in electricaland electronic equipment, as well as other standards around the world***

In January 2003, the European Union enactedDirective 2002/96/EC on Waste Electrical and Electronic Equipment Directive,known as the WEEE Directive. The WEEE Directive requires producers of certainelectrical and electronic equipment to be financially responsible for thefuture disposal costs of this equipment. Some of our products fall within thescope of this Directive, and, as such, we will incur some financialresponsibility for the collection, recycling, treatment and disposal of bothnew product sold, and product already sold prior to the WEEE Directive’senforcement date, to customers within the European Union.

At the same time, the European Union also enactedDirective 2002/95/EC on the Restriction of the use of Hazardous Substances inelectrical and electronic equipment, known as the RoHS Directive. ThisDirective restricts the use of certain hazardous substances, including mercury,lead, cadmium, hexavalent chromium and certain flame retardants, used in theconstruction of component parts of electrical and electronic equipment. We mayneed to change our manufacturing processes, redesign or reformulate some of ourproducts, and change some components to eliminate these hazardous substances inour products, in order to be able to continue to offer them for sale within theEuropean 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 in other countries, suchas Japan and China, and possible new federal and state legislation in theUnited States, the cumulative impact of which could significantly increase ouroperating costs and adversely affect our operating results.

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***We are subject to other significant domestic andforeign regulations relating to health and safety, packaging, product contentand labor regulations***

Our business is subject tovarious other significant international, federal, state and local, health andsafety, packaging, product content and labor regulations. These regulations arecomplex, change frequently and have become more stringent over time. We may berequired to incur significant expenses to comply with these regulations or toremedy past violations of these regulations. Any failure by us to comply withapplicable 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 governmentalregulations, 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 tocustomers outside of the United States subjects us to business, economic andpolitical risks***

Ourexport sales to Europe, Latin America, Asia, and Canada continue to account fora significant portion of our revenue. We anticipate that sales to customerslocated outside of the United States will continue to be a significant part ofour net revenue for the foreseeable future. Because significant portions of oursales are to customers outside of the United States we are subject to risks,including:

·       foreigncurrency fluctuations;

·       theeffects of terrorist activity and armed conflict which may disrupt generaleconomic activity and result in revenue shortfalls;

·       exportrestrictions;

·       aglobal pandemic if it does not continue to be contained;

·       longerpayment cycles;

·       unexpectedchanges in regulatory requirements or tariffs;

·       protectionistlaws and business practices that favor local competition;

·       dependenceon local vendors;

·       reducedor limited protection of intellectual property rights and political andeconomic instability; and

·       politicaland economic instability.

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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 more expensive, andthus, less competitive in foreign markets. A portion of our international revenuesmay be denominated in foreign currencies in the future, including the Euro,which will subject us to risks associated with fluctuations in these foreigncurrencies. We do not currently engage in foreign currency hedging activitiesor derivative arrangements, but may do so in the future to the extent that suchobligations become more significant.

***If we havesignificant inventories that become obsolete or cannot be sold at acceptableprices, 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 reviewsby foreign 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 ourcost may be affected by the ongoing movement towards environmentally friendlymanufacturing (“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.

**Item1B.**               *Unresolved Staff Comments*

**None.**

**Item 2.**                        *Properties*

Thefollowing are our principal 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.

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**Item 3.**                        *Legal Proceedings*

We formerly leased a tract of land for our operationsin Texas. Those operations involved the use of solvents and, at the end of thelease, we remediated an area where the solvents had been deposited on theground and obtained regulatory approval for that remedial activity. In 1996, anenvironmental investigation of the property detected those same contaminants ingroundwater in excess of then current regulatory standards. The groundwater contaminationhas migrated to some adjacent properties. We have entered into the TexasNatural Resource Conservation 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 property owners affected by thecontamination of our participation in the Voluntary Cleanup Program. On May 20, 2004,we received a demand from the owner of several adjacent lots for damages in theamount of $1.3 million, as well as seeking an indemnity for the contaminationand a promise to remediate the contamination. On March 14, 2006,the adjacent property owner filed suit in Probate Court No. 1, Travis County,Texas *(Anna B. Miller, Individually and as Executrix ofthe Estate of Robert L. Miller, et al. vs. Austron, Inc., et al.)*,seeking damages. We have not yet been served in this matter. We arecontinuing to work on the remediation of the formerly leasedsite as well as the adjacent properties and intend to defend this lawsuitvigorously. As of July 1,2007, we had an accrual of  $0.5 millionfor remediation costs and other ongoing monitoring 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, Related Stockholder Mattersand Issuer Purchases of Equity Securities*

Our common stock is traded on the Nasdaq Stock MarketLLC, under the symbol “SYMM”. We had approximately 1,033 stockholders of recordas of August 31, 2007.

Thefollowing table sets forth the high and low per share sale prices reported onthe Nasdaq Stock  Market LLC for ourcommon 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 never declared nor paid cash dividendson its capital stock and does not anticipate paying any cash dividends in theforeseeable 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 Directorsauthorized management to repurchase up to approximately 2.6 million shares ofour common stock pursuant to a repurchase program established in fiscal 2002,adding 2.0 million shares to the program previously authorized. There wereapproximately 46.5 million shares of Symmetricom common stock outstanding as ofJuly 1, 2007.

During fiscal 2007, we repurchased 0.5 million sharesof common stock pursuant to the repurchase program for an aggregate price ofapproximately $4.0 million. A further 10,511 shares were repurchased to coverthe cost of taxes on vested restricted stock. Upon termination of certainemployees, 19,800 shares of restricted stock were forfeited pursuant toexisting agreements.

On August 8, 2007, the Board of Directorsauthorized management to repurchase up to approximately 2.9 million shares ofSymmetricom common stock, adding 2.0 million shares to a previously authorizedprogram.

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Thefollowing table provides a monthly detail of our share repurchases andforfeitures during fiscal 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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(*)          Includes10,511 shares that were repurchased to cover the cost of taxes on vestedrestricted stock.

*Comparative Stock Performance*

The graph below comparesthe cumulative total stockholders’ return on our common stock for the last fivefiscal years with the total return on the S&P 500 Index and the S&PTechnology Sector over the same period (assuming the investment of $100 in ourcommon stock, the S&P 500 Index and the S&P Information TechnologyIndex, and reinvestment of all dividends).

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

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*                    $100invested on 6/30/02 in stock or index-including reinvestment 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*

Thefollowing selected consolidated financial data should be read together with theconsolidated financial statements and related notes and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”appearing elsewhere in this Form 10-K.

| ** **                                                       | ** ** | **Year ended**                                                   | ** ** |
|------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                       | ** ** | **July 1, 2007**                                            | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **June 27, 2004** | ** ** | **June 29, 2003** | ** ** |
| ** **                                                       | ** ** | **(In thousands, except per share amounts)** | ** ** |
| Net revenue                                                      |       |                                                                  | $          | 208,380 |   |   |   | $ | 176,112 |   |   |   | $ | 179,388 |   |   |   | $ | 163,310 |   |   |   | $ | 127,088 |   |   |
| Operating income  (loss)                                         |       |                                                                  | 8,928      |   |   |   | (2,968 | ) |   |   | 17,737 |   |   |   | (5,445 | ) |   |   | (46,641 | ) |   |
| Income (loss)  before income taxes                               |       |                                                                  | 13,336     |   |   |   | (473 | ) |   |   | 18,845 |   |   |   | (5,722 | ) |   |   | (47,094 | ) |   |
| Income (loss)  from continuing operations                        |       |                                                                  | 5,863      |   |   |   | (102 | ) |   |   | 16,931 |   |   |   | (3,186 | ) |   |   | (34,708 | ) |   |
| Gain (loss) from  discontinued operations (1)               |       |                                                                  | 242        |   |   |   | 921 |   |   |   | 985 |   |   |   | 949 |   |   |   | (14,609 | ) |   |
| Net earnings  (loss)                                             |       |                                                                  | 6,105      |   |   |   | 819 |   |   |   | 17,916 |   |   |   | (2,237 | ) |   |   | (49,317 | ) |   |
| Basic earnings  (loss) per share from continuing operations      |       |                                                                  | 0.13       |   |   |   | — |   |   |   | 0.37 |   |   |   | (0.07 | ) |   |   | (0.97 | ) |   |
| Basic earnings  (loss) per share from discontinued operations    |       |                                                                  | —     |   |   |   | 0.02 |   |   |   | 0.02 |   |   |   | 0.02 |   |   |   | (0.41 | ) |   |
| Basic net earnings  (loss) per share                             |       |                                                                  | 0.13       |   |   |   | 0.02 |   |   |   | 0.39 |   |   |   | (0.05 | ) |   |   | (1.38 | ) |   |
| Diluted earnings  (loss) per share  from continuing operations   |       |                                                                  | 0.13       |   |   |   | — |   |   |   | 0.36 |   |   |   | (0.07 | ) |   |   | (0.97 | ) |   |
| Diluted earnings  (loss) per share  from discontinued operations |       |                                                                  | —     |   |   |   | 0.02 |   |   |   | 0.02 |   |   |   | 0.02 |   |   |   | (0.41 | ) |   |
| Diluted net earnings  (loss) per share                           |       |                                                                  | 0.13       |   |   |   | 0.02 |   |   |   | 0.38 |   |   |   | (0.05 | ) |   |   | (1.38 | ) |   |

 

| ** **                | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **June 27, 2004** | ** ** | **June 29, 2003** | ** ** |
|---------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                | ** ** | **(In thousands)**    | ** ** |
| Total assets              |       |                       | $          | 409,279                    |       |                       |       | $                           | 392,418    |                        |       |   | $ | 392,171 |   |   |   | $ | 247,590 |   |   |   | $ | 233,890 |   |   |
| Long-term  obligations    |       |                       | 125,550    |                       |       |                       | 126,670    |                        |       |                        | 126,967    |   |   |   | 8,827 |   |   |   | 10,057 |   |   |
| Stockholders’ equity |       |                       | $          | 236,180                    |       |                       |       | $                           | 224,561    |                        |       |   | $ | 226,175 |   |   |   | $ | 196,484 |   |   |   | $ | 183,432 |   |   |

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(1)          Reflects amounts relatedto gains (losses) on discontinued operations. The Trusted Time Division wasdiscontinued in fiscal 2003. The Specialty Manufacturing/Other business segmentwas discontinued in the third quarter of fiscal 2007.

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

The following discussionand analysis of our financial condition and results of operations should beread together with the consolidated financial statements and related notesincluded elsewhere in this report.

**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.

Our fiscal year is the 52 or 53 weeks ending on theSunday closest to June 30. Fiscal 2007 and 2006 were 52-week fiscalyears, and fiscal 2005 was a 53-week fiscal 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 discontinued operationand, accordingly, the results of operations have been excluded from continuingoperations in the consolidated statements of operations.

On January 2, 2007, we acquired QoSmetrics S.A.,a privately held provider of quality of experience (QoE) solutions for IPTV(Internet Protocol Television). The purchase price of approximately $16.8million was paid in cash. We acquired QoSmetrics S.A. for its technology, whichwe believe we can use to develop a line of products and services that willprovide revenue growth in future years at a faster pace than our historic linesof business. Moreover, its target customers, as well as certain of itsproprietary product features, are highly complementary with key parts ofSymmetricom’s current operations. With the acquisition of QoSmetrics, wecreated a new business segment called the Quality of Experience AssuranceDivision.

On October 2, 2006,we acquired Timing Solutions Corporation, a privately held company based inBoulder, Colorado that provides high-performance time and frequency productsand services for government, aerospace and military markets. This acquisitionfurther strengthens and broadens our leadership position in the time andfrequency field, as well as brings new technology to address the Test &Measurement market. The total purchase price of approximately $8.6 million waspaid in cash.

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**Critical AccountingEstimates**

Our consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States, which requires us to make estimatesand judgments that affect the reported amounts of assets, liabilities, revenueand expenses, and related disclosures at the date of our financial statements.On an ongoing basis, management evaluates its estimates and judgments.Management bases its estimates and judgments on historical experience and onvarious other factors that are believed to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates underdifferent assumptions or conditions. We consider the following accountingpolicies to be critical accounting estimates due to their subjective nature andjudgments involved in each:

*BusinessCombinations*

We allocate the purchase price of acquired companiesto the tangible and intangible assets acquired, liabilities assumed, as well asin-process research and development based on their estimated fair values. Weengage an independent third-party appraisal firm to assist us in determiningthe fair values of the assets acquired and the liabilities assumed. Suchvaluations require management to make significant estimations and assumptions,especially with respect to intangible assets.

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. Management’s estimates of fair value arebased upon assumptions believed to be reasonable, but which are inherentlyuncertain 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 the creditworthinessof the customer and past transaction history. We perform periodic creditevaluations of our customers and do not require collateral from our customers.However, for some of our international customers, we require an irrevocableletter of credit to be issued by the customer before the purchase order isaccepted. If we determine that collection of the invoice is not reasonablyassured, we recognize the revenue at the time that collection becomesreasonably assured, which is generally upon the receipt of cash. We commonlyhave transactions that involve sales of both product and services to ourcustomers. Product revenue is generated from the sale of synchronization andtiming 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.

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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.

*Warranty*

Our standard warrantyagreement is one year from shipment. However, our warranty agreements arecontract and component specific and can range to twenty years for selected components.We offer extended warranty contracts on products that are less than eight yearsold. The extended warranty contract is applicable for a maximum of nine yearsafter the expiration of the standard one-year warranty. The income fromextended warranty contracts is recognized ratably over the period of contract.

We accrue for anticipatedwarranty costs upon shipment. Our warranty reserve is based on the number ofinstalled units, historical analysis of the volume of product returned to usunder the warranty program, management’s judgment regarding anticipated ratesof warranty claims and associated repair costs. We use the historical data toforecast our anticipated future warranty obligations. This analysis is updatedon a quarterly basis.

*Allowance for Doubtful Accounts*

We maintain an allowancefor doubtful accounts based on a continuous review of customer accounts,payment patterns and specific collection issues. Where specific collectionissues are identified, we record a specific allowance based on the amount thatwe believe will be uncollected. For accounts where specific collection issuesare not identified, we record a reserve based on the age of the receivable andhistorical collection patterns.

*Inventory Valuation*

Inventories are valued atthe lower of cost or market, cost being determined on a first-in, first-outbasis. We assess the valuation of all inventories, including raw materials,work-in-process, finished goods and spare parts on a periodic basis. Obsoleteinventory or inventory in excess of management’s estimated usage is writtendown to its estimated market value less costs to sell, if less than its cost.Inherent in the estimates of market value are management’s estimates related tocurrent economic trends, future demand and technological obsolescence. Ifactual market conditions are less favorable than those projected by management,additional inventory write-downs may be required. If the inventory value iswritten down to its net realizable value, and subsequently there is an increaseddemand for the inventory at a higher value, the increased value of theinventory is not realized until the inventory is sold.

*Accounting for Income Taxes*

We provide for incometaxes using the asset and liability method. Deferred tax assets and liabilitiesare recognized for the future tax consequences attributable to differencesbetween the financial statement carrying amounts of existing assets andliabilities and their respective tax basis. Deferred tax assets and liabilitiesare measured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be realized. Theeffect on deferred tax assets and liabilities from a change in tax rates isrecognized in the financial statements in the period that includes theenactment date.

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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 56.4% for fiscal 2007.

If the ruling isnot granted, then:

·       wewould be required to take a one-time, non-cash charge to our deferred taxassets of approximately $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 56.4% for fiscal 2007. The largeincrease in the effective tax rate for fiscal 2008 would be due primarily tothe one-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 carrying value of ournet deferred tax assets, which are made up of tax deductions, net operatingloss carryforwards and tax credits, assumes that we will be able to generatesufficient future income to fully realize these assets. We evaluate the weightof all available evidence in determining whether it is more likely than notthat some portion of the deferred tax assets will not be realized. If we do notgenerate sufficient future income, the realization of these deferred tax assetsmay be impaired, resulting in an additional income tax expense. A portion ofour tax credits is related to stock options and has a valuation allowancebecause of uncertainty regarding their realization. If these tax credits arerealized, the benefit will be credited to common stock.

*Valuation ofGoodwill*

We perform goodwillimpairment tests in accordance with Statement of Financial Accounting Standard(SFAS) No. 142, Goodwill and Other Intangible Assets, on an annual basis,and between annual tests in certain circumstances for each reporting unit.During the third quarter of fiscal 2006, we performed a goodwill impairmenttest on the Wireless/OEM business segment because the product pricing pressuresand gross margin pressures continued to decline in the third quarter of fiscal2006 and we did not anticipate a significant improvement. As a result, werecorded a non-cash impairment charge of $7.0 million. Potential goodwillimpairment is measured based upon a two-step process. In the first step, wecompare the fair value of a reporting unit with its carrying amount usingdiscounted cash flow valuation methodology. If the fair value of a reportingunit exceeds its carrying amount, goodwill of the reporting unit is notconsidered impaired, thus the second step of the impairment test isunnecessary. If the carrying amount of a reporting unit exceeds its fair value,the second step of the goodwill impairment test is performed to measure theamount of impairment loss, if any.

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*Valuation ofLong-Lived Assets Including Intangible Assets Subject to Amortization*

Long-lived assets arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount of such assets may not be recoverable. Intangibleassets primarily include purchased technology and trademarks. We review ourintangible assets in accordance with SFAS No. 144, Accounting for theImpairment or Disposal of Long-Lived Assets. Factors we consider important thatcould trigger an impairment review include significant under-performancerelative to historical or projected future operating results, significant changesin the manner of our use of the acquired assets or the strategy for our overallbusiness, or significant negative industry or economic trends. If thesecriteria indicate that the value of the intangible asset may be impaired, anevaluation of the recoverability of the net carrying value of the asset overits remaining useful life is made. If this evaluation indicates that theintangible asset is not recoverable, the net carrying value of the relatedintangible asset will be reduced to fair value. Any such impairment chargecould be significant and could have a material adverse effect on our financialstatements if and when an impairment charge is recorded. If an impairmentcharge were recognized, the amortization related to intangible assets woulddecrease during the remainder of the life of the asset. In the third quarter offiscal 2006, we recorded a non-cash impairment charge of $1.2 million forthe write-down of the other intangibles entirely related to our wirelessbusiness segment purchase in connection with the Datum acquisition in October 2002.

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**Results ofOperations**

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                 |       |                       | 52.9       | %                          |   |   | 51.4 | % |   |   | 49.4 | % |   |   |
| Amortization of  purchased technology          |       |                       | 1.6        | %                          |   |   | 2.1 | % |   |   | 2.2 | % |   |   |
| Impairment of  intangibles                     |       |                       | —     | %                          |   |   | 0.7 | % |   |   | — | % |   |   |
| Integration and  restructuring charges         |       |                       | 0.1        | %                          |   |   | 0.7 | % |   |   | — | % |   |   |
| Gross profit                                   |       |                       | 45.4       | %                          |   |   | 45.3 | % |   |   | 48.4 | % |   |   |
| 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         |       |                       | 0.3        | %                          |   |   | — | % |   |   | — | % |   |   |
| Impairment of goodwill                         |       |                       | —     | %                          |   |   | 4.0 | % |   |   | — | % |   |   |
| Operating income (loss)                        |       |                       | 4.3        | %                          |   |   | (1.7 | )% |   |   | 9.9 | % |   |   |
| 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             |       |                       | 6.4        | %                          |   |   | (0.3 | )% |   |   | 10.5 | % |   |   |
| Income tax provision  (benefit)                |       |                       | 3.6        | %                          |   |   | (0.2 | )% |   |   | 1.1 | % |   |   |
| Income (loss) from  continuing operations      |       |                       | 2.8        | %                          |   |   | (0.1 | )% |   |   | 9.4 | % |   |   |
| Gain from discontinued  operations, net of tax |       |                       | 0.1        | %                          |   |   | 0.5 | % |   |   | 0.5 | % |   |   |
| Net Income                                     |       |                       | 2.9        | %                          |   |   | 0.5 | % |   |   | 10.0 | % |   |   |
|                                                |            |                            |            |                            |  |  |  |  |  |  |  |  |  |  |  |

 

**Fiscal Year 2008Outlook**

During fiscal year 2007, revenue growth of 18.3%versus prior year was favorably impacted by two large customers beginning anupgrade cycle to replace their legacy equipment. Revenue for fiscal year 2008from these two customers may not increase or continue at the fiscal year 2007level. In particular, we do not currently expect substantial orders from thesecustomers in the first half of fiscal 2008, which will cause our revenue in thefirst two quarters to be below the level in the second half of fiscal 2007.Fiscal year 2007 revenue was also favorably impacted by the acquisition of TSCin our fiscal second quarter. We also expect fluctuations in quarterly revenue,as the upgrade projects undertaken by our customers are not systematic.

We expect the pace of operating expense growth forfiscal year 2008 to be greater than the prior year due to the full year impactof the acquisitions of TSC and QoSmetrics, S.A. as well as increased spendinglevels in our emerging new Quality of Experience Assurance business segment. Weexpect fiscal year 2008 earnings to be unfavorably impacted by this increasedspending, as well as an expected lower order volume from two large customers inthe first half of 2008 compared to order levels at the end of fiscal year 2007.

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We expect revenues forfiscal year 2008 to be between $210 million and $220 million and earnings to bebetween $0.05 and $0.15 per share, on a fully diluted basis. Our fiscal year2008 investment in our emerging Quality of Experience Assurance businesssegment is projected to dilute annual earnings by approximately $0.22 pershare, on a fully diluted 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 of sales of products, software licenses and services sales. Netrevenue increased by $32.3 million or 18.3% to $208.4 million in fiscal year2007 from $176.1 million in fiscal year 2006. The increase in net revenue wasattributable to the Wireline products increase of $13.3 million or 16.5%(primarily due to increases as a result of deployments at AT&T and Verizonof our next generation sync products), the Wireless/OEM products increase of$2.8 million or 11.6% (due to increased sales to two major customers), theGlobal Services increase of $2.1 million or 16.7% (due to an increase ininstallation services for Verizon), and the Timing, Test and Measurementsegment increase of $13.6 million or 23.1% (due primarily to the acquisition ofTSC on October 2, 2006, increased sales of SAASM products and higherinternational sales). Net revenue for the newly formed Quality of ExperienceAssurance Division was $0.5 million.

| ** **                               | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                               | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Gross Profit*(in thousands):*            | ** ** |                       | ** ** | ** **                 |       |              | ** ** | ** ** |   | ** ** | ** ** |   | ** ** | ** ** |   |
| Wireline Products                        |       |                       | $          | 53,685                     |       |              |       | $ | 45,209 |   |   | $ | 8,476 |   |   | 18.7 | % |   |
| Wireless/OEM Products                    |       |                       | 7,096      |                       |       |              | 5,452      |   |   | 1,644 |   |   | 30.2 |   |   |
| Global Services                          |       |                       | 3,991      |                       |       |              | 6,334      |   |   | (2,343 | ) |   | (37.0 | ) |   |
| Timing, Test and Measurement Division    |       |                       | 33,064     |                       |       |              | 28,690     |   |   | 4,374 |   |   | 15.2 |   |   |
| Quality of Experience Assurance Division |       |                       | 398        |                       |       |              | —     |   |   | 398 |   |   | 100.0 |   |   |
| Other cost of sales                      |       |                       | (3,542     | )                          |       |              | (5,975     | ) |   | 2,433 |   |   | (40.7 | ) |   |
| Total Gross Profit                       |       |                       | $          | 94,692                     |       |              |       | $ | 79,710 |   |   | $ | 14,982 |   |   | 18.8 | % |   |
| Percentage of  Revenue                   |       |                       | 45.4       | %                          |       |              | 45.3       | % |   |   |   |   |   |   |   |

 

***Gross profit***, excluding other cost of sales,increased $12.5 million in fiscal year 2007, or 14.6%, compared to fiscal year2006. Gross profit for the Wireline products increased by $8.5 million or18.7%, which was higher that the 16.5% revenue increase for the same period(due primarily to increased sales of higher margin newer products). Grossprofit for the Wireless/OEM products increased by $1.6 million or 30.2%, whichwas higher than the revenue increase of 11.6% (due to increased sales of highermargin products and selling price increases). Gross profit for Global Servicesdecreased by $2.3 million or 37.0%, as compared to the revenue increase of 16.7%for the same period (due primarily to the large volume increase in installationservices, which is lower margin and in the prior year a high margin repairproject for a major customer occurred which was not repeated in fiscal year2007). Gross profit for the Timing, Test and Measurement Division increased by$4.4 million or 15.2%, which was lower than the revenue increase 

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***of 23.1% for the same period (due primarily to the additionof the lower margin products acquired from TSC on October 2, 2006). Grossprofit for the newly formed Quality of Experience Assurance Division was $0.4million.***

Grossprofit due to other cost of sales for fiscal year 2007 was $2.4 million higherthan fiscal year 2006 primarily due to the $1.2 million impairment charge forthe write down of other intangibles principally related to our Wireless/OEM infiscal 2006 and integration and restructuring charges which were $0.9 millionhigher in fiscal year 2006 versus fiscal year 2007 due to the acquisition ofAgilent Technologies’ Frequency and Timing 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 and administrative expense,***consists primarily of salaries, benefits, sales commissions and travel-relatedexpenses for our sales and services, finance, human resources, informationtechnology and related facility costs and part of the amortization expenses ofour intangible assets. These expenses increased by 7.4% to $60.5 million forfiscal year 2007 compared to $56.4 million for fiscal year 2006. This $4.2million increase in selling, general and administrative expenses wasattributable primarily to $2.6 million for the newly formed Quality ofExperience Assurance Division and higher compensation costs in fiscal year2007. Fiscal year 2007 selling, general and administrative expenses include apartial 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        | % |   |   |   |   |   |   |   |   |   |

 

***Amortization of intangibles*******increased $0.3 million in fiscal year 2007 over fiscal year2006 due to the acquisitions of 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        | %                          |       |              | —     | % |   |   |   |   |   |   |   |   |   |   |

 

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***Integration and restructuring charges***were $0.5 million in fiscal year 2007 for the acquisitions of TSC andQoSmetrics. There were no 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        | % |   |   |   |   |   |   |   |   |   |

 

***Interest income*** increasedto $9.2 million in fiscal 2007 compared to $7.5 million in fiscal year 2006 dueto higher average interest rates experienced in fiscal year 2007, which wasapproximately 5.3%, versus fiscal year 2006, which was 4.3%. The average cashand short-term investment balance was fairly consistent in fiscal 2007 andfiscal 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  provision (benefit)*(in thousands)* |       |                       | $          | 7,473                      |       |              |       | $ | (371 | ) |   |   | $ | 7,844 |   |   |   | (2,114.3 | )% |   |
| Percentage of  Revenue                          |       |                       | 3.6        | %                          |       |              | (0.2       | )% |   |   |   |   |   |   |   |   |   |

 

Our ***income tax provision*** increased to $7.5 million in fiscalyear 2007 compared to a tax benefit of $0.4 million in fiscal year 2006. Theincome tax provision for fiscal year 2007 includes $3.4 million related to theplanned legal entity liquidation of QoSmetrics S.A. and QoSmetrics, Inc.,which were both acquired on January 2, 2007. As described above underCritical Accounting Estimates - Accounting for Income Taxes, 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 56.4% for fiscal 2007.

If the ruling isnot granted, then:

·       wewould be required to take a one-time, non-cash charge to our deferred taxassets of approximately $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 56.4% for fiscal 2007. The largeincrease in the effective tax rate for fiscal 2008 would be due primarily tothe one-time $15.2 million charge.

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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.

**Fiscal Years 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 of sales of products, software licenses andservices sales. Net revenue decreased by $3.3 million or 1.8% to $176.1 millionin fiscal year 2006 from $179.4 million in fiscal year 2005. The decrease innet revenue was attributable to the Wireline products decrease of $2.5 millionor 3.0% (primarily due to large initial orders from a customer in fiscal year2005 not repeated in fiscal year 2006) and the Wireless/OEM products decreaseof $3.8 million or 13.8% (due to a product shift toward lower priced, lowerperformance quartz-based products from higher performance, lower maintenancerubidium-based solutions, continued overall pricing pressure and implementationof non-CDMA base stations that derive timing from a central office). Theserevenue decreases were partially offset by a $2.8 million or 29.1% increase inthe Global Services segment (primarily due to an increase in total solutionsales to customers) and a $0.2 million or 0.4% increase in the Timing, Test andMeasurement segment (due primarily to the acquisition of the Agilent’s cesiumproducts partially offset by decline in other products).

| ** **                               | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                               | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Gross Profit *(in thousands)*:           |       |                       |       |                       |       |              |       |   |   |   |   |   |   |   |   |   |   |
| Wireline Products                        |       |                       | $          | 45,209                     |       |              |       | $ | 47,281 |   |   |   | $ | (2,072 | ) |   |   | (4.4 | )% |   |
| Wireless/OEM Products                    |       |                       | 5,452      |                       |       |              | 8,102      |   |   |   | (2,650 | ) |   |   | (32.7 | ) |   |
| Global Services                          |       |                       | 6,334      |                       |       |              | 4,165      |   |   |   | 2,169 |   |   |   | 52.1 |   |   |
| Timing, Test and Measurement Division    |       |                       | 28,690     |                       |       |              | 31,235     |   |   |   | (2,545 | ) |   |   | (8.1 | ) |   |
| Quality of Experience Assurance Division |       |                       | —     |                       |       |              | —     |   |   |   | — |   |   |   | NA |   |   |
| Other cost of sales                      |       |                       | (5,975     | )                          |       |              | (3,899     | ) |   |   | (2,076 | ) |   |   | 53.2 |   |   |
| Total Gross Profit                       |       |                       | $          | 79,710                     |       |              |       | $ | 86,884 |   |   |   | $ | (7,174 | ) |   |   | (8.3 | )% |   |
| Percentage of  Revenue                   |       |                       | 45.3       | %                          |       |              | 48.4       | % |   |   |   |   |   |   |   |   |   |

 

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***Gross profit***for fiscal year 2006, excluding other cost of sales, decreased $5.1 million, or5.6%, compared to fiscal year 2005. This decrease in total gross profit wasgreater than the revenue decrease of 1.8%. Gross profit for the Wirelineproducts decreased by $2.1 million or 4.4%, which was fairly consistent withthe 3.0% revenue decrease for the same period. Gross profit for the Wireless/OEMproducts decreased by $2.7 million or 32.7%, which was higher than the revenuedecrease of 13.8% due to lower selling prices and increased sales of lowermargin products. Gross profit for Global Services increased by $2.2 million or52.1%, which was higher than the 29.1% revenue increase for the same period dueto increased sales of lower cost services. Gross profit for the Timing, Testand Measurement Division decreased by $2.5 million or 8.1%, which was lowerthan the revenue increase of 0.4% for the same period due primarily to theaddition of the higher cost cesium product acquired from Agilent Technologiesin 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 andTiming Standards product line. There were no integration expenses in fiscal2005.

| ** **                                        | ** ** | **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*********consist primarily of salaries and benefits, prototypeexpenses and fees paid to outside consultants. Research and developmentexpenses were $18.8 million during fiscal year 2006 compared to $16.3 millionfor fiscal year 2005. The overall increase in the research and developmentexpense was primarily attributable to $0.5 million in stock-based compensation,salary increases, and increased spending in new R&D projects to comply witha new EU regulation, RoHS (restriction of the use of certain hazardoussubstances in electrical and electronic equipment). This regulation bans theplacing in the EU market of new electrical and electronic equipment containingmore than certain levels of lead, cadmium, mercury, hexavalent chromium,polybrominated biphenyl (PBB) and polybrominated diphenyl ether (PBDE) flameretardants beginning 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***consists primarily of salaries, benefits, sales commissions and travel-relatedexpenses for our sales and services, finance, human resources, informationtechnology and related facility costs. These expenses increased by 7.9% to$56.4 million for fiscal year 2006 compared to $52.2 million for thecorresponding period of fiscal year 2005. This $4.1 million increase inselling, general and administrative expenses was attributable primarily to anincrease in stock-based compensation of $3.6 million and annual meritincreases. 

| ** **                                   | ** ** | **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        | % |   |   |   |   |   |   |   |   |   |

 

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***Amortization ofintangibles*******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*******increased in fiscal year 2006 due to a third quarternon-cash impairment charge of $7.0 million for the write-down of goodwillprincipally related to our wireless business segment purchased in connectionwith the Datum acquisition in October 2002. For fiscal year 2005, therewere 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        | % |   |   |   |   |   |   |   |   |   |

 

***Interestincome***increased to $7.5 million in fiscal year 2006 compared to $1.5 million infiscal year 2005 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       | )% |   |   |   |   |   |   |   |   |   |

 

***Interestexpense***consists primarily of interest on our capital lease for our headquartersbuilding in San Jose, California and interest for our convertible notes.Interest expense increased 512.2% to $5.0 million in fiscal year 2006 from $0.8million in fiscal year 2005 due primarily to interest expense on theconvertible notes, which started accruing at 3.25% on June 15, 2005.

| ** **                                        | ** ** | **Year ended**        | ** ** | ** **                 | ** ** | ** **        | ** ** |
|---------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                        | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
| Income tax provision  (benefit) *(in  thousands)* |       |                       | $          | (371                       | )          |              |       | $ | 1,914 |   |   |   | $ | (2,285 | ) |   |   | (119.4 | )% |   |
| Percentage of  Revenue                            |       |                       | (0.2       | )%                         |       |              | 1.1        | % |   |   |   |   |   |   |   |   |   |

 

***Incometax benefit*** was $0.4 million in fiscal year 2006 compared to an income taxprovision $1.9 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 SpecialtyManufacturing/Other business segment and the results, net of tax, are reflectedin the results of operations for fiscal years 2006 and 2005.

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**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.

*Sales backlog:*

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.

*Contract revenue:*

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 performance based award fee. Revenue fromlong-term contracts is reviewed periodically, with adjustments recorded in theperiod in which the revisions are made. As of July 1, 2007, we had approximately$6.3 million in contract revenue to be performed and recognized within the next36 months, compared to approximately $4.4 million in contract revenue thatwas to be performed 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 consolidated headcountas of July 1, 2007 was comprised of 890 regular employees and 61 temporaryemployees, compared to 802 regular employees and 63 temporary employees as of July 2,2006.

*Deferred revenue:*

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 sales of goods with special terms was $0.9million as of July 1, 2007, compared to $0.4 million as of July 2,2006. Deferred revenue for maintenance contracts was $2.6 million as of July 1,2007, compared to $2.2 million as of July 2, 2006. Deferred revenue fordistributor 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 $216.9 million compared to $222.3 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 

43

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$25.4 millionand a shift from cash and cash equivalents to short-term investments. As aresult, short-term investments increased from $106.7 million as of July 2,2006 to $138.6 million as of July 1, 2007.

The $20.7 million net cashprovided by operating activities in fiscal 2007 was primarily attributable to anet income of $6.1 million and non-cash expenses related to depreciation andamortization 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 forthe acquisitions of QoSmetrics S.A. and TSC, and $5.1 million in purchases ofplant and equipment. This was partially offset by $193.6 million in maturitiesof short-term investments. The $3.0 million net cash used for financingactivities was primarily attributable to $4.0 million used to repurchase commonstock and $2.2 million to repay long-term obligations. This was partiallyoffset by $2.7 million in proceeds from the issuance of common stock.

Our total capital spendingcommitments outstanding as of July 2, 2007 were approximately $0.9million. 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 levelsin part on our expectation of future revenue levels. If our revenue for aparticular period is lower than we expect, we may take steps to reduce ouroperating expenses accordingly. If cash generated from operations isinsufficient to satisfy our liquidity requirements or if we require additionalcapital resources to grow our business or to acquire complementary technologiesand businesses in the future, we may seek to issue additional equity securitiesor obtain additional debt financing. Additional financing may not be availableat all or on terms favorable to us. Additional financing may also be dilutiveto our existing stockholders. We do not have any arrangements or relationshipswith entities that are not consolidated into our financial statements that arereasonably likely to materially affect our liquidity or the availability of ourcapital resources.

***Wells Fargo Line ofCredit***

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 this agreement was amended to allow us toincrease the line of credit up to $10.0 million. On November 1, 2006 the agreementwas amended to lower the line of credit to $3.0 million. The line of creditcontains certain financial covenants and restrictions. The line of creditexpires on November 1, 2007. No borrowings were outstanding under thisfacility as of July 1, 2007. This line of credit is used to support aletter of credit for the $2.4 million Massachusetts Development Finance Agencybond.

***ConvertibleSubordinated Notes***

On June 8, 2005, wesold $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 andliabilities of our subsidiaries.

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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:

·       Priorto June 15, 2023, if the common stock price for a least 20 trading days inthe period of 30 consecutive days ending on the last trading day of thecalendar quarter preceding the quarter in which the conversion occurs is morethan 125% of the conversion price of the Notes in effect on that 30th tradingday;

·       Onor after June 15, 2023, at all times on or after any date on which thecommon stock price is more than 125% of the then current conversion price;

·       Duringthe five consecutive business-day period following any five consecutivetrading-day period in which the trading price for the Notes for each suchtrading day was less than 95% of the average of the sale price of our commonstock during such five trading-day period multiplied by the then currentconversion rate;

·       Ifwe have called the particular Notes for redemption and the redemption has notyet occurred; or

·       Uponthe occurrence of specified corporate transactions.

Holders may convert any outstanding Notes into cashand, if applicable, shares of our common stock at an initial conversion priceper share of $12.49, which was determined based on the reported closing priceof 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.

We may from time to time repurchase or redeem all or aportion 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 that would trigger early redemption of the convertiblesubordinated notes had occurred.

***Massachusetts Development Finance Agency Bond***

In connection with theacquisition of Datum in October 2002, we assumed Datum’s liabilityrelating to an industrial development bond that was issued by the MassachusettsDevelopment Finance Agency on June 1, 2001, to finance the expansion byDatum of its manufacturing facility in Beverly, Massachusetts. The bond matureson May 1, 2021, and the balance is $2.4 million as of July 1, 2007.Interest on the bond is payable monthly at an adjustable rate of interest asdetermined by the remarketing agent for each rate period to be the lowest ratewhich in its judgment would permit the sale of the bonds at par. The bond is collateralizedby the line of credit with Wells Fargo Bank.

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**ContractualObligations**

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 ourcorporate office. The amendment extended the termination date of the lease fromApril 15, 2009 to April 15, 2016. In addition, it provides that,commencing December 1, 2005, basic annual rent (as defined in the lease)would be reduced to $1.7 million, subject to 4% annual increasescommencing 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.

The balance on the bond issued by the MassachusettsDevelopment Finance Agency is $2.4 million as of July 1, 2007. The bond iscollateralized by a $2.4 million letter of credit issued under our creditfacility with Wells Fargo Bank.

We operate in multiple locations domestically andinternationally. As such, certain facilities and equipment are leased undercapital lease agreements or operating lease agreements. Due to excess capacityon several non-cancelable leases as a result of the economic downturn, wesubleased certain facilities and recognized lease loss liability for the remainder.

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

In connection with the Datum acquisition, we assumedDatum’s post-retirement health care benefits plan. Post-retirement benefits arerecognized over the employee’s service period based on a 6.00% discounted rateto the employee and the employee’s beneficiaries after retirement. The healthcare plan was curtailed as of December 31, 2002, and only existing retiredparticipants and former Datum employees, now employed by Symmetricom and whomeet the retirement eligibility requirements by December 31, 2004, areeligible for participation. The health care plan is a 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** | ** ** |
| **Contractual Obligations**      | ** ** | ** **                                | ** ** | **Total** | ** ** | **1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **5 years** | ** ** |
| ** **                            | ** ** | **(In thousands)**                   | ** ** |
| Bond payable                          |       | $                                         | 2,405      |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 2,405 |   |
| Convertible  subordinate notes        |       | 120,000                                   |       |   | — |   |   |   | — |   |   |   | — |   |   | 120,000 |   |
| Capital lease  obligations            |       | 2,901                                     |       |   | 1,576 |   |   |   | 1,325 |   |   |   | — |   |   | — |   |
| Operating leases  obligations(1)      |       | 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)          Operatinglease obligation is net of the lease loss accrual

**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). 

46

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SFAS No. 158 requiresemployers to recognize a net liability or asset and an offsetting adjustment toaccumulated other comprehensive income to report the funded status of definedbenefit pension and other post-retirement benefit plans. Previous standardsrequired employers to disclose the complete funded status of its plans only inthe notes to the financial statements. Additionally, SFAS No. 158 requiresemployers to measure plan assets and obligations at their year-end balancesheet date. Guidance relating to the recognition of the over or under fundedstatus of the plan and additional disclosure requirements is effective forperiods 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 a materialimpact 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 consideration of theeffects of prior year misstatements in quantifying current year misstatementsfor the purpose of a materiality assessment. SAB No. 108 establishesan approach that requires quantification of financial statement errors based onthe effects of each of the company’s balance sheet and statement of operationsand the related financial statement disclosures. SAB No. 108 permitsexisting public companies to record the cumulative effect of initially applyingthis approach in the first year ending after November 15, 2006 byrecording the necessary correcting adjustments to the carrying values of assetsand liabilities as of the beginning of that year with the offsetting adjustmentrecorded to the opening balance of retained earnings. Additionally, the use ofthe cumulative effect transition method requires detailed disclosure of thenature and amount of each individual error being corrected through thecumulative adjustment and how and when it arose. We do not believe thatSAB No. 108 has a material impact on our consolidated balance sheetor statement of operations.

In June 2006, theFASB issued Interpretation Number (FIN) No. 48, Accounting for Uncertaintyin Income Taxes. FIN No. 48 applies to all tax positions within the scopeof FASB Statement No. 109, applies a “more likely than not” threshold fortax benefit recognition, identifies a defined methodology for measuringbenefits and increases the disclosure requirements for companies. FIN No. 48is mandatory for years beginning after December 15, 2006. We are stillassessing the impact of the adoption of FIN No. 48, and have not yetdetermined the impact that its adoption will have on the consolidated financialstatements. The final analysis will be completed in the first quarter of fiscal2008.

**Item 7A.**                *Quantitative and Qualitative Disclosures About Market Risk*

**Interest RateExposure**

As of July 1, 2007, we had short-term investmentsof $138.6 million. These investments in corporate debt securities have maturitydates of greater than three months. Our corporate debt securities are subjectto interest rate risk in as much as their fair value will fall if marketinterest rates increase. If market interest rates were to increase immediatelyand uniformly by 10% from the levels prevailing at July 1, 2007, the fairvalue of the portfolio would not decline by a material amount. Additionally, a10% decrease in the market 

47

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interest rates would notmaterially 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 these securitiesattributable to short-term fluctuations in interest rates would not materiallyharm 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 market risk due to fluctuations incurrency exchange rates relates primarily to the intercompany balances with oursubsidiaries in the United Kingdom and Germany. Although we transact businesswith various countries, settlement amounts are usually based on United Statescurrency. Transaction gains or losses have not been significant in the past andwe do not presently engage in hedging activity. A hypothetical 10% adversechange in sterling or Euro against United States dollars would not result in amaterial foreign exchange loss. Consequently, we do not expect that a sudden orsignificant fluctuation in foreign exchange rates would have a direct materialimpact on our business.

Notwithstanding the foregoing analysis of the directeffects of interest rate and currency exchange rate fluctuations on the valueof certain of our investments and accounts, the indirect effects of suchfluctuations could have a materially harmful effect on our business. Forexample, international demand for our products is affected by foreign currencyexchange rates. In addition, interest rate fluctuations may affect the buyingpatterns of our customers. Furthermore, interest rate and currency exchangerate fluctuations have broad influence on the general condition of the UnitedStates, foreign and global economies which could materially harm our business.

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**Item 8.**                        *Consolidated Financial Statements and Supplementary Data*

Supplementaryquarterly financial data (unaudited):

| ** **                                                      | ** ** | **First**                                                             | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-----------|------------|
| ** **                                                      | ** ** | **Quarter**                                                           | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Year**  | ** ** |
| ** **                                                      | ** ** | **(In thousands, except per share amounts)** | ** ** |
| **Fiscal Year 2007**                                            | ** ** | ** **                                                            |       |        |       |        |       |        |       |      |       |
| Net revenue                                                     |       | $                                                                     | 47,260     |        | $          | 51,761      |       | $           | 51,943     |      | $          | 57,416 |   | $ | 208,380 |   |
| Gross profit                                                    |       | 22,036                                                                |       | 21,655      |       | 24,629      |       | 26,372      |       | 94,692    |       |
| Operating income                                                |       | 3,817                                                                 |       | 2,138       |       | 2,230       |       | 743         |       | 8,928     |       |
| Income from continuing operations before income  taxes          |       | 4,965                                                                 |       | 3,320       |       | 3,234       |       | 1,817       |       | 13,336    |       |
| Income (loss) from continuing operations                        |       | 3,323                                                                 |       | 2,462       |       | (1,308      | )          | 1,386       |       | 5,863     |       |
| Gain (loss) on discontinued operations                          |       | 474                                                                   |       | 260         |       | (349        | )          | (143        | )          | 242       |       |
| Net income (loss)                                               |       | 3,797                                                                 |       | 2,722       |       | (1,657      | )          | 1,243       |       | 6,105     |       |
| Basic earnings (loss) per share from continuing  operations     |       | 0.07                                                                  |       | 0.06        |       | (0.03       | )          | 0.03        |       | 0.13      |       |
| Basic earnings (loss) per share from discontinued  operations   |       | 0.01                                                                  |       | —      |       | (0.01       | )          | —      |       | —    |       |
| Basic net earnings (loss) per share                             |       | 0.08                                                                  |       | 0.06        |       | (0.04       | )          | 0.03        |       | 0.13      |       |
| Diluted earnings (loss) per share from continuing  operations   |       | 0.07                                                                  |       | 0.06        |       | (0.03       | )          | 0.03        |       | 0.13      |       |
| Diluted earnings (loss) per share from discontinued  operations |       | 0.01                                                                  |       | —      |       | (0.01       | )          | —      |       | —    |       |
| Diluted net earnings (loss) per share                           |       | 0.08                                                                  |       | 0.06        |       | (0.04       | )          | 0.03        |       | 0.13      |       |
| **Fiscal  Year 2006**                                           |       |                                                                  |       |        |       |        |       |        |       |      |       |
| Net revenue                                                     |       | $                                                                     | 42,545     |        | $          | 45,281      |       | $           | 41,532     |      | $          | 46,754 |   | $ | 176,112 |   |
| Gross profit                                                    |       | 20,138                                                                |       | 21,256      |       | 17,106      |       | 21,210      |       | 79,710    |       |
| Operating income (loss)                                         |       | 1,331                                                                 |       | 2,620       |       | (8,581      | )          | 1,662       |       | (2,968    | )          |
| Income (loss) from continuing operations before  income taxes   |       | 1,647                                                                 |       | 3,123       |       | (7,850      | )          | 2,607       |       | (473      | )          |
| Income (loss) from continuing operations                        |       | 1,276                                                                 |       | 2,346       |       | (5,695      | )          | 1,971       |       | (102      | )          |
| Gain (loss) on discontinued operations                          |       | 97                                                                    |       | 309         |       | 508         |       | 7           |       | 921       |       |
| Net income (loss)                                               |       | 1,373                                                                 |       | 2,655       |       | (5,187      | )          | 1,978       |       | 819       |       |
| Basic earnings (loss) per share from continuing  operations     |       | 0.03                                                                  |       | 0.05        |       | (0.12       | )          | 0.04        |       | —    |       |
| Basic earnings (loss) per share from discontinued  operations   |       | —                                                                |       | 0.01        |       | 0.01        |       | —      |       | 0.02      |       |
| Basic net earnings (loss) per share                             |       | 0.03                                                                  |       | 0.06        |       | (0.11       | )          | 0.04        |       | 0.02      |       |
| Diluted earnings (loss) per share from continuing  operations   |       | 0.03                                                                  |       | 0.05        |       | (0.12       | )          | 0.04        |       | —    |       |
| Diluted earnings (loss) per share from discontinued  operations |       | —                                                                |       | 0.01        |       | 0.01        |       | —      |       | 0.02      |       |
| Diluted net  earnings (loss) per share                          |       | 0.03                                                                  |       | 0.06        |       | (0.11       | )          | 0.04        |       | 0.02      |       |

 

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**SYMMETRICOM, INC.**

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**
|                                                                                                                                                                             | ** ** | **Page** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| Report of Independent  Registered Public Accounting Firm                                                                                                                    |       | 51       |
| Consolidated Balance Sheets at  July 1, 2007 and July 2, 2006                                                                                                     |       | 52       |
| Consolidated Statements of  Operations for the years ended July 1, 2007, July 2, 2006, and  July 3, 2005                                                     |       | 53       |
| Consolidated Statements of  Stockholders’ Equity and Comprehensive Income (Loss) for the years ended  July 1, 2007, July 2, 2006, and July 3, 2005 |       | 54       |
| Consolidated Statements of  Cash Flows for the years ended July 1, 2007, July 2, 2006 (As  corrected), and July 3, 2005 (As corrected)                       |       | 55       |
| Notes to the Consolidated Financial  Statements                                                                                                                             |       | 56       |

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders ofSymmetricom, Inc.San Jose, California

We have audited the accompanying consolidated balancesheets of Symmetricom, Inc. and subsidiaries (the “Company”) as of July 1,2007 and July 2, 2006 and the related consolidated statements ofoperations, stockholders’ equity and comprehensive income (loss), and cashflows for each of the three years in the period ended July 1, 2007. Ouraudits also included the financial statement schedule listed in the Index atItem 15 Schedule II. These consolidated financial statements and financialstatement schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on the consolidated financialstatements and financial statement schedule based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statementspresent fairly, in all material respects, the financial position of the Companyas of July 1, 2007 and July 2, 2006 , and the results of itsoperations and its cash flows for each of the three years in the period ended July 1,2007, in conformity with accounting principles generally accepted in the UnitedStates of America. Also, in our opinion, such financial statement schedule,when considered in relation to the basic consolidated financial statementstaken as a whole, presents fairly, in all material respects, the informationset 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 fiscal 2006.

Wehave also audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the effectiveness of the Company’sinternal control over financial reporting as of July 1, 2007, based on thecriteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our reportdated September 25, 2007 expressed an unqualified opinion onmanagement’s assessment of the effectiveness of the Company’s internal controlover financial reporting and an adverse opinion on the effectiveness of theCompany’s internal control over financial reporting because of a materialweakness.

**/s/ DELOITTE & TOUCHE LLP**
| San Jose, California     |
|--------------------------|
| September 25,  2007 |

 

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**SYMMETRICOM, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except par value)**

| ** **                                                                                                                                                            | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| **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                                                                                                                                                           |       |                       | 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                                                                                                                                      |       |                       | 46,152     |                       |       |   | 48,405 |   |   |
| Note receivable from  employee                                                                                                                                        |       |                       | —     |                       |       |   | 500 |   |   |
| Total assets                                                                                                                                                          |       |                       | $          | 409,279                    |       |   |   | $ | 392,418 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                        |       |                       |       |                       |       |   |   |   |   |
| Current liabilities:                                                                                                                                                  |       |                       |       |                       |       |   |   |   |   |
| Accounts payable                                                                                                                                                      |       |                       | $          | 13,197                     |       |   |   | $ | 13,359 |   |   |
| 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                                                                                                                                             |       |                       | 47,215     |                       |       |   | 40,568 |   |   |
| Long-term  obligations                                                                                                                                                |       |                       | 125,550    |                       |       |   | 126,670 |   |   |
| Deferred income  taxes                                                                                                                                                |       |                       | 334        |                       |       |   | 619 |   |   |
| Total liabilities                                                                                                                                                     |       |                       | 173,099    |                       |       |   | 167,857 |   |   |
| 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                                                                                                                                                     |       |                       | 48,707     |                       |       |   | 42,602 |   |   |
| Total stockholders’ equity                                                                                                                                       |       |                       | 236,180    |                       |       |   | 224,561 |   |   |
| Total liabilities  and stockholders’ equity                                                                                                                      |       |                       | $          | 409,279                    |       |   |   | $ | 392,418 |   |   |

 

See notes to the consolidated financial statements.

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**SYMMETRICOM, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts)**

| ** **                                                     | ** ** | **Year ended**        | ** ** |
|----------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                     | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** | **July 3, 2005** | ** ** |
| Net revenue                                                    |       |                       | $          | 208,380 |   |   |   | $ | 176,112 |   |   |   | $ | 179,388 |   |   |
| Cost of products  and services                                 |       |                       | 110,147    |   |   |   | 90,428 |   |   |   | 88,605 |   |   |
| Amortization of  purchased technology                          |       |                       | 3,317      |   |   |   | 3,622 |   |   |   | 3,899 |   |   |
| Impairment of  intangibles                                     |       |                       | —     |   |   |   | 1,198 |   |   |   | — |   |   |
| Integration and  restructuring charges                         |       |                       | 224        |   |   |   | 1,154 |   |   |   | — |   |   |
| Gross profit                                                   |       |                       | 94,692     |   |   |   | 79,710 |   |   |   | 86,884 |   |   |
| 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)                                        |       |                       | 8,928      |   |   |   | (2,968 | ) |   |   | 17,737 |   |   |
| 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 |       |                       | 13,336     |   |   |   | (473 | ) |   |   | 18,845 |   |   |
| Income tax  provision (benefit)                                |       |                       | 7,473      |   |   |   | (371 | ) |   |   | 1,914 |   |   |
| Income (loss) from continuing operations                       |       |                       | 5,863      |   |   |   | (102 | ) |   |   | 16,931 |   |   |
| Gain from  discontinued operations, net of tax                 |       |                       | 242        |   |   |   | 921 |   |   |   | 985 |   |   |
| Net income                                                     |       |                       | $          | 6,105 |   |   |   | $ | 819 |   |   |   | $ | 17,916 |   |   |
| Earnings per  share—basic:                                |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Earnings from continuing operations                            |       |                       | $          | 0.13 |   |   |   | $ | — |   |   |   | $ | 0.37 |   |   |
| Earnings from discontinued operations                          |       |                       | —     |   |   |   | 0.02 |   |   |   | 0.02 |   |   |
| Net earnings                                                   |       |                       | $          | 0.13 |   |   |   | $ | 0.02 |   |   |   | $ | 0.39 |   |   |
| Weighted average  shares outstanding—basic                |       |                       | 45,572     |   |   |   | 45,913 |   |   |   | 45,532 |   |   |
| Earnings per  share—diluted:                              |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Earnings from continuing operations                            |       |                       | $          | 0.13 |   |   |   | $ | — |   |   |   | $ | 0.36 |   |   |
| Earnings from discontinued operations                          |       |                       | —     |   |   |   | 0.02 |   |   |   | 0.02 |   |   |
| Net earnings                                                   |       |                       | $          | 0.13 |   |   |   | $ | 0.02 |   |   |   | $ | 0.38 |   |   |
| Weighted average shares  outstanding—diluted              |       |                       | 46,389     |   |   |   | 46,791 |   |   |   | 46,936 |   |   |

 

See notes to the consolidated financial statements.

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

**AND COMPREHENSIVEINCOME (LOSS)**

**(In thousands)**

| ** **                                                            | ** ** | **Common Stock** | ** ** | **Stockholder  Note** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **(1)  Deferred  Stock-based** | ** **                | **Retained**     | ** ** | **Total  Stock-  holders’** | ** **      | **Total  Comprehensive** |       |
|-----------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|---------------------------------------|------------|--------------------------------|---------------------------|------------------|------------|----------------------------------|-----------------|--------------------------|------------|
| ** **                                                            | ** ** | **Shares**            | ** ** | **Amount**            | ** ** | **Receivable**                        | ** ** | **Income (loss)**         | ** **                | **Compensation** | ** ** | **Earnings**                     | ** **      | **Equity**               | ** ** | **Income (loss)** |   |
| Balance at June 27, 2004                                         |       |                  | 44,915     |                  |       | $ 174,293                        |       |                           | $ (555               | )                |       |                             | $  (1 | )                        |       |   | $ (1,120 | ) |   |   | $ 23,867 |   |   | $ 196,484 |   |   | $ (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                                     |       |                  | —     |                  |       | —                                |       |                           | —                    |             |       |                             | —          |                     |       |   | — |   |   |   | 16,931 |   |   | 16,931 |   |   | 16,931 |   |   |
| 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                                          |       |                  | 46,329     |                  |       | 184,292                               |       |                           | —                    |             |       |                             | 100             |                     |       |   | — |   |   |   | 41,783 |   |   | 226,175 |   |   | 18,017 |   |   |
| 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                              |       |                  | —     |                  |       | —                                |       |                           | —                    |             |       |                             | —          |                     |       |   | — |   |   |   | (102 | ) |   | (102 | ) |   | (102 | ) |   |
| 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                                          |       |                  | 45,743     |                  |       | 181,696                               |       |                           | —                    |             |       |                             | 263             |                     |       |   | — |   |   |   | 42,602 |   |   | 224,561 |   |   | 982 |   |   |
| 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                                     |       |                  | —     |                  |       | —                                |       |                           | —                    |             |       |                             | —          |                     |       |   | — |   |   |   | 5,863 |   |   | 5,863 |   |   | 5,863 |   |   |
| 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                                         |       |                  | 46,528     |                  |       | $ 187,070                        |       |                           | $   — |             |       |                             | $ 403      |                     |       |   | $      — |   |   |   | $ 48,707 |   |   | $ 236,180 |   |   | $ 6,245 |   |   |
|                                                                       |            |                       |            |                       |            |                                       |            |                                |                           |                  |            |                                  |                 |                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)                 Following the adoption of SFAS 123(R) infiscal 2006, amounts that would previously have been recorded in this columnare now included within Common Stock.

See notes to the consolidated financial statements.

54

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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 corrected—  see Note 2)** | ** ** | **(As corrected—  see Note 2)** | ** ** |
| Cash flows from operating activities:                                              |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                         |       |                       | $          | 6,105 |   |   |   | $ | 819 |   |   |   | $ | 17,916 |   |   |
| 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                                                             |       |                       | 1,916      |   |   |   | (1,693 | ) |   |   | (3,368 | ) |   |
| 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                                                                   |       |                       | (525       | ) |   |   | 675 |   |   |   | (2,688 | ) |   |
| 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 the consolidated financial statements.

55

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Note 1—Summary of Significant 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 thatenable communication service providers to monitor the performance, as perceivedby end users, of IP-based video and other next generation network applications.Timing and synchronization products and services include networksynchronization systems and timing elements used by network operators andusers, governments and professional services. Such products play an importantrole in the operation, bandwidth utilization, and quality of service of wireline,wireless and cable networks enabling our customers to increase the reliabilityof their networks in today’s evolving communications environment. 

*Principles of Consolidation*

The consolidated financialstatements include the accounts of Symmetricom, Inc., and its wholly ownedsubsidiaries (“Symmetricom”,  “we”, “our”or the “Company”). All significant intercompany accounts and transactions areeliminated.

*Fiscal Year*

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

*Reclassification*

Certain reclassificationshave been made to the prior period financial statements to conform to thecurrent period presentation. Deferred revenue of $1.1 million as of July 2,2006 that was previously reported as other accrued liabilities in currentliabilities has been reclassified as long-term obligations. As of July 1,2007, $1.1 million of deferred revenue was included in long-term obligations.

*Use of 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

56

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Actual results coulddiffer from these estimates.

*Cash and 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-term Investments*

Short-term investments consist of corporate debtsecurities that mature between three and 36 months. All of our short-terminvestments are classified as available-for-sale. These securities are carriedat fair value with the unrealized gains and losses, net of taxes, reported as acomponent of stockholders’ equity.

Thefollowing table summarizes Symmetricom’s available-for-sale securities recordedas cash and cash equivalents or short-term investments:

| ** **                                   | ** ** | ** **              | ** ** | **Gross Unrealized** | ** ** | ** **          | ** ** |
|----------------------------------------------|------------|-------------------------|------------|---------------------------|------------|---------------------|------------|
| ** **                                   | ** ** | **Amortized Cost** | ** ** | **Gains (losses)**   | ** ** | **Fair Value** | ** ** |
| ** **                                   | ** ** | ** **              | ** ** | **(In thousands)**   | ** ** | ** **          | ** ** |
| **July 1,  2007**                       | ** ** |                    | ** ** | ** **                |       |                | ** ** | ** ** |   | ** ** | ** ** |
| Commercial paper                             |       |                    | $          | 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**                        | ** ** |                    | ** ** | ** **                |       |                | ** ** | ** ** |   | ** ** | ** ** |
| Commercial paper                             |       |                    | $          | 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 |   |

 

*Fair Values 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.

*Concentrations of 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, governmentagencies, defense contractors, and distributors. Management believes that itscredit evaluation, approval, and monitoring processes mitigate potential creditrisks. However, we still have significant credit risks as 

57

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

ourcustomers currently tend to consolidate by mergers or acquisitions, which couldimpact their ability to pay.

*Inventories*

Inventoriesare stated at the lower-of-cost (first-in, first-out) or market. We assess thevaluation of all inventories, including raw materials, work-in-process, finishedgoods and spare parts on a periodic basis. Obsolete inventory or inventory inexcess of management’s estimated usage is written down to its estimated marketvalue less costs to sell, if less than its cost. Inherent in the estimates ofmarket value are management’s estimates related to current economic trends,future demand and technological obsolescence. Inventories consist of:

| ** **      | ** ** | **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 and equipment are stated at cost. Depreciation and amortization arecomputed using the straight-line method based on the estimated useful lives ofthe assets except 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 and equipment 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 and improvementsincludes $9.0 million of costs capitalized under a capital lease for ourfacility in San Jose, California, which was completed in June 1997. As of July 1,2007 and July 2, 2006, accumulated amortization for this facility totaled$7.6 million and $6.9 million, respectively.

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

*Goodwill and Other Intangible Assets*

We allocate the purchase price of acquired companiesto the tangible and intangible assets acquired and liabilities assumed, as wellas in-process research and development based on their estimated fair values.Such allocations require management to make significant estimations andassumptions, especially with respect to intangible assets.

Our accounting policy isto perform impairment tests in accordance with the SFAS No.142, Goodwill andOther Intangible Assets, on an annual basis, and between annual tests incertain circumstances, for each reporting unit using a discounted cash flowvaluation method. Critical estimates in valuing certain intangible assetsinclude, but are 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 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.

*Long-lived Assets Including Other Intangible AssetsSubject to Amortization*

The carrying value of long-lived assets is evaluatedwhenever events or changes in circumstances indicate that the carrying value ofthe asset may be impaired. An impairment loss is recognized when estimatedundiscounted future cash flows expected to result from the use of the asset,including disposition, is less than the carrying value of the asset. Impairmentis measured as the amount by which the carrying 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 display of comprehensive income and itscomponent. SFAS No.130 requires companies to report comprehensive income thatincludes unrealized holding gains and losses and other items that havepreviously been excluded from net income and reflected instead in stockholders’equity. 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Accumulatedother comprehensive 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 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 to our customers. The extended warranty is offered on productsthat are less than eight years old. The extended warranty contract isapplicable for a maximum of nine years after the expiration of the standardone-year warranty. The income from extended warranty contracts is recognizedratably over the period of contract.

We accrue for anticipatedwarranty costs upon shipment. Our warranty reserve is based on the number ofinstalled units, historical analysis of the volume of product returned to usunder the warranty program, management’s judgment regarding anticipated ratesof warranty claims and associated repair costs. We use the historical data toforecast our anticipated future warranty obligations.

*Acquired in-processresearch and development expenses*

During fiscal 2007, $0.2 million of the purchase priceof the TSC acquisition was allocated to purchased in-process research anddevelopment expense based upon the values assigned to the acquisitions.Projects that qualify as in-process research and development represent thosethat have not yet reached technological feasibility and have no alternativefuture use. Technological feasibility is defined as being equivalent to abeta-phase working prototype in which there is no remaining risk relating tothe development. The value of these projects was determined by estimating thediscounted net cash flows from the sale of the products resulting from thecompletion of the projects, reduced by the portion of the revenue attributableto developed technology and the percentage of completion of the project.

The nature of the effortsto develop the purchased in-process research and development into commerciallyviable products principally relates to the completion of all prototyping andtesting activities that are necessary to establish that the product can meetits design specification including function, features and technical performancerequirements. Therefore, the amount allocated to in-process research anddevelopment has been charged to operations.

*SoftwareDevelopment Costs*

Costs for the developmentof new software and substantial enhancements to existing software are expensedas incurred until technological feasibility has been established, at which timeany additional development costs would be capitalized in accordance with SFAS No. 86,Computer Software to Be Sold, Leased, or Otherwise Marketed. We believe thecurrent process for developing software is essentially 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

completedconcurrently with the establishment of technological feasibility; accordingly,no costs have been capitalized to date. Software cost for purchased software iscapitalized and amortized when the useful life has been determined. During thefourth quarter of fiscal 2007, we capitalized $2.0 million of purchasedsoftware for use in research and development and have not yet determined itsuseful life.

*Foreign CurrencyTranslation*

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

For our subsidiaries in which the U.S. Dollar is thefunctional currency, foreign currency denominated assets and liabilities aretranslated at the year-end exchange rates, except for inventories, prepaidexpenses, and property and equipment, which are translated at historicalexchange rates. Statements of operations are translated at the average exchangerates during the year except for those expenses related to the balance sheetamounts, which are translated using historical exchange rates. Net gains(losses) from these foreign exchange transactions have not been material to ouroperating results for any of the periods 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.

*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 the creditworthinessof the customer and past transaction history. We perform periodic creditevaluations of our customers and do not require collateral from our customers.However, for many of our international customers, we require an irrevocable letterof credit to be issued by the customer before the purchase order is accepted.If we determine that collection of the invoice is not reasonably assured, werecognize the revenue at the time that collection becomes reasonably assured,which is generally upon the receipt of cash. We commonly have transactions thatinvolve sales of both product and services to our customers. Product revenue isgenerated from the sale of synchronization and timing equipment with embeddedsoftware that is essential to product functionality. We account for thesetransactions in accordance with the rules applicable to software revenuerecognition. Service revenue is recognized as the services are performedprovided collection of the related receivable is reasonably assured. Our salesto distributors 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 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 at completionon the individual contracts. Any anticipated losses on contracts are charged 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

to operations as soon asthey are determinable. Revenue recognized under cost plus contracts isrecognized on the basis of direct and indirect costs incurred plus a 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. A contract isdetermined to be substantially complete when the physical deliverables arecompleted, shipped and accepted. Unbilled receivables totaled $3.0 as ofJuly 1, 2007 compared to $1.6 million as of July 2, 2006. All ofunbilled receivables as of July 1, 2007 are expected to be collected infiscal 2008. Any anticipated losses on contracts are charged to operations assoon as they are determinable.

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

*Stock-BasedCompensation*

Prior to fiscal 2006, we accounted for stock-basedawards under the intrinsic value method, which followed the recognition andmeasurement principles of APB Opinion No. 25, Accounting for Stock Issuedto Employees, and related Interpretations. The intrinsic value method ofaccounting resulted in compensation expense for restricted stock at fair valueon date of grant based on the number of shares granted and the quoted price ofour common stock, and for stock options to the extent option exercise priceswere set below market prices on the date of grant. Also, to the extent wegranted stock options or stock awards that were subject to an exchange offer,other modifications or performance criteria, such awards were subject tovariable accounting treatment. To the extent stock awards were forfeited priorto vesting, the corresponding previously recognized expense related to theunvested portion of the awards was reversed as an offset to operating expenses.

As of fiscal 2006, we adopted SFAS No. 123(R),Share-Based Payment, using the modified prospective method, which requiresmeasurement of compensation cost for all stock-based awards at fair value ondate of grant and recognition of compensation over the service period forawards expected to vest. The fair value of restricted stock is determined basedon the number of shares granted and the quoted price of our common stock, andthe fair value of stock options is determined using the Black-Scholes valuationmodel, which is consistent with our valuation techniques previously utilizedfor options in footnote disclosures required under SFAS No. 123,Accounting for Stock Based Compensation, as amended by SFAS No. 148,Accounting for Stock-Based Compensation Transition and Disclosure. Such valueis recognized as expense over the service period, net of estimated forfeitures,using the accelerated method under SFAS No. 123(R). Because we adoptedSFAS No. 123(R), we no longer have employee stock awards subject tovariable accounting treatment.

SFAS No. 123(R) resulted in stock-basedcompensation 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 taxbenefits relating to excess stock-based compensation deductions to beprospectively presented in the statement of cash flows as financing cashinflows. There were no excess tax benefits resulting from the exercise ofstock-based compensation deductions reported for financial reporting purposesfor the fiscal period ended July 2, 2006.

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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 entity shallfollow either:

1.                The transitionguidance for the additional paid-in capital pool (APIC pool) in paragraph 81 ofSFAS No. 123(R), or

2.                The alternativetransition 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 alternative transition method is a simplifiedmethod to establish the beginning balance of the APIC pool related to the taxeffects of employee stock-based compensation, and to determine the subsequentimpact on the APIC pool and Consolidated Statements of Cash Flows of the taxeffects of employee stock-based compensation awards that are outstanding uponadoption of SFAS No. 123(R).

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

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

Theapplication of SFAS No. 123(R) had the following effect on thereported amounts for the fiscal period ended July 2, 2006 relative toamounts that would have been reported using the intrinsic value method underprevious accounting:

| ** **                                            | ** ** | **Year ended  July 2, 2006**                       | ** ** |
|-------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                            | ** ** | **As**                                                            | ** ** | **SFAS 123R** | ** ** |
| ** **                                            | ** ** | **Reported**                                                      | ** ** | **Adjustments** | ** ** |
| ** **                                            | ** ** | **(In thousands, except  per share amounts)** | ** ** |
| Loss before  income taxes and discontinued operations |       | $                                                                 | (473       | ) |   | $ | (4,620 | ) |   |
| Income tax  provision                                 |       | 371                                                               |       |   | 1,709 |   |   |
| Loss from continuing operations                       |       | $                                                                 | (102       | ) |   | $ | (2,911 | ) |   |
| Gain from  discontinued operations, net of tax        |       | 921                                                               |       |   | — |   |   |
| Net income                                            |       | $                                                                 | 819        |   |   | $ | (2,911 | ) |   |
| Earnings per  share—basic:                       |       |                                                              |       |   |   |   |   |
| Earnings from continuing operations                   |       | $                                                                 | —     |   |   | $ | (0.06 | ) |   |
| Earnings from discontinued operations                 |       | 0.02                                                              |       |   | — |   |   |
| Net earnings                                          |       | $                                                                 | 0.02       |   |   | $ | (0.06 | ) |   |
| Weighted average  shares outstanding—basic       |       | 45,913                                                            |       |   | 45,913 |   |   |
| Earnings per share—diluted:                      |       |                                                              |       |   |   |   |   |
| Earnings from continuing operations                   |       | $                                                                 | —     |   |   | $ | (0.06 | ) |   |
| Earnings from discontinued operations                 |       | 0.02                                                              |       |   | — |   |   |
| Net earnings                                          |       | $                                                                 | 0.02       |   |   | $ | (0.06 | ) |   |
| Weighted average shares  outstanding—diluted     |       | 46,791                                                            |       |   | 46,791 |   |   |

 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

 

| ** **                           | ** ** | **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, priorto the adoption of SFAS 123(R), the Company had adopted the disclosure onlyprovisions of SFAS No. 123, *Accountingfor Stock-Based Compensation.*The Company accounted for employeestock-based compensation using the intrinsic-value-based method of accountingas defined under Accounting Principles Board Opinion No. 25 (APB 25), “Accountingfor Stock Issue to Employees,” and its related interpretation. Accordingly, werecognized no compensation expense in our consolidated statements of operationswith respect to options awarded to our employees with exercise prices greaterthan or equal to the fair value of the underlying common stock at the date ofgrant. However, we recognized compensation expense in our consolidatedstatements of operations with respect to restricted stock awarded to ouremployees. Had compensation cost for the Company’s stock-based compensationplans been determined using the fair-value method at the grant date for awardsunder those plans calculated using the Black-Scholes pricing model andrecognized using the accelerated method over the option vesting periods, theCompany’s net income for the year ended July 3, 2005, would have beendecreased to the pro forma amounts indicated below (in thousands, except pershare data):

| ** **                                                                                                                                                                  | ** ** | **Year ended**                                               | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                                                                                  | ** ** | **July 3, 2005**                                             | ** ** |
| ** **                                                                                                                                                                  | ** ** | **(In thousands, except  per share amounts)** | ** ** |
| Net income, as reported                                                                                                                                                     |       |                                                              | $          | 17,916 |   |   |
| 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                                                                                                                                                        |       |                                                              | $          | 12,405 |   |   |
| Earnings per share—basic:                                                                                                                                              |       |                                                              |       |   |   |
| As reported                                                                                                                                                                 |       |                                                              | $          | 0.39 |   |   |
| Pro forma                                                                                                                                                                   |       |                                                              | $          | 0.27 |   |   |
| Earnings per share—diluted:                                                                                                                                            |       |                                                              |       |   |   |
| As reported                                                                                                                                                                 |       |                                                              | $          | 0.38 |   |   |
| Pro forma                                                                                                                                                                   |       |                                                              | $          | 0.26 |   |   |

 

*Net Income (Loss) Per Share*

Basic income (loss) pershare is computed by dividing net income (loss) by the weighted average numberof common shares outstanding during the period. Diluted income (loss) per shareis calculated 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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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Areconciliation of the denominator used in the calculation of basic and dilutednet income (loss) per share 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                                |       |                                          | $          | 5,863 |   |   |   | $ | (102 | ) |   |   | $ | 16,931 |   |   |
| Gain from discontinued operations                                            |       |                                          | 242        |   |   |   | 921 |   |   |   | 985 |   |   |
| Net income                                                                   |       |                                          | $          | 6,105 |   |   |   | $ | 819 |   |   |   | $ | 17,916 |   |   |
| 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 from continuing operations                                          |       |                                          | $          | 0.13 |   |   |   | $ | — |   |   |   | $ | 0.37 |   |   |
| Earnings from discontinued operations                                        |       |                                          | —     |   |   |   | 0.02 |   |   |   | 0.02 |   |   |
| Net earnings                                                                 |       |                                          | $          | 0.13 |   |   |   | $ | 0.02 |   |   |   | $ | 0.39 |   |   |
| Earnings per share—diluted:                                             |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| Earnings from continuing operations                                          |       |                                          | $          | 0.13 |   |   |   | $ | — |   |   |   | $ | 0.36 |   |   |
| Earnings from discontinued operations                                        |       |                                          | —     |   |   |   | 0.02 |   |   |   | 0.02 |   |   |
| Net earnings                                                                 |       |                                          | $          | 0.13 |   |   |   | $ | 0.02 |   |   |   | $ | 0.38 |   |   |

 

Unvested restricted stock is subject to repurchase bythe Company and therefore is not included in the calculation of theweighted-average shares outstanding for basic 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 |   |   |

 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

We account for ourcontingent convertible notes in accordance with EITF 04-08, “The Effectof Contingently Convertible Debt on Diluted Earnings Per Share,” which requiresus to include the dilutive effect of the shares of our common stock issuableupon conversion of the outstanding convertible notes in our diluted earningsper share calculation regardless of whether the market price trigger or othercontingent conversion feature has been met. Because our Notes include amandatory 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 exceed $12.49, no shares associated with the contingent convertiblenotes were included in our diluted earnings per share as of July 1, 2007.

**Note 2—Correctionof an error**

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 as follows for the years ended July 2,2006, and July 3, 2005, respectively:
|                                        | ** ** | **July 2, 2006**         | ** ** |
|----------------------------------------|------------|------------------------------------|------------|
| ** **                             | ** ** | **(As originally  reported)** | ** ** | **(As corrected** | ** ** | **(Effect of  change)** | ** ** |
| ** **                             | ** ** | **(in thousands)**            | ** ** |
| Cash flows from  investing activities: |       |                               |       |   |   |   |   |   |   |   |   |
| Purchases of short-term investments    |       |                               | $          | (77,726 | ) |   |   | $ | (175,425 | ) |   | $ | (97,699 | ) |
| Maturities of short-term investments   |       |                               | 60,650     |   |   |   | 158,349 |   |   | 97,699 |   |
|                                        |            |                                    |            |  |  |  |  |  |  |  |  |  |  |  |

 
|                                        | ** ** | **July 3, 2005**         | ** ** |
|----------------------------------------|------------|------------------------------------|------------|
| ** **                             | ** ** | **(As originally  reported)** | ** ** | **(As corrected)** | ** ** | **(Effect of  change)** | ** ** |
| ** **                             | ** ** | **(in thousands)**            | ** ** |
| Cash flows from  investing activities: |       |                               |       |   |   |   |   |   |   |   |   |
| Purchases of short-term investments    |       |                               | $          | (83,478 | ) |   |   | $ | (134,734 | ) |   | $ | (51,256 | ) |
| Maturities of  short-term investments  |       |                               | 7,460      |   |   |   | 58,716 |   |   | 51,256 |   |
|                                        |            |                                    |            |  |  |  |  |  |  |  |  |  |  |  |

 

**Note 3—Acquisitions**

*QoSmetrics*

On January 2, 2007, we acquired QoSmetrics S.A.,a privately held provider of quality of experience (QoE) solutions for IPTV(Internet Protocol Television). QoSmetrics’ results are included in ourconsolidated statements of operations effective January 2, 2007. We acquiredQoSmetrics S.A. for its technology, which we believe we can use to develop aline of products and services that will provide revenue growth in future yearsat a faster pace than our historic lines of business. Moreover, its targetcustomers, as well as certain of its proprietary product features, arecomplementary with key parts of Symmetricom’s current operations. The purchaseprice of approximately $16.8 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.

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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 |   |

 

On January 2, 2007,we liquidated QoSmetrics Inc., a California corporation, and wholly ownedsubsidiary of QoSmetrics S.A., a French company. On March 28, 2007, weliquidated QoSmetrics S.A. As a result of these liquidations, we recorded a taxexpense of $3.4 million, a reduction in goodwill of $3.1 million, and anincrease of $0.3 million in other accrued liabilities.

*Timing SolutionsCorporation*

On October 2, 2006, we acquired Timing SolutionsCorporation (TSC), a privately held company based in Boulder, Colorado that provideshigh-performance time and frequency products and services for government,aerospace and military markets. TSC’s results are included in our consolidatedstatements of operations effective October 2, 2006. We acquired TSCbecause it has a high-end timing technology that is fundamental to building ournext generation products, which we believe will allow us to introduce newproducts into the market at a faster rate. Management believes that thisacquisition further strengthens the Company’s leadership position in the timeand frequency technology field. The total purchase price of approximately $8.6million was paid in cash. The purchase price was allocated to the assetsacquired and the liabilities assumed based on management’s estimate of the fairvalue for purchase accounting purposes at the date of acquisition. We utilizedan outside valuation consultant to assist with the determination of thepurchase price allocation, based on a fair value of the intangible assets.

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  |   |

 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

*Acquisition ofAgilent’s cesium product line assets*

On August 1, 2005, the Company acquired AgilentTechnologies’ Frequency and Timing Standards product line. This acquisition isexpected to enhance the Company’s position in the area of cesium clocks used primarilyby official time authorities and metrology institutes throughout the world andto further the Company’s leadership in generating high-precision frequency andtiming references including rubidium oscillators, cesium clocks and hydrogenmasers. The total purchase price of approximately $8.0 million was paid incash. The purchase price was allocated to the assets acquired, includinggoodwill and the liabilities assumed, based on management’s preliminaryestimate of the fair value for purchase accounting purposes at the date ofacquisition. Management does not expect significant revisions to the purchaseprice allocations for the acquired 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  |   |

 

*Pro Forma Resultsof Operations*

Thefollowing unaudited pro forma information presents a summary of ourconsolidated results of operations as if the Timing Solutions Corporation andQoSmetrics S.A. acquisitions had taken place at the beginning of each fiscalyear presented:

| ** **                                        | ** ** | **Year ended**                                                                                            | ** ** |
|---------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|
| ** **                                        | ** ** | **       July 1, 2007       ** | ** ** | **       July 2, 2006       ** | ** ** |
| ** **                                        | ** ** | **(In thousands, except per share amounts)**                                          | ** ** |
| Net revenue                                       |       |                                                                                                           | $          | 211,368 |   |   |   | $ | 186,228 |   |   |
| Net income (loss)                                 |       |                                                                                                           | $          | 5,453 |   |   |   | $ | (2,393 | ) |   |
| Earnings (loss)  per share—basic:            |       |                                                                                                           |       |   |   |   |   |   |   |
| Net income (loss)                                 |       |                                                                                                           | $          | 0.12 |   |   |   | $ | (0.05 | ) |   |
| Weighted average  shares outstanding—basic   |       |                                                                                                           | 45,572     |   |   |   | 45,913 |   |   |
| Earnings (loss)  per share—diluted:          |       |                                                                                                           |       |   |   |   |   |   |   |
| Net income (loss)                                 |       |                                                                                                           | $          | 0.12 |   |   |   | $ | (0.05 | ) |   |
| 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 ofintangibles acquired and excludes adjustments for integration and restructuringcharges, and acquired in-process research and development, including theirrelated income tax effects as they are non-recurring.

On an after-tax basis, thetwelve-month period ended July 1, 2007 includes an adjustment foramortization of intangibles of $0.6 million and excludes acquisition relatedcosts for acquired in-process research and development of $0.2 million, andother integration and restructuring charges of $0.5 million. 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

On anafter-tax basis, the twelve-month period ended July 2, 2006 includes anadjustment for amortization of intangibles of $1.7 million.

**Note 4—Discontinued Operations**

During the third quarterof fiscal 2007, we discontinued the operation of our SpecialtyManufacturing/Other business segment. Specialty Manufacturing/Other was part ofour Telecommunications Solutions 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. Duringfiscal 2007, we recognized a $0.2 million gain, net of taxes, all of which wasattributable to income from discontinued operations.

During fiscal 2005, werecognized a gain of $162,000, net of taxes, for final payment for sale ofsoftware related to the Trusted Time Division, which was discontinued duringfiscal 2003.

**Note 5—Other Accrued Liabilities**

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-Retirement Benefit 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.

The following sets forththe post-retirement program’s status reconciled with amounts reported in theconsolidated 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 |   |   |

 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Net periodic post-retirement benefit costs includeonly interest costs. For fiscal 2007, 2006, and 2005, the interest costs 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.

**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, weentered into a First Amendment to Lease, effective as of October 27, 2005,which amended our existing lease for approximately 117,739 square feet of spacein an office building located in San Jose, California. The leased space servesas our corporate office. The amendment extended the termination date of thelease from April 15, 2009 to April 15, 2016. In addition, it providesthat, commencing December 1, 2005, basic annual rent (as defined in thelease) would be reduced to $1.7 million, subject to 4% annual increasescommencing 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.

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.

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Inaddition, we lease certain other facilities and equipment under operating leaseagreements. Rental expense charged to operations was $2.8 million in 2007, $1.7million in 2006, and $1.4 million in 2005. Future minimum lease payments as of July 1,2007 are 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                    |       |   |   |   |   |   |

 

Thetotal of minimal rentals to be received in the future under noncancelablesubleases as of July 1, 2007 was $1.6 million.

**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:

| ** **                        | ** ** | ** **              | ** ** | ** **       | ** ** | **Timing, Test** | ** ** | **Quality of** | ** ** | ** ** | ** ** |
|-----------------------------------|------------|-------------------------|------------|------------------|------------|-----------------------|------------|---------------------|------------|------------|------------|
| ** **                        | ** ** | ** **              | ** ** | ** **       | ** ** | **and**               | ** ** | **Experience**      | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **Wireline**            | ** ** | **Wireless/OEM** | ** ** | **Measurement**       | ** ** | **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 of the fiscal 2006, we recorded anon-cash impairment charge of approximately $7.0 million for the write-down ofthe goodwill related to our Wireless/OEM business segment purchased inconnection with the Datum acquisition in October 2002. The impairmentcharge reflects changing business conditions in the wireless segmentsurrounding product pricing, gross margins, new product acceptance and theincreasingly prevalent use of wireless technologies that do not require afrequency reference at the cell site, but receive the required synchronizationreferences from central office. During the third quarter of fiscal 2006, therewas an impairment indicator and we performed a goodwill impairment test on theWireless/OEM business segment since the product pricing pressures and gross 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

margin pressures discussedin prior quarters continued to decline in the third quarter of fiscal 2006 andwe did not anticipate any improvement.

Critical estimates in valuing certain intangibleassets include, but are not limited to: future expected cash flows fromcustomer contracts, customer lists, distribution agreements, acquired developedtechnologies and patents; expected costs to develop the in-process research anddevelopment into commercially viable products and estimating cash flows fromthe projects when completed; and the brand awareness and the market position ofthe acquired products and assumptions about the period of time the brand willcontinue to be used in the combined company’s product portfolio. Our estimatesof fair value are based upon assumptions believed to be reasonable, but whichare inherently uncertain and 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 of fiscal 2006, we recorded anon-cash impairment charge of approximately $1.2 million for the write-down ofthe other intangibles related to our Wireless/OEM business segment purchased inconnection with the Datum acquisition in October 2002. During the thirdquarter of fiscal 2006, there was an impairment indicator and we performed anintangible impairment test on the Wireless/OEM business segment since theproduct 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.

The carrying value of long-lived assets is evaluatedwhenever events or changes in circumstances indicate that the carrying value ofthe asset may be impaired. An impairment loss is recognized when estimatedundiscounted future cash flows expected to result from the use of the asset,including disposition, is less than the carrying value of the asset. Impairmentis measured as the amount by which the carrying amount exceeds the fair value.

Otherintangible assets are recorded at cost, less accumulated amortization. Otherintangible assets as of July 1, 2007 and July 2, 2006 consist of:

| ** **                         | ** ** | **Gross**               | ** ** | ** **       | ** ** | **Net**        | ** ** |
|------------------------------------|------------|-------------------------|------------|------------------|------------|----------------|------------|
| ** **                         | ** ** | **Carrying**            | ** ** | **Accumulated**  | ** ** | **Intangible** | ** ** |
| ** **                         | ** ** | **Amount**              | ** ** | **Amortization** | ** ** | **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 |   |   |

 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Theestimated future amortization expense is as 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 anyamortization on $2.0 million of purchased technology where we have not yetdetermined the useful life.

Intangible assetamortization expense for fiscal 2007, 2006 and 2005 was approximately $4.1million, $4.1 million, and $4.5 million, respectively.

*AgilentTechnologies*

Increases in the other intangible assets during fiscal2006 primarily resulted from the acquisition of Agilent Technologies’ Frequencyand Timing Standards product line, which included $2.6 million in purchasedtechnology, $0.2 million in backlog and $0.5 million in customer relationships.The $0.2 million in backlog was fully amortized in the first quarter of fiscal2006.

For the intangiblesrelated to Agilent Technologies’ Frequency and Timing Standards product line,the weighted-average amortization period in total is 8 years, 9 months. Theweighted-average amortization period by major intangible asset class is asfollows:

·       Customerrelationships—10 years

·       Developedtechnology—9 years

·       Backlog—lessthan 1 year

Increases in otherintangible assets during fiscal 2007 resulted from the acquisition of TSC andthe acquisition of QoSmetrics.

*Timing SolutionsCorporation*

Increases inintangible assets related to TSC included $1.8 million relating to customerrelationships, $1.4 million relating to developed technology, $1.0 millionrelating to backlog, and $0.2 million relating to trade names. Theweighted-average amortization period in total is 6 years, 6 months. Theweighted-average amortization period by major intangible asset class is asfollows:

·       Customerrelationships—11 years, 9 months

·       Developedtechnology—4 years, 9 months

·       Backlog—1year

·       Trade Names—3 years, 9months

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

*QoSmetrics*

Increases inintangible assets related to QoSmetrics included $1.3 million relating tocustomer relationships, $4.4 million relating to developed technology, and $1.5million relating to trade names. The weighted-average amortization period intotal is 5 years, 6 months. The weighted-average amortization period by majorintangible asset class is as follows:

·       Customerrelationships—5 years, 6 months

·       Developedtechnology—5 years, 6 months

·       Trade Names—5 years, 6months

**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                                                       |       |                       | $          | 13,831 |   |   |   | $ | (921 | ) |   |   | $ | 17,028 |   |   |
| Foreign                                                        |       |                       | (495       | ) |   |   | 448 |   |   |   | 1,817 |   |   |
| Total                                                          |       |                       | $          | 13,336 |   |   |   | $ | (473 | ) |   |   | $ | 18,845 |   |   |
| 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                                                        |       |                       | 3,619      |   |   |   | (881 | ) |   |   | (447 | ) |   |
| State                                                          |       |                       | (849       | ) |   |   | (383 | ) |   |   | 196 |   |   |
| Puerto Rico                                                    |       |                       | 96         |   |   |   | 200 |   |   |   | (345 | ) |   |
| Foreign                                                        |       |                       | 29         |   |   |   | — |   |   |   | 16 |   |   |
| Total                                                          |       |                       | 2,895      |   |   |   | (1,064 | ) |   |   | (580 | ) |   |
| Total provision (benefit)                                      |       |                       | $          | 7,473 |   |   |   | $ | (371 | ) |   |   | $ | 1,914 |   |   |

 

Thetax provision 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          |       |                       | 7,473      |   |   |   | (371 | ) |   |   | 1,914 |   |   |
| Discontinued operations        |       |                       | 167        |   |   |   | 521 |   |   |   | 724 |   |   |
| Total provision                |       |                       | $          | 7,640 |   |   |   | $ | 150 |   |   |   | $ | 2,638 |   |   |
|                                |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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       |       |                       | —     |   |   |   | (402.5 | ) |   |   | (28.8 | ) |   |
| Puerto Rico taxes                                    |       |                       | 3.2        |   |   |   | 136.4 |   |   |   | 2.7 |   |   |
| State income taxes, net  of federal benefit          |       |                       | (5.8       | ) |   |   | (119.6 | ) |   |   | 1.8 |   |   |
| Taxes on QoSmetrics  liquidation                     |       |                       | 25.7       |   |   |   | — |   |   |   | — |   |   |
| Goodwill                                             |       |                       | —     |   |   |   | 350.7 |   |   |   | — |   |   |
| Other                                                |       |                       | (1.7       | ) |   |   | (8.4 | ) |   |   | (0.5 | ) |   |
| Effective income tax  rate                           |       |                       | 56.4       | % |   |   | (78.4 | )% |   |   | 10.2 | % |   |

 

Theprincipal components of deferred tax assets and liabilities are as follows:

| ** **                                                       | ** ** | **July 1, 2007** | ** ** | **July 2, 2006** | ** ** |
|------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                       | ** ** | **(In thousands)**    | ** ** |
| Deferred tax assets:                                             |       |                       |       |                       |       |   |   |   |   |
| Net operating loss carryforwards                                 |       |                       | $          | 18,218                     |       |   |   | $ | 23,292 |   |   |
| Tax credit carryforwards                                         |       |                       | 13,767     |                       |       |   | 11,621 |   |   |
| Reserves and accruals                                            |       |                       | 4,798      |                       |       |   | 6,759 |   |   |
| Depreciation and amortization                                    |       |                       | 13,916     |                       |       |   | 12,719 |   |   |
|                                                             |       |                       | 50,699     |                       |       |   | 54,391 |   |   |
| Valuation  allowance                                             |       |                       | (2,822     | )                          |       |   | (2,822 | ) |   |
| Total deferred  tax assets                                       |       |                       | 47,877     |                       |       |   | 51,569 |   |   |
| Deferred tax  liabilities—  Unremitted Puerto Rico earnings |       |                       | 530        |                       |       |   | 1,177 |   |   |
| Net deferred tax  assets                                         |       |                       | $          | 47,347                     |       |   |   | $ | 50,392 |   |   |

 

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      |       |                       | 42,883     |                       |       |   | 44,252 |   |   |
| Non-current  liabilities |       |                       | (334       | )                          |       |   | (619 | ) |   |
| Net deferred tax assets  |       |                       | $          | 47,347                     |       |   |   | $ | 50,392 |   |   |

 

As of July 2, 2007,for federal income tax purposes, we had regular net operating losscarryforwards of approximately $52.8 million, which will expire in years 2023through 2025. We had California regular net operating loss carryforwards ofapproximately $5.4 million, which will expire in years 2013 through 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 in 2017. Additionally,for state income tax purposes, we had research and development tax creditcarryforwards of approximately $3.2 million that have no expiration date.

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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.

During fiscal 2007,Symmetricom Puerto Rico, a wholly-owned subsidiary, moved its place of legalorganization from Delaware to Bermuda in a transaction intended to be atax-free restructuring. We are in the process of submitting a ruling request tothe Internal Revenue Service to confirm the tax-free treatment. If granted, theeffect of the ruling would be for the Puerto Rico subsidiary to be treated as abranch of Symmetricom, Inc. effective as of July 2006 and,accordingly, for the profits of the Puerto Rico subsidiary to be taxable toSymmetricom, Inc. We are undertaking this ruling request based upon oursubsequent review of the 2006 restructuring.

If the ruling request isgranted, the effective tax rate for fiscal 2008 is estimated to beapproximately 25.0%. If the ruling request is not granted, the tax provisionwould be increased by a change to our deferred tax assets of approximately$15.2 million resulting in an estimated effective 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**

We formerly leased a tractof 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 current regulatorystandards. The groundwater contamination has migrated to some adjacentproperties. 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 property owners affected by thecontamination of our participation in the Voluntary Cleanup Program. On May 20,2004, we received a demand from the owner of several adjacent lots for damagesin the amount of $1.3 million, as well as seeking an indemnity for thecontamination and a promise to remediate the contamination. On March 14,2006, the adjacent property owner filed suit in Probate Court No. 1, TravisCounty, 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 in this matter. Weare continuing to work on the remediation of the formerly leasedsite as well as the adjacent properties and intend to defend this lawsuitvigorously. As of July 1,2007, we had an accrual of $0.5 million for remediation costs and other ongoingmonitoring costs.

Under the indemnification provisions of the Company’sstandard sales contracts, the Company agrees to defend the customer againstthird party claims asserting infringement of certain intellectual propertyrights, which may include patents, copyrights, trademarks or trade secrets, andto pay any judgments entered on such claims against the reseller/customer. Theexposure to the Company under these 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

indemnification provisionsis generally limited to the total amount paid by the customer under theagreement. However, certain agreements include indemnification provisions thatcould potentially expose the Company to losses in excess of the amount receivedunder the agreement. To date, there have been no claims under suchindemnification provisions. As such, the Company believes the estimated fairvalue of these indemnification agreements 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—RelatedParty Transactions**

In March 1998, we loaned an officer $500,000 inthe form of an interest-free full-recourse promissory note. The entireprincipal balance is due and payable on March 25, 2008. The note issecured by a deed of trust for the officer’s personal residence. As of July 1,2007 the entire principal balance is outstanding.

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

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-Term Obligations**

| ** **                    | ** ** | **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 |       |                       | 120,000    |                       |       |   | 120,000 |   |   |
| Post-retirement benefits, net |       |                       | 262        |                       |       |   | 292 |   |   |
| Less—current maturities  |       |                       | (1,547     | )                          |       |   | (1,286 | ) |   |
| Total                         |       |                       | $          | 125,550                    |       |   |   | $ | 126,670 |   |   |

 

*We haveno 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 FirstAmendment to Lease, effective as of October 27, 2005, which amended thatcertain Lease dated June 10, 1996 between Symmetricom and Nexus Equity 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

II LLC, as successorin interest to Nexus Equity, Inc., for approximately 117,739 square feetof space in an office building located in San Jose, California. The leasedspace serves as our principal executive office.

The amendment extended thetermination date of the lease from April 15, 2009 to April 15, 2016.In addition, it provides that, commencing December 1, 2005, basic annualrent (as defined in the lease) will be reduced to $1.7 million, subject to 4%annual increases commencing on April 15, 2006. The building element of theoriginal lease, which was accounted for from the outset as a capitallease for a property with a cost of $9.0 million, continues to beamortized over the initial lease period ending in April 2009, inaccordance with SFAS No. 13, Accounting for Leases.

*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 ourindebtedness under our senior credit facilities. The Notes are structurallysubordinated to all indebtedness and liabilities of our subsidiaries.

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

·       Priorto June 15, 2023, if the common stock price for a least 20 trading days inthe period of 30 consecutive days ending on the last trading day of thecalendar quarter preceding the quarter in which the conversion occurs is morethan 125% of the conversion price of the Notes in effect on that 30th tradingday;

·       Onor after June 15, 2023, at all times on or after any date on which thecommon stock price is more than 125% of the then current conversion price;

·       Duringthe five consecutive business-day period following any five consecutivetrading-day period in which the trading price for the Notes for each suchtrading day was less than 95% of the average of the sale price of our commonstock during such five trading-day period multiplied by the then currentconversion rate;

·       Ifwe have called the particular Notes for redemption and the redemption has notyet occurred; or

·       Uponthe occurrence of specified corporate transactions.

Holders may convert any outstanding Notes into cashand, if applicable, shares of our common stock at an initial conversion priceper share of $12.49, which was determined based on the reported closing priceof 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.

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

We may from time to time repurchase or redeem all or aportion 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 theissuance of these Notes, Symmetricom recorded bond fees of approximately $3.8million, which are being amortized using the straight-line method over a periodof seven years until fiscal 2012.

*Massachusetts Development Finance Agency Bond*

In connection with theacquisition of Datum in October 2002, we assumed Datum’s liabilityrelating to an industrial development bond that was issued by the MassachusettsDevelopment Finance Agency on June 1, 2001, to finance the expansion byDatum of its manufacturing facility in Beverly, Massachusetts. The bond matureson May 1, 2021, and the balance is $2.4 million as 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”) thatallows eligible U.S. and Puerto Rico employees to contribute up to 50 percentof their annual compensation to the Plan, subject to certain limitations. Theemployees’ funds are not directly invested in shares of the Company’s commonstock. Each employee directs the investment of the funds across a series ofmutual 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. Employer matching contributions vest ratably over three years.Symmetricom made matching contribution payments of $0.5 million, $0.5 millionand $0.7 million in fiscal 2007, 2006 and 2005, respectively.

*Deferred Compensation Plan*

The Company has a deferredcompensation plan that allows outside directors and certain U.S. employees tocontribute up to 100% of their compensation, provided that their contributiondoes 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**

*Stock Options and Awards*

Symmetricom has equitybenefit plans under which employees, directors and consultants may be grantednon-qualified and incentive options to purchase shares of our common stock andrestricted stock. One of these plans was amended in fiscal 2003, in connectionwith the tender offer during the fourth quarter of fiscal 2003, to effectivelyprovide that restricted stock could be granted and repurchased for no cashpurchase price. Stock appreciation rights may also be granted under this plan;however, none have been granted to date. All options have been granted at thefair market value of our common stock on the date of grant and generally vestover three years.

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Effective August 4,2005, the Symmetricom Board of Directors approved a change in the terms forstock options granted on and after August 4, 2005 under the employee stockoption plans to provide that the life of a new stock option will be 5 yearsinstead of 10 years.

On October 26,2006 at our annual meeting of shareholders, the shareholders approved the 2006Incentive Award Plan that included an additional 3.7 million shares for futureissuance. For the year ended July 1, 2007, we granted non performance-basedoptions to purchase 1.2 million shares of Symmetricom’s common stock, andawarded 0.7 million 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.

We recorded stock-based compensation expenses of $6.4million in fiscal 2007, $4.6 million in fiscal 2006, and $1.0 million in fiscal2005. At July 1, 2007, the total compensation cost related to unvestedstock-based awards granted to employees, directors and consultants under theCompany’s stock option plans but not yet recognized was approximately $7.7million, net of estimated forfeitures of $ 0.6 million.

Thefollowing table details stock option and award activity 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 |   |   |

 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

*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 intrinsicvalue in the preceding table represents the total pre-tax value of stockoptions outstanding as of July 1, 2007, based on our common stock closingprice of $8.40 on July 1, 2007, which would have been received by theoption holders had all option holders exercised their options as of that date.

As of July 1, 2007, July 2,2006, and July 3, 2005, the number of shares and weighted average exerciseprices of exercisable options were 2,751,953 at $7.14, 1,567,540 at $4.59, and2,387,119 at $5.75, respectively.

The total intrinsic valueof options exercised during fiscal 2007, 2006, and 2005 was $1.9 million, $1.6million, 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 theBlack-Scholes option-pricing model. The fair value of our stock-based awards toemployees 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 | % |

 

Prior to July 3,2005, we used our historical volatility as its basis to estimate expectedvolatility. In light of recent accounting guidance related to stock options, wereevaluated the volatility assumptions used to estimate the value of employeestock options granted in fiscal 2006. We determined that historical and impliedvolatility related to publicly traded options is more reflective of marketconditions and a better indicator of expected volatility than historicalvolatility only.

*Performance Awards*

During fiscal 2007, wegranted 0.3 million shares of performance stock options to certain employees. Thenumber of stock options ultimately vested depends on actual businessperformance measured against certain targets such as backlog, revenue, andprofitability for specific areas of the Company’s business. Once the targetsare met, the options in each performance tranche will vest immediately. If anytarget is not met by June 30, 2009, the options relating to the targetwill be cancelled.

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

*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.

*Stock Repurchase Program*

On August 11,2005, the Board of Directors authorized management to repurchase up toapproximately 2.6 million shares of our common stock pursuant to a repurchaseprogram established in fiscal 2002, adding 2.0 million shares to the programpreviously authorized. 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.

*Preferred Stock*

We have 500,000 shares of$0.0001 par value preferred stock authorized, of which 200,000 shares have beenreserved for issuance in connection with our preferred stock rights plan. Theright entitles the holder to purchase from the Company one one-thousandth of ashare of Series A Participating Preferred Stock at a price of $72.82.Therights were distributed at the rate of one right for each share of common stockas a non-taxable dividend and will expire August 2011. The rights will beexercisable only in the event that a person or group acquires 15% or more ofour outstanding common stock.

*Warrants*

On October 16, 2001,we acquired certain assets and products from Telmax Communications Corporation(“Telmax”), a developer of telecommunications equipment. The purchase price ofthe transaction included a warrant to purchase 300,000 shares of Symmetricom’scommon stock with an exercise price of $7.00 per share and expiring on October 16,2006. On October 2, 2006 Telmax exercised the warrant and received 36,346shares pursuant to the net exercise provision based on an average price of$7.965 per share.

**Note 16—Business Segment Information**

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

*Telecom Solutions Division*

Thereare three reportable segments within the Telecom Solutions Division:

·       *Wireline Products* consist principally ofBuilding Integrated Timing Supply, or BITS, based on quartz, rubidium andGlobal Positioning System (GPS) technologies. Our Wireline Products 

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

provide highlyaccurate and uninterruptible timing to meet the synchronization requirements oftelecommunication networks.

·       *Wireless/OEM Products* includes our OEMbase station timing products that are designed to deliver stable timing tocellular/PCS base stations through a GPS receiver to capture cesium-based timesignals produced by GPS satellites.

·       *Global Services*offers a broad portfolioof services for our 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.

*Quality ofExperience Assurance Division*

The Quality of Experience(QoE) Assurance Division products are hardware and software-based probes(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 primaryapplication for these system-level solutions is for IPTV (Internet ProtocolTelevision), VoD (video on demand), ITV (Internet television), and otherIP-based video delivery mechanisms.

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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 howto allocate resources and in assessing performance. We do not allocate assetsor specific operating expenses to these individual operating segments.Therefore, the segment information reported here includes only net revenue andgross profit.

| ** **                                          | ** ** | **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                                   |       |                                                  | $          | 40,223 |   |   |   | $ | 35,427 |   |   |   | $ | 35,848 |   |   |
| Wireless/OEM Products                               |       |                                                  | 19,576     |   |   |   | 18,441 |   |   |   | 19,621 |   |   |
| Global Services                                     |       |                                                  | 10,636     |   |   |   | 6,205 |   |   |   | 5,547 |   |   |
| Timing, Test and Measurement Division               |       |                                                  | 39,608     |   |   |   | 30,354 |   |   |   | 27,589 |   |   |
| Quality of Experience Assurance Division            |       |                                                  | 103        |   |   |   | — |   |   |   | — |   |   |
| Other cost of sales*                                |       |                                                  | 3,542      |   |   |   | 5,975 |   |   |   | 3,899 |   |   |
| Total cost of sales                                 |       |                                                  | $          | 113,688 |   |   |   | $ | 96,402 |   |   |   | $ | 92,504 |   |   |
| Gross profit:                                       |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Telecom Solutions Division:                         |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Wireline Products                                   |       |                                                  | $          | 53,685 |   |   |   | $ | 45,209 |   |   |   | $ | 47,281 |   |   |
| Wireless/OEM Products                               |       |                                                  | 7,096      |   |   |   | 5,452 |   |   |   | 8,102 |   |   |
| Global Services                                     |       |                                                  | 3,991      |   |   |   | 6,334 |   |   |   | 4,165 |   |   |
| Timing, Test and Measurement Division               |       |                                                  | 33,064     |   |   |   | 28,690 |   |   |   | 31,235 |   |   |
| Quality of Experience Assurance Division            |       |                                                  | 398        |   |   |   | — |   |   |   | — |   |   |
| Other cost of sales*                                |       |                                                  | (3,542     | ) |   |   | (5,975 | ) |   |   | (3,899 | ) |   |
| Total gross profit                                  |       |                                                  | $          | 94,692 |   |   |   | $ | 79,710 |   |   |   | $ | 86,884 |   |   |
| Gross margin:                                       |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Telecom Solutions Division:                         |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |
| Wireline Products                                   |       |                                                  | 57.2       | % |   |   | 56.1 | % |   |   | 56.9 | % |   |
| Wireless/OEM Products                               |       |                                                  | 26.6       | % |   |   | 22.8 | % |   |   | 29.2 | % |   |
| Global Services                                     |       |                                                  | 27.3       | % |   |   | 50.5 | % |   |   | 42.9 | % |   |
| Timing, Test and Measurement Division               |       |                                                  | 45.5       | % |   |   | 48.6 | % |   |   | 53.1 | % |   |
| 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                                  |       |                                                  | 45.4       | % |   |   | 45.3 | % |   |   | 48.4 | % |   |

----

*                    Includes amortization of purchased technology,impairment of intangibles and applicable integration, and restructuringcharges.

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**SYMMETRICOM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

Ourexport sales accounted for 29%, 30% and 35%, of our net revenue in fiscal 2007,2006 and 2005 respectively. The geographical components of revenue are asfollows:

| ** **        | ** ** | **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, twocustomers each accounted 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 customeraccounted for 10.0% or more of our net revenue in fiscal 2006 and 2005.

**Note 17—Integration and Restructuring Charges**

During fiscal 2007 werecorded integration and restructuring charges totaling $0.8 million related tothe acquisitions of TSC and QoSmetrics. During fiscal 2006 we recordedintegration and restructuring charges totaling $1.2 million related to theacquisition of Agilent Technologies’ Frequency and Timing Standards productline. These charges were recorded as cost of sales and paid out in their respectiveyears.

Thefollowing tables show the details of the restructuring cost accruals, whichconsist of facilities and severance costs, for the years ended July 1,2007 and July 2, 2006. The adjustments are for reclassifications offacility 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 | ) |   |   | $ | — |   |   |
| Facilities (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)** | ** ** |
| Facilities (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 |   |   |

 

The accrued balance of the$0.1 million lease loss accrual for facilities as of July 1, 2007 will bepaid over the next five years. We expect to incur additional integration andrestructuring charges amounting to $1.0 million for the QoSmetrics acquisition.

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**Item9.**                        *Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure*

Not applicable.

**Item9A.**                *Controls and Procedures*

*Evaluation of Disclosure Controls and Procedures*

On August 31, 2007 wefiled 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 FinancialOfficer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934) were noteffective. Because a material weakness in our control environment existedduring the fourth 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, solely because of this material weakness.

*Changes in Internal Control Over Financial Reporting*

There have not been anychanges in the Company’s internal control over financial reporting (as suchterm 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 Form 10-Q/A to amendour Form 10-Q for the quarter ended Decmember 31, 2006.

During the first quarterof fiscal year 2008, we implemented a new financial policy and procedure forthe treatment of complex transactions. We believe that implementation of thispolicy and compliance to this process will remediate the material weakness inour control environment that existed in the fourth quarter of fiscal 2007.

*Management’s Report on Internal Control Over FinancialReporting*

The Company’s managementis responsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act. Under the supervision and with the participation of theCompany’s management, including our principal executive officer and principalfinancial officer, the Company conducted an evaluation of the effectiveness ofits internal control over financial reporting based on criteria established inthe framework in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission. Based on this evaluation, the Company’s managementconcluded that its internal control over financial reporting was not effectiveas of July 1, 2007, because of a material weakness involving the insufficientreview of significant and unusual transactions relating to accounting for incometaxes.

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risks that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

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.

**Item9B.**               *Other Information*

None.

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**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders ofSymmetricom, Inc.San Jose, California

We have audited management’s assessment, included inthe accompanying Management’s Report on Internal Control Over FinancialReporting, that Symmetricom, Inc. and its subsidiaries (the “Company”) didnot maintain effective internal control over financial reporting as of July 1,2007, because of the effect of the material weakness identified in management’sassessment based on criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission. 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 responsibilityis to express an opinion on management’s assessment and an opinion on theeffectiveness of the Company’s internal control over financial reporting basedon our audit.

We conducted our audit in accordance with the standardsof the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinions.

A company’s internal control over financial reportingis a process designed by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performing similarfunctions, and effected by the company’s board of directors, management, andother personnel to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal 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 inherent limitations of internal controlover financial reporting, including the possibility of collusion or impropermanagement override of controls, material misstatements due to error or fraudmay not be prevented or detected on a timely 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 a deficiency, or a combinationof deficiencies, in internal control over financial reporting such that thereis a reasonable possibility that a material misstatement of the annual orinterim financial statements will not be prevented or detected on a timelybasis. The following material weakness has been identified and included inmanagement’s assessment: insufficient review of significant and unusualtransactions relating to accounting for income taxes.

This material weakness was considered in determiningthe nature, timing, and extent of audit tests applied in our audit of theconsolidated financial statements and financial statement schedule as of andfor the year ended July 1, of the Company and this report does not affectour report on such financial statements and financial statement schedule.

In our opinion, management’s assessment that theCompany did not maintain effective internal control over financial reporting asof July 1, 2007, is fairly stated, in all material respects, based on thecriteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission. Also in ouropinion, because of the effect of the material weakness described above on theachievement of the objectives of the control criteria, the Company has notmaintained effective internal control over financial reporting as of July 1,2007, based on the criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission.

We have also audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theconsolidated financial statements and financial statement schedule as of andfor the year ended July 1, 2007, of the Company and our report dated September 25,2007 expressed, an unqualified opinion on those financial statements andfinancial statement schedule and included an explanatory paragraph regardingthe adoption of Statement of Financial Accounting Standards No. 123 (R), *Share Based Payment*in fiscal 2006.

**/s/ DELOITTE &TOUCHE LLP**
| San Jose, California    |
|-------------------------|
| September 25, 2007 |

 

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**PART III**

**Item10.***                 Directors,Executive Officers and Corporate Governance*

(a)           ExecutiveOfficers

Seethe section entitled “Executive Officers of Symmetricom” in Part I of thisreport.

(b)          Directors

Theinformation required by this item is incorporated by reference from theinformation under the caption “Election of Directors—Nominees” contained in theCompany’s Proxy Statement to be filed with the Securities and ExchangeCommission (the “SEC”) in connection with the solicitation of proxies for theCompany’s 2007 Annual Meeting of Shareholders to be held on October 25,2007 (the “Proxy Statement”).

(c)           Section 16(a) BeneficialOwnership Reporting Compliance

Section 16(a) ofthe Securities Exchange Act of 1934, as amended (the “Exchange Act”), requiresa company’s directors, officers and beneficial owners of more than 10% of anyclass of equity securities of the company registered pursuant to section 12 ofthe Exchange Act to file with the SEC- initial reports of beneficial ownershipand reports of changes in ownership of Common Stock and other equity securitiesof Symmetricom registered pursuant to section 12 of the Exchange Act. Thisinformation is contained in the section called “Section 16(A) BeneficialOwnership Reporting Compliance” in the Proxy Statement and is incorporatedherein by reference.

(d)          Codeof Ethics

Wehave adopted a written code of ethics that applies to all of our employees andto our Board of Directors. A copy of the code is available on our website at *http://www.symmetricom.com* and is attached as an exhibit tothis report.

(e)           CorporateGovernance

The information requiredby this item is incorporated by reference from the information under thecaptions “Election of Directors—Audit Committee” and “Election of Directors—Nominatingand Governance Committee” contained in the Proxy Statement.

**Item11.***                 ExecutiveCompensation*

The information requiredby this item is incorporated by reference from the information under thecaptions “Election of Directors—Nominees,” “Executive Officer Compensation,” “Electionof Directors—Director Compensation,” and “Certain Transactions” contained inthe Proxy Statement.

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

The information requiredby this item is incorporated by reference from the information under thecaption “Other Information—Share Ownership by Principal Stockholders andManagement” contained in the Proxy Statement.

**Item 13.**                 *Certain Relationships and Related Transactions, and DirectorIndependence*

The information requiredby this item is incorporated by reference from the information under thecaption “Certain Transactions” contained in the Proxy Statement.

**Item 14.**                 *Principal Accounting Fees and Services*

The information required by this item is included in “Ratificationof Appointment of Registered Public Accounting Firm of the Company” in ourProxy Statement.

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**PART IV**

**Item 15.**                 *Exhibits and Financial Statement Schedules*

(a)   *Financial Statements and Financial Statement Schedule*

1.   *FinancialStatements.**  *Referenceis made to the Index to Consolidated Statements of Symmetricom, Inc. underItem 8 of Part II hereof.

2.   *Financial Statement Schedules*.   Thefollowing financial statement schedule of Symmetricom for the years ended July 1,2007, July 2, 2006, and July 3, 2005, is filed as part of this reporton Form 10-K and should be read in conjunction with the financial statements:Schedule II—Valuation and Qualifying Accounts and Reserves. All other scheduleshave been omitted because they are not applicable, not required, or therequired information is included in the Consolidated Financial Statements ornotes thereto.

3.   *Exhibits.**  *See Item 15(b) below. Eachmanagement contract or compensatory plan or arrangement required to be filedhas 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

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|         |   | 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).                                                                                                                                                |
| 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).           |

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| 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).                      |
| 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).                                       |

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| 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). |
| 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).                                                                                                                                                                                                                |

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| 21.1 |   | Subsidiaries of  the Registrant.                                                                                                       |
|------|--------|----------------------------------------------------------------------------------------------------------------------------------------|
| 23.1 |   | Consent of  Independent Registered Public Accounting Firm.                                                                             |
| 24.1 |   | Power of Attorney  (see page 94 of this Form 10-K).                                                                          |
| 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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#                 Managementcontract or compensatory plan or arrangement

(c)*   Financial Statement Schedules*

See Item 15(a)(2) above.

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**SCHEDULE IISYMMETRICOM, INC.VALUATION AND QUALIFYING ACCOUNTS AND RESERVES(In thousands)**

| ** **                                   | ** ** | **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.

95

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

|                                |       | SYMMETRICOM, INC. |
|--------------------------------|------------|------------------------|
| Date: September 25,  2007 |       | By:                    |   | /s/ THOMAS  W. STEIPP |
|                           | ** ** | ** **             | ** ** | **Thomas  W. Steipp  Chief Executive Officer  (Principal Executive Officer)** |

 

KNOW ALL MEN BY THESE PRESENTS, that each person whosesignature appears below constitutes and appoints Thomas W. Steipp and WilliamSlater, and each of them, his true and lawful attorneys-in-fact, each with fullpower of substitution, for him or her in any and all capacities, to sign anyamendments to this report on Form 10-K and to file the same, withexhibits thereto and other documents in connection therewith, with theSecurities and Exchange Commission, hereby ratifying and confirming all thateach of said attorneys-in-fact or their substitute or substitutes may do orcause to be done by virtue hereof.

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                                                                  |       | September 25, 2007 |
| **Thomas  W. Steipp**                    |           | Executive Officer) and  Director                                                                     |       |                    |
| /s/ WILLIAM SLATER                  |           | Executive Vice  President Finance and                                                                |       | September 25, 2007 |
| **William  Slater**                      |           | Administration, Chief Financial  Officer, and Secretary (Principal Financial and Accounting Officer) |       |                    |
| /s/ ROBERT T. CLARKSON              |           | Chairman of the Board                                                                                |       | September 25, 2007 |
| **Robert  T. Clarkson**                  |           |                                                                                                 |       |                    |
| /s/ ALFRED BOSCHULTE                |           | Director                                                                                             |       | September 25, 2007 |
| **Alfred  Boschulte**                    |           |                                                                                                 |       |                    |
| /s/ JAMES CHIDDIX                   |           | Director                                                                                             |       | September 25, 2007 |
| **James  Chiddix**                       |           |                                                                                                 |       |                    |
| **/**s**/ **ELIZABETH  A.****FETTER |           | Director                                                                                             |       | September 25, 2007 |
| **Elizabeth  A. Fetter**                 |           |                                                                                                 |       |                    |
| /s/ ROBERT  M.  NEUMEISTER JR.      |           | Director                                                                                             |       | September 25, 2007 |
| **Robert  M. Neumeister Jr.**            |           |                                                                                                 |       |                    |
| /s/ RICHARD  W.  OLIVER             |           | Director                                                                                             |       | September 25, 2007 |
| **Richard  W. Oliver**                   |           |                                                                                                 |       |                    |

96

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| /S/ RICHARD  N. SNYDER   |   | Director |   | September 25, 2007 |
|-------------------------------|--------|----------|--------|-------------------------|
| **Richard N. Snyder**         |   |     |   |                    |
| /S/ ROBERT  J. STANZIONE |   | Director |   | September 25, 2007 |
| **Robert  J. Stanzione**      |   |     |   |                    |

 

97

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