UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED APRIL 26, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM              TO             

COMMISSION FILE NUMBER 000-27273

SYCAMORE NETWORKS, INC.

(Exact name of registrant as specified in its charter)

Delaware	04-3410558
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

220 Mill Road

Chelmsford, Massachusetts 01824

(Address of principal executive offices)

(Zip code)

(978) 250-2900

(Registrant's telephone number, including area code)

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

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

Large accelerated filer  x	Accelerated filer  ¨
Non accelerated filer  ¨	Smaller reporting company  ¨

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

The number of shares outstanding of the registrant's Common Stock as of May 29, 2008 was 283,854,446.

Sycamore Networks, Inc.

Index		Page No.
Part I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (unaudited)	3
	Consolidated Balance Sheets as of April 26, 2008 and July 31, 2007	3
	Consolidated Statements of Operations for the three and nine months ended April 26, 2008 and April 28, 2007	4
	Consolidated Statements of Cash Flows for the nine months ended April 26, 2008 and April 28, 2007	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	29
Item 4.	Controls and Procedures	30
Part II.	OTHER INFORMATION	31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	34
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	38
Item 5.	Other Information	39
Item 6.	Exhibits	40
Signature		41

2

Part I. Financial Information

Item 1. Financial Statements

Sycamore Networks, Inc.

Consolidated Balance Sheets

(in thousands, except par value)

(unaudited)

	April 26, 2008			July 31, 2007
Assets
Current assets:
Cash and cash equivalents	$	411,777		$	249,262
Short-term investments		317,523			658,307
Accounts receivable, net of allowance for doubtful accounts of $72 and $4,132 at April 26, 2008 and July 31, 2007, respectively		17,062			30,521
Inventories		22,583			21,715
Prepaids and other current assets		4,344			4,062
Total current assets		773,289			963,867
Property and equipment, net		20,749			19,612
Long-term investments		220,564			17,182
Purchased intangibles, net		9,213			11,411
Goodwill		20,334			20,334
Other assets		720			664
Total assets	$	1,044,869		$	1,033,070
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,953		$	13,565
Accrued compensation		3,237			2,973
Accrued warranty		4,669			3,400
Accrued expenses		3,592			4,313
Accrued restructuring costs		895			1,885
Reserve for contingencies		—			14,695
Deferred revenue		14,256			9,765
Other current liabilities		3,127			3,100
Total current liabilities		35,729			53,696
Other long term liabilities		1,958			1,651
Long term deferred revenue		6,165			4,674
Total liabilities		43,852			60,021
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $.01 par value; 5,000 shares authorized; none issued or outstanding		—			—
Common stock, $.001 par value; 2,500,000 shares authorized; 283,734 and 280,040 shares issued and outstanding at April 26, 2008 and July 31, 2007, respectively		284			280
Additional paid-in capital		2,033,218			2,020,724
Accumulated deficit		(1,033,706	)		(1,047,669	)
Accumulated other comprehensive gain (loss)		1,221			(286	)
Total stockholders’ equity		1,001,017			973,049
Total liabilities and stockholders’ equity	$	1,044,869		$	1,033,070

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

3

Sycamore Networks, Inc.

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended						Nine Months Ended
	April 26, 2008			April 28, 2007			April 26, 2008			April 28, 2007
Revenue:
Product	$	14,289		$	36,757		$	80,645		$	100,378
Service		6,677			6,783			19,758			17,630
Total revenue		20,966			43,540			100,403			118,008
Cost of revenue:
Product		7,795			20,514			42,155			60,282
Service		3,453			2,865			9,470			7,543
Total cost of revenue		11,248			23,379			51,625			67,825
Gross profit		9,718			20,161			48,778			50,183
Operating expenses:
Research and development		12,232			12,240			34,486			33,379
Sales and marketing		4,980			5,879			15,489			17,810
General and administrative		2,901			6,990			12,367			21,677
In-process research and development		—			—			—			12,400
Asset impairment		—			—			—			6,555
Restructuring and related impairments		471			—			2,368			—
Total operating expenses		20,584			25,109			64,710			91,821
Loss from operations		(10,866	)		(4,948	)		(15,932	)		(41,638	)
Interest and other income, net		8,614			11,803			30,908			34,892
Income (loss) before income taxes		(2,252	)		6,855			14,976			(6,746	)
Income tax expense		491			159			1,012			360
Net income (loss)	$	(2,743	)	$	6,696		$	13,964		$	(7,106	)
Net income (loss) per share:
Basic	$	(0.01	)	$	0.02		$	0.05		$	(0.03	)
Diluted	$	(0.01	)	$	0.02		$	0.05		$	(0.03	)
Weighted average shares outstanding:
Basic		283,164			279,664			282,197			279,557
Diluted		283,164			282,276			284,333			279,557

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

4

Sycamore Networks, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended
	April 26, 2008			April 28, 2007
Cash flows from operating activities:
Net income (loss)	$	13,964		$	(7,106	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		9,374			7,991
Share-based compensation		3,220			4,582
In-process research and development		—			12,400
Asset impairment		—			6,555
Adjustments to provision for excess and obsolete inventory		1,355			841
Loss on disposal of equipment		54			60
Restructuring and related impairments		1,149			—
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		13,459			(10,114	)
Inventories		(2,843	)		(1,309	)
Prepaids and other current assets		(1,466	)		(931	)
Deferred revenue		5,982			5,455
Accounts payable		(7,612	)		(409	)
Accrued expenses and other current liabilities		(13,083	)		3,611
Accrued restructuring costs		(990	)		(1,658	)
Net cash provided by operating activities		22,563			19,968
Cash flows from investing activities:
Acquisition of business		—			(82,265	)
Purchases of property and equipment		(9,653	)		(6,603	)
Purchases of investments		(628,367	)		(563,423	)
Proceeds from maturities and sales of investments		767,357			824,850
Net cash provided by investing activities		129,337			172,559
Cash flows from financing activities:
Proceeds from issuance of common stock		10,615			1,599
Net cash provided by financing activities		10,615			1,599
Net increase in cash and cash equivalents		162,515			194,126
Cash and cash equivalents, beginning of period		249,262			169,820
Cash and cash equivalents, end of period	$	411,777		$	363,946
Cash paid for income taxes	$	180		$	567

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

5

Sycamore Networks, Inc.

Notes To Consolidated Financial Statements

1. Description of Business

Sycamore Networks, Inc. (the “Company”) was incorporated in Delaware on February 17, 1998. The Company develops and markets intelligent bandwidth management solutions for fixed line and mobile network operators worldwide that are designed to enable network operators to efficiently and cost-effectively provision and manage multiservice access and optical network capacity to support a wide range of converged services such as voice, video and data. Sycamore’s global customer base includes domestic and international wireline and wireless network service providers, utility companies, multiple systems operators (MSOs) and government entities with private fiber networks (collectively referred to as “service providers”).

2. Basis of Presentation

The accompanying financial data as of April 26, 2008 and for the three and nine months ended April 26, 2008 and April 28, 2007 has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K as filed with the SEC for the fiscal year ended July 31, 2007.

In the opinion of management, all adjustments necessary to present a fair statement of financial position as of April 26, 2008 and results of operations and cash flows for the periods ended April 26, 2008 and April 28, 2007 have been made. The results of operations and cash flows for the period ended April 26, 2008 are not necessarily indicative of the operating results and cash flows for the full fiscal year or any future periods.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Significant estimates and judgments relied upon in preparing these financial statements include revenue recognition, allowance for doubtful accounts, warranty obligations, inventory allowance, litigation, accrued expenses and other contingencies, intangible assets and goodwill and share-based compensation. Estimates, judgments, and assumptions are reviewed periodically by management and the effects of revisions are reflected in the consolidated financial statements in the period in which they are made.

3. Share-Based Compensation

The Company accounts for share-based compensation in accordance with the provisions of Statement of Financial Accounting Standards No. 123R, (“SFAS 123R”) “Share-Based Payment,” which establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS No. 123R, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant).

6

The following table presents share-based compensation expense included in the Company’s consolidated statements of operations (in thousands):

	Three Months Ended						Nine Months Ended
	April 26, 2008			April 28, 2007			April 26, 2008			April 28, 2007
Cost of product revenue	$	95		$	36		$	248		$	156
Cost of service revenue		76			47			197			140
Research and development		481			574			1,252			1,313
Sales and marketing		297			182			811			2,088
General and administrative		245			207			712			885
Share-based compensation expense before tax		1,194			1,046			3,220			4,582
Income tax benefit		(41	)		(24	)		(101	)		(246	)
Net compensation expense	$	1,153		$	1,022		$	3,119		$	4,336

The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options granted in the three and nine months ended April 26, 2008 and April 28, 2007. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended				Nine Months Ended
	April 26, 2008		April 28, 2007		April 26, 2008		April 28, 2007
Expected option term (1)(2)	6.0 Years		6.5 Years		5.9 Years		6.5 Years
Expected volatility factor (3)	42	%	58	%	46	%	58	%
Risk-free interest rate (4)	3.3	%	4.7	%	3.8	%	4.7	%
Expected annual dividend yield	0	%	0	%	0	%	0	%

(1) Beginning in the second quarter of fiscal 2008, the Company determined the expected option term for several groups of employees based on the average expected behavior for certain groups of employees who have historically exhibited different behavior.

(2) The expected option term for fiscal year 2007 and the first quarter of fiscal 2008 were determined using the simplified method for estimating expected option life, which qualify as “plain-vanilla” options.

(3) The stock volatility for each grant is measured using the weighted average of historical daily price changes of the Company’s common stock over the most recent period equal to the expected option life of the grant, adjusted for activity which is not expected to occur in the future.

(4) The risk-free interest rate for periods equal to the expected term of the share option is based on the U.S. Treasury yield curve in effect at the time of grant.

7

Stock Incentive Plans

The Company currently has four primary stock incentive plans: the 1998 Stock Incentive Plan (the “1998 Plan”), the 1999 Stock Incentive Plan (the “1999 Plan”), the Sirocco 1998 Stock Option Plan (the “Sirocco 1998 Plan”) and the Eastern Research, Inc. Stock Option Plan (the “ERI Plan”). A total of 139,904,818 shares of common stock have been reserved for issuance under these plans. The 1999 Plan is the only one of the four primary plans under which new awards are currently being issued. The total amount of shares that may be issued under the 1999 Plan is the remaining shares to be issued under the 1998 Plan, plus 25,000,000 shares, plus an annual increase equal to the lesser of (i) 18,000,000 shares, (ii) 5% of the outstanding shares on August 1 of each year, or (iii) a lesser number as determined by the Board. The Board of Directors of the Company (the “Board”) voted to not authorize an increase in the number of shares for the 1999 Plan for fiscal year 2008. The plans provide for the grant of incentive stock options, nonstatutory stock options, restricted stock awards and other stock-based awards to officers, employees, directors, consultants and advisors of the Company. No participant may receive any award, or combination of awards, for more than 1,500,000 shares in any calendar year. Options may be granted at an exercise price less than, equal to or greater than the fair market value on the date of grant; however, options are generally granted at equal to or greater than the fair market value of the common stock on the date of grant. The Board determines the contractual term of each option, the option exercise price, and the vesting terms. Stock options generally expire ten years from the date of grant and vest over three to five years.

All employees who have been granted options by the Company under the 1998 and 1999 Plans are eligible to elect immediate exercise of all such options. However, shares obtained by employees who elect to exercise prior to the original option vesting schedule are subject to the Company’s right of repurchase, at the option exercise price, in the event of termination. The Company’s repurchase rights lapse at the same rate as the shares would have become vested under the original vesting schedule.

The Company also has a Non-Employee Director Option Plan (the “Director Plan”) under which a total of 2,130,000 shares of common stock have been reserved for issuance. As of August 1^st of each year, the aggregate number of common shares available for the grant of options under the Director Plan is automatically increased by the number of common shares necessary to cause the total number of common shares available for grant to be 1,500,000. The Board voted to not authorize an increase in the number of shares for the Director Plan for fiscal year 2008. Each non-employee director is granted an option to purchase 90,000 shares which vests over three years upon their initial appointment as a director, and immediately following each annual meeting of stockholders, each non-employee director is automatically granted an option to purchase 30,000 shares which vests in one year. At April 26, 2008, 1,320,000 shares were available for grant under the Director Plan. Stock options granted under the Director Plan generally expire ten years from the date of grant and vest over one to three years.

8

Stock option activity under all of the Company’s stock plans since July 31, 2006 is summarized as follows:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Term (Years)
Outstanding at July 31, 2006		21,181,848		$	6.68	5.8
Options assumed		950,869			2.58
Options granted		745,000			3.75
Options exercised		(1,137,764	)		2.40
Options canceled		(1,271,469	)		5.29
Outstanding at July 31, 2007		20,468,484		$	6.71	4.9
Options granted		7,902,971			3.71
Options exercised		(3,051,813	)		3.11
Options canceled		(2,337,360	)		8.26
Outstanding at April 26, 2008		22,982,282		$	6.01	5.7
Options vested and expected to vest		21,576,582		$	6.15	5.5
Options exercisable at end of period		15,099,108		$	7.19	3.8
Weighted average fair value of options granted for the nine months ended April 26, 2008	$	1.82

The following table summarizes information about stock options outstanding at April 26, 2008:

	Stock Options Outstanding						Stock Options Vested
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contract Life	Weighted Average Exercise Price		Aggregate Intrinsic Value		Number Vested	Weighted Average Exercise Price		Aggregate Intrinsic Value
$ 0.11 - $     3.69	5,037,438	4.6	$	3.16	$	2,916,080	4,029,163	$	3.09	$	2,637,074
$ 3.70 - $     3.83	9,028,977	8.0	$	3.72		271,122	3,458,593	$	3.75		57,705
$ 3.86 - $     4.87	2,541,165	6.8	$	4.23		—	1,256,100	$	4.43		—
$ 4.89 - $     4.89	3,328,579	3.5	$	4.89		—	3,328,579	$	4.89		—
$ 4.91 - $ 154.00	3,046,123	2.3	$	20.18		—	3,026,673	$	20.28		—
$ 0.11 - $ 154.00	22,982,282	5.7	$	6.01	$	3,187,202	15,099,108	$	7.19	$	2,694,779

The aggregate intrinsic value of outstanding options as of April 26, 2008 was $3.2 million, of which $2.7 million were vested. The intrinsic value of options exercised during the three and nine months ended April 26, 2008 was $44 thousand and $2.7 million, respectively.

As of April 26, 2008 there was $15.1 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Company’s stock plans. That cost is expected to be recognized over a weighted-average period of 3.5 years.

9

Restricted Stock

Restricted stock may be issued to employees, officers, directors, consultants, and other advisors. Shares acquired pursuant to a restricted stock agreement are subject to a right of repurchase by the Company which lapses as the restricted stock vests. In the event of termination of services, the Company has the right to repurchase unvested shares at the original issuance price. The vesting period is generally three years.

The following table summarizes the status of the Company’s nonvested restricted shares since July 31, 2007:

	Number of Shares		Weighted Average Fair Value
Nonvested at July 31, 2007	—		$	—
Granted	661,267		$	3.71
Vested	(106,929	)	$	3.70
Forfeited	(18,438	)	$	3.70
Nonvested at April 26, 2008	535,900		$	3.71

4. Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted-average number of common shares outstanding during the period less unvested restricted stock. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted-average number of common and common equivalent shares outstanding during the period, if dilutive. The dilutive effect of outstanding options and restricted stock is reflected in diluted earnings per share by application of the treasury stock method, which includes consideration of share-based compensation required under SFAS 123R.

The following table sets forth the computation of basic and diluted net income (loss) per share

(in thousands, except per share data):

	Three Months Ended					Nine Months Ended
	April 26, 2008			April 28, 2007		April 26, 2008			April 28, 2007
Numerator:
Net income (loss)	$	(2,743	)	$	6,696	$	13,964		$	(7,106	)
Denominator:
Weighted-average shares of common stock outstanding		283,700			279,664		282,687			279,557
Weighted-average shares subject to repurchase		(536	)		—		(490	)		—
Shares used in per-share calculation – basic		283,164			279,664		282,197			279,557
Weighted-average shares of common stock outstanding		283,164			279,664		282,197			279,557
Weighted common stock equivalents		—			2,612		2,136			—
Shares used in per-share calculation – diluted		283,164			282,276		284,333			279,557
Net income (loss) per share:
Basic	$	(0.01	)	$	0.02	$	0.05		$	(0.03	)
Diluted	$	(0.01	)	$	0.02	$	0.05		$	(0.03	)

Employee stock options to purchase 19.0 million, 12.7 million, 16.7 million and 10.1 million shares of common stock have not been included in the computation of diluted net income (loss) per share for the three and nine months ended April 26, 2008 and April 28, 2007, respectively, because the options’ exercise prices were greater than the average market price for the common stock and their effect would have been antidilutive.

10

5. Cash Equivalents and Investments

Cash equivalents are short-term, highly liquid investments with original maturity dates of three months or less at the date of acquisition. Cash equivalents are carried at cost plus accrued interest, which approximates fair market value. The Company’s short and long term investments, $317,523 and $220,564, respectively are classified as available-for-sale and are recorded at fair value with any unrealized gain or loss recorded as an element of stockholders’ equity. The fair value of short and long term investments is determined based on quoted market prices at the reporting date for those instruments. As of April 26, 2008 and July 31, 2007, aggregate short and long term investments consisted of (in thousands):

April 26, 2008:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Government securities	$	536,606	$	1,900	$	(419	)	$	538,087
Total	$	536,606	$	1,900	$	(419	)	$	538,087

July 31, 2007:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Government securities	$	675,678	$	42	$	(231	)	$	675,489
Total	$	675,678	$	42	$	(231	)	$	675,489

6. Inventories

Inventories consisted of the following (in thousands):

	April 26, 2008		July 31, 2007
Raw materials	$	4,162	$	2,845
Work in process		5,834		4,781
Finished goods		12,587		14,089
Total	$	22,583	$	21,715

11

7. Purchased Intangibles

Purchased intangibles consisted of the following at April 26, 2008 (in thousands):

	Gross		Accumulated Amortization			Net
Trademarks	$	400	$	(400	)	$	—
Customer relationships		7,000		(1,915	)		5,085
Technology		7,000		(2,872	)		4,128
Total	$	14,400	$	(5,187	)	$	9,213

The estimated future amortization expense of purchased intangibles as of April 26, 2008 is as follows (in thousands):

2008	$	758
2009		2,917
2010		2,917
2011		1,339
2012		1,167
Thereafter		115
Total	$	9,213

8. Comprehensive Income (Loss)

The components of comprehensive income (loss) consisted of the following (in thousands):

	Three Months Ended					Nine Months Ended
	April 26, 2008			April 28, 2007		April 26, 2008		April 28, 2007
Net income (loss)	$	(2,743	)	$	6,696	$	13,964	$	(7,106	)
Unrealized gain (loss) on investments, net		(650	)		279		1,507		989
Comprehensive income (loss)	$	(3,393	)	$	6,975	$	15,471	$	(6,117	)

12

9. Restructuring Charges and Related Asset Impairments

In the first quarter of fiscal 2007, the Company carried out certain restructuring activities in connection with the Eastern Research Inc. (“ERI”) acquisition which included certain reductions in staffing and the elimination of a facility in Michigan (the “first quarter fiscal 2007 restructuring”). The cost associated with these actions was charged to the cost of the acquisition and a corresponding liability of $1.8 million was included in the restructuring reserve. During the third quarter of fiscal 2007, the Company adjusted the liability for facility consolidations and certain other costs of $0.1 million due to the expiration of applicable statute of limitations and a lease termination. In the fourth quarter of fiscal 2007, the Company enacted a restructuring plan and reduced its workforce by 46 employees to better align development resources with future growth opportunities, further improve operational efficiencies, and capitalize on additional acquisition synergies (the “fourth quarter fiscal 2007 restructuring”). As a result of these actions, the Company recorded a restructuring charge of $1.5 million that was comprised primarily of expenses related to the workforce reduction.

During the three months ended October 27, 2007, the Company completed a consolidation of its Moorestown, New Jersey facility. This consolidation was completed in conjunction with the decision in the fourth quarter of fiscal 2007 to reduce its workforce by 46 employees across the Company. As a result of these actions, the Company recorded a restructuring charge related to rent and other facility charges related to its Moorestown facility. The charge in the first quarter of fiscal 2008 of $0.8 million also included severance costs related to several employees affected by the fourth quarter fiscal 2007 workforce reduction decision who were placed on transition programs and whose employment was terminated in the first quarter of fiscal 2008.

In the third quarter of fiscal 2008 the Company recorded an additional restructuring charge related to the consolidation of its Mooretown facility of $0.5 million. The charge was based on a revised lower estimate of future sublease income and a lease termination fee.

As of April 26, 2008, remaining future cash payments associated with these actions approximated $0.9 million and consist primarily of disbursements related to workforce reductions that will be substantially paid by the fourth quarter of fiscal 2008 and lease payments to be made over the next four years. A rollforward of the restructuring accrual is summarized below (in thousands):

	Accrual Balance at July 31, 2007		Additions			Adjustments			Payments		Accrual Balance at April 26, 2008
Workforce reduction	$	1,708	$	(10	)	$	—		$	1,579	$	119
Facility consolidations and certain other costs		177		2,378			(1,149	)		630		776
Total	$	1,885	$	2,368		$	(1,149	)	$	2,209	$	895

10. Income Taxes

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109” (“FIN 48”). This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. FIN 48 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. Effective August 1, 2007, the Company has adopted the provisions of FIN 48 and there was no material effect on the financial statements. As a result, there was no cumulative effect related to the adoption of FIN 48.

As of August 1, 2007, the Company provided a FIN 48 liability of $0.9 million for taxes, interest and penalties for unrecognized tax benefits related to various foreign income tax matters. As of April 26, 2008, the total FIN 48 liability amounted to approximately $1.1 million. If recognized, the entire amount would impact the Company’s effective tax rate. The Company does not expect that the amounts of unrecognized tax benefits will change significantly within the next 12 months.

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As of August 1, 2007, the Company accrued $136 thousand of interest and penalties related to uncertain tax positions. As of April 26, 2008, the total amount of accrued interest and penalties is $185 thousand. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for federal, international, and state income taxes.

The Company is currently open to audit under the statute of limitations by the Internal Revenue Service, various foreign jurisdictions, and state jurisdictions for the fiscal years ended July 31, 2004, through July 31, 2007.

11. Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements, (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for fiscal years beginning after July 1, 2008 and as a result, are effective for the Company in the first quarter of fiscal 2009. However, the FASB has recently approved a one year deferral for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The Company is currently evaluating the potential impact of the SFAS 157 on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require certain assets or liabilities to be carried at fair value. The objective of SFAS 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under SFAS 159, a company may choose, at specified election dates, to measure eligible items at fair value and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and as a result, is effective for the Company in the first quarter of fiscal 2009. The Company is currently evaluating the potential impact of SFAS 159 on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141R”). SFAS 141R replaces SFAS No. 141 and provides greater consistency in the accounting and financial reporting of business combinations. SFAS 141R requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, establishes principles and requirements for how an acquirer recognizes and measures any non-controlling interest in the acquiree and the goodwill acquired, and requires the acquirer to disclose the nature and financial effect of the business combination. Among other changes, this statement also required that “negative goodwill” be recognized in earnings as a gain attributable to the acquisition, that acquisition-related costs are to be recognized separately from the acquisition and expensed as incurred and that any deferred tax benefits resulting from a business combination are to be recognized in income from continuing operations in the period of the combination. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and as a result, is effective for the Company in the first quarter of fiscal 2010. The company is currently evaluating the potential impact of SFAS 141R.

In April 2008, the FASB issued Staff Position (“FSP”) No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). The intent of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other applicable accounting literature. FSP FAS 142-3 is effective for financial statements issued for the fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact of FSP FAS 142-3 on its consolidated financial statements.

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12. Commitments and Contingencies

Litigation

IPO Allocation Case

Beginning on July 2, 2001, several purported class action complaints were filed in the United States District Court for the Southern District of New York against the Company and several of its officers and directors (the “Individual Defendants”) and the underwriters for the Company’s initial public offering on October 21, 1999. Some of the complaints also include the underwriters for the Company’s follow-on offering on March 14, 2000. An amended complaint, which is the operative complaint, was filed on April 19, 2002 on behalf of persons who purchased the Company’s common stock between October 21, 1999 and December 6, 2000. The amended complaint alleges claims against the Company, several of the Individual Defendants and the underwriters for violations under Sections 11 and 15 of the Securities Act of 1933, as amended (the “Securities Act”), primarily based on the assertion that the Company’s lead underwriters, the Company and several of the Individual Defendants made material false and misleading statements in the Company’s Registration Statements and Prospectuses filed with the Securities and Exchange Commission, or the SEC, in October 1999 and March 2000 because of the failure to disclose (a) the alleged solicitation and receipt of excessive and undisclosed commissions by the underwriters in connection with the allocation of shares of common stock to certain investors in the Company’s public offerings and (b) that certain of the underwriters allegedly had entered into agreements with investors whereby underwriters agreed to allocate the public offering shares in exchange for which the investors agreed to make additional purchases of stock in the aftermarket at pre-determined prices. It also alleges claims against the Company, the Individual Defendants and the underwriters under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), primarily based on the assertion that the Company’s lead underwriters, the Company and the Individual Defendants defrauded investors by participating in a fraudulent scheme and by making materially false and misleading statements and omissions of material fact during the period in question. The amended complaint seeks damages in an unspecified amount.

The action against the Company is being coordinated with approximately three hundred other nearly identical actions filed against other companies. Due to the large number of nearly identical actions, the court has ordered the parties to select up to twenty “test” cases. To date, along with sixteen other cases, the Company’s case has been selected as one such test case. As a result, among other things, the Company will be subject to broader discovery obligations and expenses in the litigation than non-test case issuer defendants.

On October 9, 2002, the court dismissed the Individual Defendants from the case without prejudice. This dismissal disposed of the Section 15 and Section 20(a) claims without prejudice, because these claims were asserted only against the Individual Defendants. On October 13, 2004, the court denied the certification of a class in the action against the Company with respect to the Section 11 claims alleging that the defendants made material false and misleading statements in the Company’s Registration Statement and Prospectuses. The certification was denied because no class representative purchased shares between the date of the IPO and January 19, 2000 (the date unregistered shares entered the market), and thereafter suffered a loss on the sale of those shares. The court certified a class in the action against the Company with respect to the Section 10(b) claims alleging that the Company and the Individual Defendants defrauded investors by participating in a fraudulent scheme and by making materially false and misleading statements and omissions of material fact during the period in question. On December 5, 2006, the Second Circuit vacated the district court’s class certification decision. On April 6, 2007, the Second Circuit panel denied a petition for rehearing filed by the plaintiffs, but noted that the plaintiffs could ask the district court to certify a more narrow class than the one that was rejected.

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Prior to the Second Circuit’s December 5, 2006 ruling, a majority of the issuers, including the Company, and their insurers had submitted a settlement agreement to the district court for approval. In light of the Second Circuit opinion, the parties agreed that the settlement could not be approved. On June 25, 2007, the district court approved a stipulation filed by the plaintiffs and the issuers terminating the proposed settlement. On August 14, 2007, the plaintiffs filed a Second Amended Class Action complaint against the Company. The amended complaint contains a number of changes, including changes to the definition of the purported class of investors, and the elimination of the Individual Defendants as defendants. The Company filed a motion to dismiss the amended complaint on November 14, 2007. On the same date, the underwriters filed a motion to dismiss the amended complaint. On September 27, 2007, the plaintiffs filed a motion for class certification in the Company’s case. On December 21, 2007, the Company and the underwriters filed papers opposing plaintiffs’ class certification motion and plaintiffs filed an opposition to defendants’ motions to dismiss. On January 28, 2008, the Company and the underwriters filed reply briefs in further support of their motions to dismiss the amended complaints. On March 26, 2008, the District Court denied the Company’s motion to dismiss for most claims but dismissed certain Section 11 claims. On March 28, 2008, Plaintiffs filed their reply brief in support of their motion for class certification. On April 9, the underwriters and the Company filed a motion for partial reconsideration of the Section 11 claims not previously dismissed.

The Company cannot predict whether the parties will be able to negotiate a revised settlement that complies with the standards set out in the Second Circuit’s decision. Due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of the matter. If the parties are not able to renegotiate a settlement and the Company is found liable, the Company is unable to estimate or predict the potential damages that might be awarded, whether such damages would be greater than the Company’s insurance coverage, and whether such damages would have a material impact on our results of operations or financial condition in any future period.

Derivative Lawsuits

On May 31, 2006, a purported shareholder derivative action, captioned Weisler v. Barrows (“Weisler”), was filed in the United States District Court for the District of Delaware (the “Delaware Court”), on the Company’s behalf, against it as nominal defendant, the Company’s Board of Directors and certain of its current and former officers (as amended on October 4, 2006). The plaintiff derivatively claims, among other things, violations of Section 14(a) of the Securities Exchange Act of 1934, Section 304 of the Sarbanes-Oxley Act of 2002, and breaches of fiduciary duty by the defendants in connection with the Company’s historical stock option granting practices. The plaintiff seeks unspecified damages, profits, the return of compensation paid by the Company, an injunction and costs and attorneys’ fees. Substantially similar actions, captioned Vanpraet v. Deshpande (“Vanpraet”) and Patel v. Deshpande (“Patel”), were filed in the United States District Court for the District of Massachusetts on June 28, 2006 and July 13, 2006, respectively (the “Massachusetts Court”), and Ariel v. Barrows (“Ariel”) was filed on July 21, 2006 in the United States District Court for the Eastern District of New York (the “New York Court”). None of the plaintiffs made presuit demand on the Company’s Board of Directors prior to filing suit. By Memorandum and Order dated November 6, 2006, the Delaware Court transferred Weisler to the District of Massachusetts. By stipulation of the parties, on November 21, 2006, the New York Court transferred Ariel to the District of Massachusetts. By margin order dated May 24, 2007, the Massachusetts Court consolidated Weisler, Vanpraet, Patel and Ariel (the “Federal Action”). Subsequent to that consolidation, plaintiffs in the Federal Action served a demand letter on the Company. Proceedings in the Federal Action are currently stayed pending the Company’s response to the demand letter. The Federal Action does not seek affirmative relief from the Company.

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On September 19, 2006, an additional purported shareholder derivative action, captioned McMahon v. Smith, was filed in the Middlesex Superior Court for the Commonwealth of Massachusetts, on the Company’s behalf, against it as nominal defendant, the Company’s Board of Directors and certain of its current and former officers. The plaintiff derivatively claims, among other things, breaches of fiduciary duty by the defendants in connection with the Company’s historical stock option granting practices, and also that certain defendants misappropriated confidential Company information for personal profit by selling Company stock while in possession of material, non-public information. The plaintiff seeks unspecified damages, profits, an injunction and costs and attorneys’ fees. The plaintiff did not make presuit demand on the Company’s Board of Directors prior to filing suit. An amended complaint was filed on July 16, 2007 which also named additional officers of the Company as defendants. On August 15, 2007, the defendants filed a motion to dismiss and on November 19, 2007, the court heard oral arguments on that motion. By a Memorandum and Order dated March 6, 2008, the Court granted the defendant’s motion and dismissed the case with prejudice and without leave to file a further amended complaint. The plaintiff did not appeal that decision. The purported derivative action did not seek affirmative relief from the Company.

In October 2007, a purported Sycamore Networks, Inc. shareholder filed a complaint for violation of Section (16) of the Securities Exchange Act of 1934, which prohibits short-swing trading against the Company’s Initial Public Offering underwriters. The complaint, Vanessa Simmonds v. Morgan Stanley, et al., in District Court for the Western District of Washington seeks recovery of short-swing profits. On April 28, 2008, the district court established a briefing schedule for motions to dismiss and ruled that all discovery be stayed pending resolution of the motions to dismiss. The Company is named as a nominal defendant. No recovery is sought from the Company in this matter.

Other Matters

On November 19, 2007, the Company received a “Wells Notice” from the Securities and Exchange Commission (the “SEC”) in connection with the previously disclosed ongoing SEC investigation into the Company’s historical stock option granting practices and related accounting. The Wells Notice provides notification that the staff of the SEC (the “Staff”) has made a preliminary determination to recommend that the Commission bring a civil action against the Company for possible violations of the securities laws. Under the process established by the SEC, recipients have the opportunity to respond in writing (a “Wells Submission”) to a Wells Notice before the Staff makes any formal recommendation to the Commission regarding what action, if any, should be brought by the SEC. In connection with the contemplated recommendation, the Staff may seek remedies, including, among other things, a permanent injunction and a civil penalty. The Company has provided a Wells Submission to the SEC. There can be no assurance that the SEC will not bring civil enforcement action against the Registrant.

On June 29, 2006, a former employee of the Company filed a complaint in Massachusetts Superior Court alleging, among other things, claims relating to wrongful termination of an employment agreement, fraud in the inducement, retaliation and claims relating to certain of the Company’s stock option grant practices in 1999-2001. The complaint demanded lost wages, unspecified monetary damages and reinstatement of medical benefits, among other things. The case was moved to the Business Litigation Session of the Suffolk County Superior Court and, following an oral hearing on a motion to dismiss, the case was ordered dismissed on January 24, 2007. The plaintiff has filed a Notice of Appeal of the order and judgment.

The Company is subject to legal proceedings, claims, and litigation, including those from intellectual property matters, arising in the ordinary course of business. On a quarterly basis, the Company reviews its commitments and contingencies to reflect the effect of ongoing negotiations, settlements, rulings, advice of counsel, and other information and events pertaining to a particular case. The Company is also subject to potential tax liabilities associated with ongoing tax audits and examinations by various tax authorities. As a result, during the third quarter of fiscal 2005, the Company accrued $10.3 million associated with contingencies related to claims, litigation and other disputes, as well as potential liabilities associated with various tax matters. During the fourth quarter of fiscal 2006, the Company increased this accrual by $6.8 million. Based on ongoing negotiations and settlement discussions, the Company decreased this accrual by $2.2 million during the fourth quarter of fiscal 2007. During the first quarter of fiscal 2008, the Company settled three claims for an aggregate amount of $14.7 million. The entire $14.7 million was paid during the first three quarters of fiscal 2008.

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Guarantees

FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”), requires that upon issuance of a guarantee, the guarantor must disclose and recognize a liability for the fair value of the obligation assumed under that guarantee. As of April 26, 2008, the Company’s guarantees requiring disclosure consist of its accrued warranty obligations, indemnifications for intellectual property infringement claims and indemnifications for officers and directors.

In the normal course of business, the Company may also agree to indemnify other parties, including customers, lessors and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold these other parties harmless against losses arising from a breach of representations or covenants, or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material impact on the Company’s operating results or financial position. Accordingly, the Company has not recorded a liability for these agreements at April 26, 2008 or July 31, 2007 as the Company believes the fair value is not material.

The Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not limited; however, the Company has directors and officers insurance coverage that reduces its exposure and may enable the Company to recover a portion of any future amounts paid. The Company has incurred expenses under these agreements of $341 thousand, $612 thousand, $2.2 million and $1.9 million for the three months ended April 26, 2008 and April 28, 2007 and the nine months ended April 26, 2008 and April 28, 2007, respectively on behalf of eligible persons for legal fees incurred by them in connection with the stock option investigations, the resulting restatement of previously issued financial statements and the subsequent inquiry by the SEC and DOJ of information and documentation related thereto. Due to the Company’s inability to estimate its liabilities in connection with these agreements, the Company has not recorded a liability for these agreements at April 26, 2008 or July 31, 2007. The Company maintains insurance policies whereby certain payments may be recoverable subject to the terms and conditions provided in such policies. During the first nine months of fiscal 2008, the Company received $2.3 million in recoveries under such policies.

Warranty Liability

The Company records a warranty liability for parts and labor on its products at the time revenue is recognized. Warranty periods are generally three years from date of shipment. The estimate of the warranty liability is based primarily on the Company’s historical experience in product failure rates and the expected material costs to provide warranty services.

The following table summarizes the activity related to product warranty liability (in thousands):

	Three Months Ended						Nine Months Ended
	April 26, 2008			April 28, 2007			April 26, 2008			April 28, 2007
Beginning balance	$	4,079		$	2,260		$	3,400		$	1,136
Accruals for warranties during the period		2,374			736			3,369			2,044
Settlements		(1,784	)		(17	)		(2,082	)		(415	)
Adjustments		—			—			(18	)		214
Ending balance	$	4,669		$	2,979		$	4,669		$	2,979

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Except for the historical information contained herein, we wish to caution you that certain matters discussed in this report constitute forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including, without limitation, those risks and uncertainties discussed under the heading “Risk Factors” contained in our Annual Report on Form 10-K for fiscal year ended July 31, 2007. The information discussed in this report should be read in conjunction with our Annual Report on Form 10-K and other reports we file from time to time with the Securities and Exchange Commission (the “SEC”). We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise. Forward-looking statements include statements regarding our expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” and “would” or similar words.

Available Information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the SEC. These reports, any amendments to these reports, proxy and information statements and certain other documents we file with the SEC are available through SEC’s website at www.sec.gov or free of charge on our website as soon as reasonably practicable after we file the documents with the SEC. The public may also read and copy these reports and any other materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

Executive Summary

We develop and market intelligent bandwidth management solutions for fixed line and mobile network operators worldwide. We also provide support services associated with such products. Our current and prospective customers include domestic and international wireline and wireless network service providers, utility companies, multiple systems operators (MSOs) and government entities with private fiber networks (collectively referred to as “service providers”). Our product portfolio includes multiservice cross-connects, multiservice access platforms, access gateways, optical switching platforms and network management software. These products are deployed across multiple segments of a service provider’s network infrastructure, including access networks, metropolitan area networks, large regional networks and fiber optic core network. We believe that our intelligent bandwidth management solutions enable service providers to efficiently and cost-effectively provision and manage network capacity to support a wide range of converged services such as voice, video and data.

Revenue for the three months ended April 26, 2008 decreased 52% year over year to $21.0 million primarily due to a significant decline in the level of orders from a major customer and a reduction in international orders. Revenue for the nine months ended April 26, 2008 decreased 15% year over year to $100.4 million. Net loss for the three months ended April 26, 2008 was $2.7 million compared to net income of $6.7 million for the three month period ended April 28, 2007. Net income for the nine months ended April 26, 2008 was $14.0 million compared to a net loss of $7.1 million for the nine month period ended April 28, 2007. The net loss for the nine months ended April 28, 2007 included acquisition related charges of $12.4 million for in-process research and development and $6.6 million for asset impairments.

As we remain focused on improvements in our business, our management and Board will continue to consider further strategic options that may serve to maximize shareholder value. These options include, but are not limited to business combinations or making strategic investments in businesses with either complementary technologies or in adjacent market segments in order to add complementary products and services, expand the markets we serve and diversify our customer base.

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Our total cash, cash equivalents and investments were $949.9 million at April 26, 2008. Included in this amount were cash and cash equivalents of $411.8 million. We intend to fund our operations, including fixed commitments under operating leases, and any required capital expenditures using our existing cash, cash equivalents and investments. We believe that, based on our business plans and current conditions, our existing cash, cash equivalents and investments will be sufficient to satisfy our anticipated cash requirements for the next twelve months. We also believe that our current cash, cash equivalents and investments will enable us to pursue strategic options as previously discussed.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. The preparation of these financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires us to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those relating to revenue recognition, allowance for doubtful accounts, warranty obligations, inventory allowance, litigation and other contingencies, intangible assets and goodwill and share-based compensation expense. Estimates are based on our historical experience and other assumptions that we consider reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

We believe that the following critical accounting policies affect the most significant judgments, assumptions and estimates we use in preparing our consolidated financial statements. Changes in these estimates can affect materially the amount of our reported net income or loss.

Revenue Recognition

Generally, we recognize revenue in accordance with Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” which states that revenue is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the price to the buyer is fixed or determinable; and collectibility is reasonably assured. In instances where final acceptance of the product, system, or solution is specified by the customer, revenue is deferred until all acceptance criteria have been met. Revenue for maintenance services is generally deferred and recognized ratably over the period during which the services are to be performed.

For arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets, except as otherwise covered by SOP 97-2, the determination as to how the arrangement consideration should be measured and allocated to the separate deliverables of the arrangement is determined in accordance with EITF 00-21, “Revenue Arrangements with Multiple Deliverables.” When a sale involves multiple elements, such as sales of products that include services, the entire fee from the arrangement is allocated to each respective element based on its relative fair value and recognized when revenue recognition criteria for each element are met. Fair value for each element is established based on the sales price charged when the same element is sold separately. If fair value does not exist for any undelivered element, revenue is not recognized until the earlier of (i) the undelivered element is delivered or (ii) fair value of the undelivered element exists, unless the undelivered element is a service, in which case revenue is recognized as the service is performed once the service is the only undelivered element.

We sell network management software that increases network management efficiencies and can be integrated with certain of our communications networking equipment. Accordingly, on transactions involving this software, we account for revenue in accordance with the American Institute of Certified Public Accountants’ Statement of Position 97-2, Software Revenue Recognition (“SOP 97-2”), and all related interpretations. SOP 97-2 includes criteria similar to SAB 104: however, collectibility must be probable rather than reasonably assured.

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Allowance for Doubtful Accounts

The allowance for doubtful accounts is based on our assessment of the collectibility of specific customer accounts. In the event that we become aware of deterioration in a particular customer’s financial condition, a review is performed to determine if additional provisions for doubtful accounts are required.

Investments

We account for our marketable securities in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). Our investments are classified as available-for-sale and are recorded at fair value with any unrealized gain or loss recorded as an element of stockholders’ equity. The fair value of investments is determined based on quoted market prices at the reporting date for those instruments. We would recognize an impairment charge when a decline in the fair value of its investments below the cost basis is judged to be other-than-temporary. We consider various factors in determining whether to recognize an impairment charge, including the length of time and extent to which the fair value has been less than our cost basis, the financial condition and near-term prospects of the investee, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

Warranty Obligations

We accrue for warranty costs at the time revenue is recognized based on contractual rights and on the historical rate of claims and costs to provide warranty services. If we experience an increase in warranty claims above historical experience or our costs to provide warranty services increase, we may be required to increase our warranty accrual. An increase in the warranty accrual will have an adverse impact on our gross margin.

Inventory Allowance

We continuously monitor inventory balances and record inventory allowances for any excess of the cost of the inventory over its estimated market value, based on assumptions about future demand, manufacturing quantities and market conditions. While such assumptions may change from period to period, we measure the net realizable value of inventories using the best information available as of the balance sheet date. If actual market conditions are less favorable than those projected, or we experience a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements, additional inventory allowances may be required. Once we have written down inventory to its estimated net realizable value, we cannot increase its carrying value due to subsequent changes in demand forecasts. Accordingly, if inventory previously written down to its net realizable value is subsequently sold, we may realize improved gross profit margins on these transactions.

Reserve for Contingencies

We are subject to various claims, litigation and other disputes, as well as potential liabilities associated with various tax matters. Periodically, we review the status of each significant matter and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. Because of uncertainties related to these matters, accruals, if any, are based only on the most current and dependable information available at any given time. As additional information becomes available, we may reassess the potential liability from pending claims, litigation and tax matters and the probability of claims being successfully asserted against us. As a result, it may be necessary to revise our estimates related to these pending claims, litigation and other disputes and potential liabilities associated with various tax matters. Such revisions in the estimates of the potential liabilities could have a material impact on our consolidated results of operations, financial position and cash flows in the future.

Intangible Assets and Goodwill

Intangible assets are valued based on estimates of future cash flows and amortized over their estimated useful life. We evaluate goodwill and intangible assets for impairment annually and when events occur or circumstances change that may reduce the value of the asset below its carrying amount using forecasts of discounted future cash flows. Events or circumstances that might require an interim evaluation include unexpected adverse business conditions, economic factors, unanticipated technological changes or competitive activities, loss of key personnel and acts by governments and courts. Goodwill and intangible assets totaled $20.3 million and $9.2 million, respectively, at April 26, 2008. Estimates of future cash flows require assumptions related to revenue and operating income growth, asset-related expenditures, working capital levels and other factors. Different assumptions from those made in our analysis could materially affect projected cash flows and our evaluation of goodwill for impairment. Should the fair value of our goodwill or indefinite-lived intangible assets decline because of reduced operating performance, market declines, or other indicators of impairment, or as a result of changes in the discount rate, charges for impairment may be necessary.

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Share-Based Compensation Expense

We account for share-based compensation expense in accordance with SFAS 123R, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. We have estimated the fair value of share-based options on the date of grant using the Black Scholes pricing model, which is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk free interest rate and expected dividends. We are also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.

Results of Operations

Revenue

The following table presents product and service revenue (in thousands, except percentages):

	Three Months Ended									Nine Months Ended
	April 26, 2008		April 28, 2007		Variance in Dollars			Variance in Percent		April 26, 2008		April 28, 2007		Variance in Dollars			Variance in Percent
Revenue
Product	$	14,289	$	36,757	$	(22,468	)	(61	)%	$	80,645	$	100,378	$	(19,733	)	(20	)%
Service		6,677		6,783		(106	)	(2	)%		19,758		17,630		2,128		12	%
Total revenue	$	20,966	$	43,540	$	(22,574	)	(52	)%	$	100,403	$	118,008	$	(17,605	)	(15	)%

Total revenue decreased for the three and nine months ended April 26, 2008 compared to the comparable periods ended April 28, 2007. Product revenue consists primarily of sales of our intelligent bandwidth management products. Product revenue decreased for the three and nine months ended April 26, 2008 compared to the same periods ended April 28, 2007, primarily due to a significant decline in the level of orders from a major customer and a reduction in international orders. Service revenue consists primarily of fees for services relating to the maintenance of our products, installation services and training. Service revenue decreased slightly for the three months ended April 26, 2008. Service revenue increased for the nine months ended April 26, 2008 compared to the comparable period ended April 28, 2007, primarily due to the inclusion of service revenue from our access products for the entire current fiscal year compared to a partial year in the previous nine month period.

For the three months ended April 26, 2008, we had three customers who contributed 10% or more of total revenue. International revenue represented 31% of total revenue. We expect future revenue will continue to be highly concentrated in a relatively small number of customers. The timing of customer deployments in any given quarter may cause shifts in both the number of greater than 10% customers and in the percentage mix of domestic and international revenue. The loss of any one of these customers or any substantial reduction or delay in orders by any one of these customers could materially and adversely affect our business, financial condition and results of operations.

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Gross profit

The following table presents gross profit for product and services (in thousands, except percentages):

	Three Months Ended						Nine Months Ended
	April 26, 2008			April 28, 2007			April 26, 2008			April 28, 2007
Gross profit:
Product	$	6,494		$	16,243		$	38,490		$	40,096
Service		3,224			3,918			10,288			10,087
Total	$	9,718		$	20,161		$	48,778		$	50,183
Gross profit:
Product		45	%		44	%		48	%		40	%
Service		48	%		58	%		52	%		57	%
Total		46	%		46	%		49	%		43	%

Product gross profit

Cost of product revenue consists primarily of amounts paid to third-party contract manufacturers for purchased materials and services and other fixed manufacturing costs. Product gross profit decreased for the three and nine months ended April 26, 2008 compared to the comparable periods ended April 28, 2007. The decrease was primarily due to reduced revenue in the three and nine months ended April 26, 2008 caused by a decline in the level of orders from a major customer and a reduction in international orders. Product gross profit may fluctuate from period to period due to revenue fluctuation, volume, pricing pressures resulting from intense competition in our industry as well as the enhanced negotiating leverage of certain larger customers. In addition, product gross profit may be affected by changes in the mix of products sold, channels of distribution, overhead absorption, sales discounts, increases in labor costs, excess inventory and obsolescence charges, increases in component pricing or other material costs, the introduction of new products or the entry into new markets with different pricing and cost structures.

Service gross profit

Cost of service revenue consists primarily of costs of providing services under customer service contracts which include salaries and related expenses and other fixed costs. Service gross profit decreased for the three month period and increased for the nine month period ended April 26, 2008 compared to the comparable periods ended April 28, 2007. The decrease for the three months is primarily related to a change in the mix of customers and services provided. The increase for the nine months was primarily due to a higher level of installation services. Service gross profit percentage decreased for the three and nine months ended April 26, 2008 compared to the comparable periods ended April 28, 2007 primarily due to a change in the mix of customers and services provided and a higher level of installation services which are at a lower margin. As most of our service cost of revenue is fixed, increases or decreases in revenue will have a significant impact on service gross profit. Service gross profit may be affected in future periods by various factors including, but not limited to, the change in mix between technical support services and advanced services, competitive and economic pricing pressures, the enhanced negotiating leverage of certain larger customers, maintenance contract renewals and the timing of renewals.

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Operating Expenses

The following table presents operating expenses (in thousands, except percentages):

	Three Months Ended									Nine Months Ended
	April 26, 2008		April 28, 2007		Variance in Dollars			Variance in Percent		April 26, 2008		April 28, 2007		Variance in Dollars			Variance in Percent
Research and development	$	12,232	$	12,240	$	(8	)	(0	)%	$	34,486	$	33,379	$	1,107		3	%
Sales and marketing		4,980		5,879		(899	)	(15	)%		15,489		17,810		(2,321	)	(13	)%
General and administrative		2,901		6,990		(4,089	)	(58	)%		12,367		21,677		(9,310	)	(43	)%
In-process research and development		—		—		—		N/A			—		12,400		(12,400	)	N/A
Asset impairment		—		—		—		N/A			—		6,555		(6,555	)	N/A
Restructuring and related impairments		471		—		471		N/A			2,368		—		2,368		N/A
Total operating expenses	$	20,584	$	25,109	$	(4,525	)	(18	)%	$	64,710	$	91,821	$	(27,111	)	(30	)%

Research and Development Expenses

Research and development expenses consist primarily of salaries and related expenses and prototype costs relating to design, development, testing and enhancements of our products. Research and development expenses decreased slightly for the three month period and increased for the nine month period ended April 26, 2008 compared to the comparable periods ended April 28, 2007. The increase for the nine month period ended April 26, 2008 was primarily due to increased spending on project related costs. We continue to focus our research and development investments on features and functionality targeted at existing and prospective customer requirements.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries, commissions and related expenses, amortization of customer evaluation inventory and other sales and marketing support expenses. Sales and marketing expenses decreased for the three and nine months ended April 26, 2008 compared to the comparable periods ended April 28, 2007. The decrease for the three months ended April 26, 2008 was primarily due to lower personnel costs. The decrease for the nine month period was primarily due to higher costs in the nine months ended April 28, 2007 associated with personnel costs and an employment agreement between the Company and the Company’s former Vice President of Worldwide Sales and Support and a resulting non-cash charge of $1.5 million in the 2007 period arising from the modification of his stock option agreement. Within our existing spending levels, we continue to allocate sales and marketing resources to those geographic regions where we see the most attractive opportunities.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related expenses for executive, finance and administrative personnel, professional fees and other general corporate purposes. General and administrative expenses decreased for the three and nine months ended April 26, 2008 compared to the comparable periods ended April 28, 2007. The decrease was primarily due to lower costs associated with the stock option investigation. In the three months ended April 26, 2008 we recorded a credit of approximately $1.5 million as a result of $2.0 million received in directors and officers’ liability insurance payments offset with approximately $0.5 million in expense; we recorded an expense of $2.6 million for the comparable period ended April 28, 2007. In the nine months ended April 26, 2008 and April 28, 2007 we recorded expenses of approximately $1.4 million and $9.7 million, respectively.

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In-process Research and Development

In the first quarter of fiscal 2007, we recorded in-process research and development expense of $12.4 million relating to the acquisition of ERI. This amount was charged to expense because technological feasibility had not been established and no future alternative uses for the technology existed at the time of acquisition. The estimated fair value of the purchased in-process research and development was determined using a discounted cash flow model, based on a discount rate which took into consideration the stage of completion and risks associated with developing the technology.

Asset Impairment

We evaluate goodwill and intangible assets for impairment annually and when events occur or circumstances change that may reduce the value of the asset below its carrying amount using forecasts of discounted future cash flows. In the nine months ended April 28, 2007, we decided to discontinue the development of ERI’s OX8000 product. This product was in the development stage on the date of acquisition and accordingly we recorded in-process research and development expense of $12.4 million on the date of the acquisition. As a result of our decision to discontinue the OX8000 product, we recorded an asset impairment charge of $6.6 million in the first quarter of 2007. The charge related to certain tangible and intangibles assets associated with the OX8000 product, specifically customer relationships and other related fixed assets. In addition, we recorded a charge of $1.1 million related to OX8000 inventory in cost of product revenue.

Restructuring and Related Impairments

During the first quarter of fiscal 2008, we completed a consolidation of our Moorestown, New Jersey facility and recorded a restructuring charge of $2.0 million. This consolidation was completed in conjunction with the decision in the fourth quarter of fiscal 2007 to reduce our workforce by 46 employees across the Company. We completed these actions to better align development resources with future growth opportunities, further improve operational efficiencies, and capitalize on additional acquisition synergies. As a result of these actions, we recorded a restructuring charge related to rent and other facility charges related to our Moorestown facility. The charge in first quarter of fiscal 2008 also includes severance costs related to several employees affected by the fourth quarter fiscal 2007 workforce reduction decision who were placed on transition programs and whose employment was terminated in the first quarter of fiscal 2008. In the third quarter of fiscal 2008 we recorded an additional restructuring charge related to the consolidation of our Mooretown facility of $0.5 million. The charge was based on a revised lower estimate of future sublease income and a lease termination fee. Although we do not currently anticipate further restructuring actions, it is possible that such actions may be necessary in the future should market and business conditions change.

Interest and Other Income, Net

The following table presents interest and other income, net (in thousands, except percentages):

	Three Months Ended									Nine Months Ended
	April 26, 2008		April 28, 2007		Variance in Dollars			Variance In Percent		April 26, 2008		April 28, 2007		Variance in Dollars			Variance In Percent
Interest and other income, net	$	8,614	$	11,803	$	(3,189	)	(27	)%	$	30,908	$	34,892	$	(3,984	)	(11	)%

Interest and other income, net decreased for the three and nine months ended April 26, 2008 compared to the same periods ended April 28, 2007. The decrease was primarily due to lower interest rates in fiscal year 2008 when compared to fiscal year 2007.

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Income Tax Expense

Income tax expense of $491 thousand and $1.0 million was recorded for the three and nine months ended April 26, 2008 primarily for foreign income taxes.

As a result of incurring substantial net operating losses from 2001 through 2005, we determined that it is more likely than not that our deferred tax assets may not be realized. Therefore, in accordance with the requirements of FASB 109, we maintain a full valuation allowance. If we generate sustained future taxable income against which these tax attributes may be applied, some or all of the valuation allowance would be reversed. If the valuation allowance were reversed, a portion would be recorded as an increase to paid in capital and the remainder would be recorded as a reduction in income tax expense.

Liquidity and Capital Resources

Total cash, cash equivalents and investments were $949.9 million at April 26, 2008. Included in this amount were cash and cash equivalents of $411.8 million, compared to $249.3 million at July 31, 2007. The increase in cash and cash equivalents for the nine months ended April 26, 2008 was attributable to cash provided by investing activities of $129.3 million, cash provided by operating activities of $22.6 million, and cash provided by financing activities of $10.6 million.

Net cash provided by investing activities was $129.3 million for the nine months ended April 26, 2008 and consisted primarily of net maturities of investments of $139.0 million offset by purchases of property and equipment of $9.7 million.

Net cash generated by operating activities was $22.6 million for the nine months ended April 26, 2008. Net income for the nine months ended April 26, 2008 was $14.0 million and included non-cash charges including share-based compensation of $3.2 million, an inventory provision of $1.4 million, restructuring charges of $1.1 million, depreciation and amortization of $9.4 million and a loss on the disposal of a fixed asset of $54 thousand. Accounts receivable decreased to $17.1 million at April 26, 2008 from $30.5 million at July 31, 2007. The decrease was primarily due to a decrease in sales due to a major slowdown in the level of orders from one major domestic customer as well as a reduction in international orders. Our accounts receivable and days sales outstanding are impacted primarily by the timing of shipments, collections performance and timing of support contract renewals. Inventory levels increased to $22.6 million at April 26, 2008 from $21.7 million at July 31, 2007. The increase was primarily due to the timing of shipments. Deferred revenue increased to $20.4 million from $14.4 million at July 31, 2007 primarily due to a $3.9 million increase in deferred maintenance revenue. Accounts payable decreased to $6.0 million from $13.6 million at July 31, 2007. Accrued expenses and other current liabilities decreased to $14.6 million at April 26, 2008 from $28.5 million at July 31, 2007. The decrease is primarily due to settlement of three reserve contingencies totaling $14.7 million which was accrued in prior years.

Net cash provided by financing activities was $10.6 million for the nine months ended April 26, 2008 and consisted of proceeds from the exercise of employee stock options.

Our primary source of liquidity comes from our cash, cash equivalents and investments, which totaled $949.9 million at April 26, 2008. Our investments are classified as available-for-sale and consist of securities that are readily convertible to cash, including certificates of deposits and government securities. At April 26, 2008, $317.5 million of investments with maturities of less than one year were classified as short-term investments. Based on our current expectations, we anticipate that some portion of our existing cash and cash equivalents and investments may be consumed by operations. Our accounts receivable, while not considered a primary source of liquidity, represent a concentration of credit risk because the accounts receivable balance at any point in time typically consists of a relatively small number of customer account balances. At April 26, 2008, more than 68% of our accounts receivable balance was attributable to four of our customers. In October 2007 we established a letter of credit in the amount of $6.6 million related to the settlement of a reserve contingency; $3.3 million was paid in the second quarter of fiscal 2008 and the final $3.3 million payment was made in the third quarter of fiscal 2008. As of April 26, 2008, we do not have any other outstanding debt or credit facilities, and do not anticipate entering into any debt or credit agreements in the foreseeable future. Our fixed commitments for cash expenditures consist primarily of payments under operating leases and inventory purchase commitments. We do not currently have any material commitments for capital expenditures, or any other material commitments aside from operating leases for our facilities and inventory purchase commitments. We currently intend to fund our operations, including our fixed commitments under operating leases, and any required capital expenditures using our existing cash, cash equivalents and investments.

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As of April 26, 2008, future restructuring cash payments of $895 thousand consist primarily of amounts related to workforce reductions that will be substantially paid by the fourth quarter of fiscal 2008 and lease payments to be paid over the next four years.

Based on our current plans and business conditions, we believe that our existing cash, cash equivalents and investments will be sufficient to satisfy our anticipated cash requirements for at least twelve months. We will continue to consider appropriate action with respect to our cash position in light of the present and anticipated business needs as well as providing a means by which our shareholders may realize value in connection with their investment.

Commitments, Contractual Obligations and Off-Balance Sheet Arrangements

At April 26, 2008, our future obligations, which consist of contractual commitments for operating leases and inventory and other purchase commitments, were as follows (in thousands):

	Total		Less than 1 Year		1-3 Years		3-5 Years		Thereafter
Operating leases	$	8,585	$	2,360	$	6,050	$	175	$	—
Inventory and other purchase commitments		18,468		18,468		—		—		—
Total	$	27,053	$	20,828	$	6,050	$	175	$	—

Payments made under operating leases will be accounted for as rent expense for the facilities currently being utilized, or as a reduction of the restructuring liability for payments relating to excess facilities. Payments made for inventory purchase commitments will initially be capitalized as inventory, and will subsequently be charged to cost of revenue as the inventory is sold or otherwise disposed of.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements, (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for fiscal years beginning after July 1, 2008 and as a result, are effective for the Company in the first quarter of fiscal 2009. However, the FASB has recently approved a one year deferral for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. We are currently evaluating the potential impact of the SFAS 157 on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require certain assets or liabilities to be carried at fair value. The objective of SFAS 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under SFAS 159, a company may choose, at specified election dates, to measure eligible items at fair value and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and as a result, is effective for the Company in the first quarter of fiscal 2009. We are currently evaluating the potential impact of SFAS 159 on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141R”). SFAS 141R replaces SFAS No. 141 and provides greater consistency in the accounting and financial reporting of business combinations. SFAS 141R requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, establishes principles and requirements for how an acquirer recognizes and measures any non-controlling interest in the acquiree and the goodwill acquired,

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and requires the acquirer to disclose the nature and financial effect of the business combination. Among other changes, this statement also required that “negative goodwill” be recognized in earnings as a gain attributable to the acquisition, that acquisition-related costs are to be recognized separately from the acquisition and expensed as incurred and that any deferred tax benefits resulting from a business combination are to be recognized in income from continuing operations in the period of the combination. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and as a result, is effective for the Company in the first quarter of fiscal 2010. We are currently evaluating the potential impact of SFAS 141R.

In April 2008, the FASB issued Staff Position (“FSP”) No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). The intent of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other applicable accounting literature. FSP FAS 142-3 is effective for financial statements issued for the fiscal years beginning after December 15, 2008. We are currently evaluating the potential impact of FSP FAS 142-3 on our consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosure About Market Risk

Interest Rate Sensitivity

The primary objective of our current investment activities is to preserve investment principal while maximizing income without significantly increasing risk. We maintain a portfolio of cash equivalents and short-term and long-term investments in a variety of securities which may include commercial paper, certificates of deposit, money market funds and government debt securities. These available-for-sale investments are subject to interest rate risk and may decline in value if market interest rates increase. If market interest rates increased immediately and uniformly by 10 percent from levels at April 26, 2008, the fair value of the portfolio would decline by approximately $1.8 million. We have the ability to hold our fixed income investments until maturity, and therefore do not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio.

Exchange Rate Sensitivity

While the majority of our operations are based in the United States, our business is global, with international revenue representing 27% of total revenue in fiscal 2007, and 50% of revenue in the first nine months of fiscal 2008. We expect that international sales may continue to represent a significant portion of our revenue. Generally, sales outside of the United States are denominated in US dollars. In the future, to the extent that sales outside of the United States might be denominated in local currencies, exchange rate fluctuations in foreign currencies may have an impact on our financial results, although to date such impact has not been material. We are prepared to hedge against fluctuations in foreign currencies if the exposure is material, although we have not engaged in hedging activities to date.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our management (with the participation of our Chief Executive Officer and Chief Financial Officer) evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of April 26, 2008. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.

Limitations on Effectiveness of Controls. Our management has concluded that our disclosure controls and procedures and internal controls provide reasonable assurance that the objectives of our control system are met. However, our management (including our Chief Executive Officer and Chief Financial Officer) does not expect that the disclosure controls and procedures or internal controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, errors and instances of fraud, if any, within the company have been or will be detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurances that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended April 26, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. Legal Proceedings

Litigation

IPO Allocation Case

Beginning on July 2, 2001, several purported class action complaints were filed in the United States District Court for the Southern District of New York against the Company and several of its officers and directors (the “Individual Defendants”) and the underwriters for the Company’s initial public offering on October 21, 1999. Some of the complaints also include the underwriters for the Company’s follow-on offering on March 14, 2000. An amended complaint, which is the operative complaint, was filed on April 19, 2002 on behalf of persons who purchased the Company’s common stock between October 21, 1999 and December 6, 2000. The amended complaint alleges claims against the Company, several of the Individual Defendants and the underwriters for violations under Sections 11 and 15 of the Securities Act of 1933, as amended (the “Securities Act”), primarily based on the assertion that the Company’s lead underwriters, the Company and several of the Individual Defendants made material false and misleading statements in the Company’s Registration Statements and Prospectuses filed with the Securities and Exchange Commission, or the SEC, in October 1999 and March 2000 because of the failure to disclose (a) the alleged solicitation and receipt of excessive and undisclosed commissions by the underwriters in connection with the allocation of shares of common stock to certain investors in the Company’s public offerings and (b) that certain of the underwriters allegedly had entered into agreements with investors whereby underwriters agreed to allocate the public offering shares in exchange for which the investors agreed to make additional purchases of stock in the aftermarket at pre-determined prices. It also alleges claims against the Company, the Individual Defendants and the underwriters under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), primarily based on the assertion that the Company’s lead underwriters, the Company and the Individual Defendants defrauded investors by participating in a fraudulent scheme and by making materially false and misleading statements and omissions of material fact during the period in question. The amended complaint seeks damages in an unspecified amount.

The action against the Company is being coordinated with approximately three hundred other nearly identical actions filed against other companies. Due to the large number of nearly identical actions, the court has ordered the parties to select up to twenty “test” cases. To date, along with sixteen other cases, the Company’s case has been selected as one such test case. As a result, among other things, the Company will be subject to broader discovery obligations and expenses in the litigation than non-test case issuer defendants.

On October 9, 2002, the court dismissed the Individual Defendants from the case without prejudice. This dismissal disposed of the Section 15 and Section 20(a) claims without prejudice, because these claims were asserted only against the Individual Defendants. On October 13, 2004, the court denied the certification of a class in the action against the Company with respect to the Section 11 claims alleging that the defendants made material false and misleading statements in the Company’s Registration Statement and Prospectuses. The certification was denied because no class representative purchased shares between the date of the IPO and January 19, 2000 (the date unregistered shares entered the market), and thereafter suffered a loss on the sale of those shares. The court certified a class in the action against the Company with respect to the Section 10(b) claims alleging that the Company and the Individual Defendants defrauded investors by participating in a fraudulent scheme and by making materially false and misleading statements and omissions of material fact during the period in question. On December 5, 2006, the Second Circuit vacated the district court’s class certification decision. On April 6, 2007, the Second Circuit panel denied a petition for rehearing filed by the plaintiffs, but noted that the plaintiffs could ask the district court to certify a more narrow class than the one that was rejected.

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Prior to the Second Circuit’s December 5, 2006 ruling, a majority of the issuers, including the Company, and their insurers had submitted a settlement agreement to the district court for approval. In light of the Second Circuit opinion, the parties agreed that the settlement could not be approved. On June 25, 2007, the district court approved a stipulation filed by the plaintiffs and the issuers terminating the proposed settlement. On August 14, 2007, the plaintiffs filed a Second Amended Class Action complaint against the Company. The amended complaint contains a number of changes, including changes to the definition of the purported class of investors, and the elimination of the Individual Defendants as defendants. The Company filed a motion to dismiss the amended complaint on November 14, 2007. On the same date, the underwriters filed a motion to dismiss the amended complaint. On September 27, 2007, the plaintiffs filed a motion for class certification in the Company’s case. On December 21, 2007, the Company and the underwriters filed papers opposing plaintiffs’ class certification motion and plaintiffs filed an opposition to defendants’ motions to dismiss. On January 28, 2008, the Company and the underwriters filed reply briefs in further support of their motions to dismiss the amended complaints. On March 26, 2008, the District Court denied the Company’s motion to dismiss for most claims but dismissed certain Section 11 claims. On March 28, 2008, Plaintiffs filed their reply brief in support of their motion for class certification. On April 9, the underwriters and the Company filed a motion for partial reconsideration of the Section 11 claims not previously dismissed.

The Company cannot predict whether the parties will be able to negotiate a revised settlement that complies with the standards set out in the Second Circuit’s decision. Due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of the matter. If the parties are not able to renegotiate a settlement and the Company is found liable, the Company is unable to estimate or predict the potential damages that might be awarded, whether such damages would be greater than the Company’s insurance coverage, and whether such damages would have a material impact on our results of operations or financial condition in any future period.

Derivative Lawsuits

On May 31, 2006, a purported shareholder derivative action, captioned Weisler v. Barrows (“Weisler”), was filed in the United States District Court for the District of Delaware (the “Delaware Court”), on the Company’s behalf, against it as nominal defendant, the Company’s Board of Directors and certain of its current and former officers (as amended on October 4, 2006). The plaintiff derivatively claims, among other things, violations of Section 14(a) of the Securities Exchange Act of 1934, Section 304 of the Sarbanes-Oxley Act of 2002, and breaches of fiduciary duty by the defendants in connection with the Company’s historical stock option granting practices. The plaintiff seeks unspecified damages, profits, the return of compensation paid by the Company, an injunction and costs and attorneys’ fees. Substantially similar actions, captioned Vanpraet v. Deshpande (“Vanpraet”) and Patel v. Deshpande (“Patel”), were filed in the United States District Court for the District of Massachusetts on June 28, 2006 and July 13, 2006, respectively (the “Massachusetts Court”), and Ariel v. Barrows (“Ariel”) was filed on July 21, 2006 in the United States District Court for the Eastern District of New York (the “New York Court”). None of the plaintiffs made presuit demand on the Company’s Board of Directors prior to filing suit. By Memorandum and Order dated November 6, 2006, the Delaware Court transferred Weisler to the District of Massachusetts. By stipulation of the parties, on November 21, 2006, the New York Court transferred Ariel to the District of Massachusetts. By margin order dated May 24, 2007, the Massachusetts Court consolidated Weisler, Vanpraet, Patel and Ariel (the “Federal Action”). Subsequent to that consolidation, plaintiffs in the Federal Action served a demand letter on the Company. Proceedings in the Federal Action are currently stayed pending the Company’s response to the demand letter. The Federal Action does not seek affirmative relief from the Company.

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On September 19, 2006, an additional purported shareholder derivative action, captioned McMahon v. Smith, was filed in the Middlesex Superior Court for the Commonwealth of Massachusetts, on the Company’s behalf, against it as nominal defendant, the Company’s Board of Directors and certain of its current and former officers. The plaintiff derivatively claims, among other things, breaches of fiduciary duty by the defendants in connection with the Company’s historical stock option granting practices, and also that certain defendants misappropriated confidential Company information for personal profit by selling Company stock while in possession of material, non-public information. The plaintiff seeks unspecified damages, profits, an injunction and costs and attorneys’ fees. The plaintiff did not make presuit demand on the Company’s Board of Directors prior to filing suit. An amended complaint was filed on July 16, 2007 which also named additional officers of the Company as defendants. On August 15, 2007, the defendants filed a motion to dismiss and on November 19, 2007, the court heard oral arguments on that motion. By a Memorandum and Order dated March 6, 2008, the Court granted the defendant’s motion and dismissed the case with prejudice and without leave to file a further amended complaint. The plaintiff did not appeal that decision. The purported derivative action did not seek affirmative relief from the Company.

In October 2007, a purported Sycamore Networks, Inc. shareholder filed a complaint for violation of Section (16) of the Securities Exchange Act of 1934, which prohibits short-swing trading against the Company’s Initial Public Offering underwriters. The complaint, Vanessa Simmonds v. Morgan Stanley, et al., in District Court for the Western District of Washington seeks recovery of short-swing profits. On April 28, 2008, the district court established a briefing schedule for motions to dismiss and ruled that all discovery be stayed pending resolution of the motions to dismiss. The Company is named as a nominal defendant. No recovery is sought from the Company in this matter.

Other Matters

On November 19, 2007, the Company received a “Wells Notice” from the Securities and Exchange Commission (the “SEC”) in connection with the previously disclosed ongoing SEC investigation into the Company’s historical stock option granting practices and related accounting. The Wells Notice provides notification that the staff of the SEC (the “Staff”) has made a preliminary determination to recommend that the Commission bring a civil action against the Company for possible violations of the securities laws. Under the process established by the SEC, recipients have the opportunity to respond in writing (a “Wells Submission”) to a Wells Notice before the Staff makes any formal recommendation to the Commission regarding what action, if any, should be brought by the SEC. In connection with the contemplated recommendation, the Staff may seek remedies, including, among other things, a permanent injunction and a civil penalty. The Company has provided a Wells Submission to the SEC. There can be no assurance that the SEC will not bring civil enforcement action against the Registrant.

On June 29, 2006, a former employee of the Company filed a complaint in Massachusetts Superior Court alleging, among other things, claims relating to wrongful termination of an employment agreement, fraud in the inducement, retaliation and claims relating to certain of the Company’s stock option grant practices in 1999-2001. The complaint demanded lost wages, unspecified monetary damages and reinstatement of medical benefits, among other things. The case was moved to the Business Litigation Session of the Suffolk County Superior Court and, following an oral hearing on a motion to dismiss, the case was ordered dismissed on January 24, 2007. The plaintiff has filed a Notice of Appeal of the order and judgment.

The Company is subject to legal proceedings, claims, and litigation, including those from intellectual property matters, arising in the ordinary course of business. On a quarterly basis, the Company reviews its commitments and contingencies to reflect the effect of ongoing negotiations, settlements, rulings, advice of counsel, and other information and events pertaining to a particular case. The Company is also subject to potential tax liabilities associated with ongoing tax audits and examinations by various tax authorities. As a result, during the third quarter of fiscal 2005, the Company accrued $10.3 million associated with contingencies related to claims, litigation and other disputes, as well as potential liabilities associated with various tax matters. During the fourth quarter of fiscal 2006, the Company increased this accrual by $6.8 million. Based on ongoing negotiations and settlement discussions, the Company decreased this accrual by $2.2 million during the fourth quarter of fiscal 2007. During the first quarter of fiscal 2008, the Company settled three claims for an aggregate amount of $14.7 million. The entire $14.7 million was paid during the first three quarters of fiscal 2008.

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Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended July 31, 2007, as filed with the SEC on September 26, 2007. Except for the risk factors set forth below, there have been no material changes to our risk factors from those previously disclosed in our Form 10-K. Additional risks and uncertainties, including risks and uncertainties not presently known to us, or that we currently deem immaterial, could also have an adverse effect on our business, financial condition and/or results of operations. The risk factors set forth below were disclosed in our Form 10-K, but have been updated to provide additional information:

Matters related to the investigations into our historical stock option granting practices and the resulting restatements of our previously issued financial statements may result in additional litigation, regulatory proceedings and government enforcement actions.

Our historical stock option granting practices and the initial restatement and further restatement of our previously issued financial statements have exposed us to risks associated with litigation, regulatory proceedings and government enforcement actions. For more information regarding our current litigation and related inquiries, please see Part II, Item 1- “Legal Proceedings” as well as the other risk factors related to litigation set forth herein and in Item 1A to our Form 10-K. We have provided the results of our independent investigations to the Securities and Exchange Commission (the “SEC”) and in that regard we have responded to formal and informal requests for documents and additional information. We have also provided documents and other information to the United States Attorney’s Office for the District of Massachusetts (the “DOJ”), the IRS and the Department of Labor (“DOL”). We intend to continue to cooperate with these governmental agencies.

On November 19, 2007, the Company received a “Wells Notice” from the SEC in connection with the previously disclosed ongoing investigation into our historical stock option granting practices and related accounting. The Wells Notice provides notification that the staff of the SEC (the “Staff”) has made a preliminary determination to recommend that the Commission bring a civil action against the Company for possible violations of the securities laws. In connection with the contemplated recommendation, the Staff may seek remedies, including, among other things, a permanent injunction and a civil penalty.

Under the process established by the SEC, recipients have the opportunity to respond in writing to a Wells Notice (a “Wells Submission”) before the Staff makes any formal recommendation to the Commission regarding what action, if any, should be brought by the SEC. We have provided a Wells Submission to the SEC. There can be no assurance that the SEC will not bring civil enforcement action against the Company.

While we believe that we have made appropriate judgments in determining the correct measurement dates for our stock option grants, the SEC may disagree with the manner in which we accounted for and reported, or not reported, the corresponding financial impact. Accordingly, there is a risk that we may have to further restate our prior financial statements, amend prior filings with the SEC, or take other actions not currently contemplated.

No assurance can be given regarding the outcomes from litigation, regulatory proceedings or government enforcement actions relating to our past stock option practices. The resolution of these matters will be time consuming, expensive, and may distract management from the conduct of our business. Furthermore, if we are subject to adverse findings in litigation, regulatory proceedings or government enforcement actions, we could be required to pay damages or penalties or have other remedies imposed, which could harm our business, financial condition, results of operations and cash flows. In addition, a government enforcement action may damage our reputation and negatively impact our ability to renew or enter into new contracts with commercial and government customers.

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As a result of our independent investigations and related restatements, we are subject to investigations by the SEC, DOJ, IRS and the DOL, which may not be resolved favorably and have required, and may continue to require, a significant amount of management time and attention and accounting and legal resources, which could adversely affect our business, operating results or financial condition.

The SEC, DOJ, IRS and the DOL are currently conducting investigations of the Company. As discussed above, on November 19, 2007, we received a “Wells Notice” from the SEC in connection with its ongoing investigation. The period of time necessary to resolve such investigations and any resulting civil action is uncertain, and these matters could require significant management and financial resources which could otherwise be devoted to the operation of our business. If we are subject to an adverse finding resulting from any or all such investigations and/or any resulting civil actions, we could be required to pay damages or penalties or have other remedies imposed upon us. The recent restatements of our financial statements, the ongoing investigations, any resulting civil action and the resulting shareholder derivative lawsuits could have an adverse affect on our business, operating results or financial condition. In addition, considerable legal and accounting expenses related to these matters have been incurred to date and significant expenditures may continue to be incurred in the future.

We may experience risks in our investments due to changes in the market, which could adversely affect the value or liquidity of our investments.

At April 26, 2008, we had $411.8 million in cash and cash equivalents and $538.1 million in investments in marketable debt securities. We maintain a portfolio of cash equivalents and short-term and long-term investments in a variety of securities which may include commercial paper, certificates of deposit, money market funds and government debt securities. These available-for-sale investments are subject to interest rate risk and may decline in value if market interest rates increase. These investments are subject to general credit, liquidity, market and interest rate risks. As a result, we may experience a reduction in value or loss of liquidity of our investments. In addition, should any investment cease paying or reduce the amount of interest paid to us, our interest income would suffer. These market risks associated with our investment portfolio may have a negative adverse effect on our results of operations, liquidity and financial condition.

The global nature of our business exposes us to multiple risks.

International sales have historically represented a significant amount of our total sales including 27% of total revenue for fiscal 2007 and 50% of revenue in the first nine months of fiscal 2008. We have a substantial international customer base and we are subject to foreign exchange translation risk to the extent that our revenue is denominated in currencies other than the U.S. dollar. Doing business internationally requires significant management attention and financial resources to successfully develop direct and indirect sales channels and to support customers in international markets. In addition we have a research and development facility in Shanghai, China. We may not be able to maintain or expand international market demand for our products.

In addition, all of our international operations are subject to inherent risks, including:

• greater difficulty in accounts receivable collection and longer collection periods;

• difficulties and costs of staffing, managing and conducting foreign operations in compliance with local laws and customs;

• reliance on distribution partners for the resale of our products in certain markets and for certain types of product offerings, such as the integration of our products into third-party product offerings;

• the need to work with third parties in certain countries to perform installation and obtain customer acceptance may impact the timing of revenue recognition;

• the need to maintain staffing, or to work with third parties, to provide service and support in international locations;

• the impact of slowdowns or recessions in economies outside the United States;

• unexpected changes in regulatory requirements, including trade and environmental protection measures and import and licensing requirements;

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• obtaining export licensing authority on a timely basis and maintaining ongoing compliance with import, export and reexport regulations;

• certification requirements;

• currency fluctuations;

• reduced protection for intellectual property rights in some countries;

• potentially adverse tax consequences; and

• political and economic instability, particularly in emerging markets.

These factors may adversely impact our revenue, operating results and financial condition.

Environmental regulations could harm our operating results.

We may be subject to various state, federal and international laws and regulations governing the environment, including those restricting the presence of certain substances in electronic products such as, but not limited to, the European Union Directive entitled, “The Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment.” Environmental laws and regulations can vary from jurisdiction to jurisdiction and often make producers financially responsible for the collection, treatment, recycling and ultimate disposal of their products. We will need to ensure that we comply with all applicable environmental laws and regulations as they are enacted, and that our component suppliers also comply on a timely basis with such laws and regulations. If we are not in compliance with such legislation, our customers may refuse to purchase our products or we may be unable to ship products to certain markets, which would have a materially adverse effect on our business, financial condition and results of operations.

We could incur substantial costs in connection with our compliance with environmental laws and regulations, and we could also be subject to governmental fines and liability to our customers if we were found to be in violation of these laws. If we have to make significant capital expenditures to comply with environmental laws, or if we are subject to significant capital expenses in connection with a violation of these laws, our financial condition or operating results could suffer. Additionally, we could be forced to write off inventory that is found not to be compliant with evolving environmental regulations.

Our results may be adversely affected by unfavorable conditions in the telecommunications industry and the economy in general.

We expect industry and economic conditions to affect our business in many ways, including the following:

• our current and prospective customers may make limited capital expenditures;

• consolidation of our customers may cause delays, disruptions or reductions in their capital spending plans as well as increase their relative purchasing power in any negotiation;

• we will continue to have limited ability to forecast the volume and product mix of our sales;

• we will experience a continuing high level of competition as a result of limited demand and we may experience downward pressure on the pricing of our products which reduces gross margins and constrains revenue growth;

• many of our competitors have more diverse product lines which allow them the flexibility to price their products more aggressively;

• new competitive entrants may be located in geographies with lower cost infrastructures than ours allowing them a greater degree of price flexibility;

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• we will need to continue to balance our initiatives to manage our operating costs against the need to keep pace with technological advances;

• the convergence of service provider network architecture on more common and undifferentiated solutions versus technical innovation may create new competitive challenges;

• intense competition may enable customers to demand more favorable terms and conditions of sales including extended payment terms; and

• any bankruptcies or weakening financial condition of any of our customers may require us to write off amounts due from prior sales.

These factors could have an adverse impact on our revenue, operating results and financial condition.

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Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

In the three months ended April 26, 2008, the following shares of common stock were surrendered to the Company:

	Total shares purchased *	Average price paid per share
January 27, 2008 – February 23, 2008	3,667	$	—
February 24, 2008 – March 22, 2008	—		—
March 23, 2008 – April 26, 2008	3,496		—
Total	7,163	$	—

* Purchased from departing employees pursuant to preexisting contractual rights.

The Company has not publicly announced any programs to repurchase shares of common stock.

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Item 5. Other Information

On February 25, 2008, we entered into our standard form of change in control agreement (the “Change in Control Agreement”) with Alan R. Cormier, our General Counsel. Under the Change in Control Agreement, each option or restricted stock grant held by Mr. Cormier which is scheduled to vest within the 12 months after the effectiveness of a change in control of the Company will instead vest immediately prior to the change in control. In addition, in the event of a “Subsequent Acquisition” of the Company (as defined in the agreement) following a change in control, all options or restricted stock granted by the Company to Mr. Cormier will vest immediately prior to the effectiveness of such acquisition. In the event of a termination of Mr. Cormier’s employment following a change in control, either by the surviving entity without cause or by Mr. Cormier due to a constructive termination, (1) all options and restricted stock of Mr. Cormier vest, (2) Mr. Cormier is entitled to continued paid coverage under our group health plans for 18 months after such termination, (3) Mr. Cormier will receive a pro rata portion of his performance bonus for the year in which the termination occurred, (4) Mr. Cormier will receive an amount equal to 18 months of his base salary, (5) Mr. Cormier will receive an amount equal to 150% of his annual performance bonus for the year in which the termination occurred and (6) Mr. Cormier shall be entitled to outplacement services at our expense for a period of 12 months. If Mr. Cormier is subject to any excise tax on amounts characterized as excess parachute payments, due to the benefits provided under the Change in Control Agreement, Mr. Cormier is entitled to reimbursement of up to $1,000,000 for any excess parachute excise taxes. Furthermore, under the Change in Control Agreement, Mr. Cormier agrees to abide by our confidentiality and proprietary rights agreements and, for a period of one year after such termination, not to solicit the Company’s employees or customers.

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Item 6. Exhibits

Exhibits:

(a) List of Exhibits

Number	Exhibit Description
3.1	Amended and Restated Certificate of Incorporation of the Company (2)
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (2)
3.3	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (3)
3.4	Amended and Restated By-Laws of the Company (4)
4.1	Specimen common stock certificate (1)
4.2	See Exhibits 3.1, 3.2, 3.3 and 3.4, for provisions of the Certificate of Incorporation and By-Laws of the Registrant defining the rights of holders of common stock of the Company (2)(3)
*10.1	Change in Control Agreement between Sycamore Networks, Inc. and Alan R. Cormier dated as of February 25, 2008 (the form agreement was filed as Exhibit 10.2 to Sycamore Networks, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 1999 filed with the Commission on December 13, 1999 and incorporated herein by reference)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Incorporated by reference to Sycamore Networks, Inc.’s Registration Statement on Form S-1 (Registration Statement No. 333-84635).

(2) Incorporated by reference to Sycamore Networks, Inc.’s Registration Statement on Form S-1 (Registration Statement No. 333-30630).

(3) Incorporated by reference to Sycamore Networks, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended January 27, 2001 filed with the Securities and Exchange Commission on March 13, 2001.

(4) Incorporated by reference to Sycamore Networks, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 27, 2007 filed with the Securities and Exchange Commission on November 28, 2007.

* Denotes a management contract or compensatory plan or arrangement.

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Signature

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

Sycamore Networks, Inc.

/s/ PAUL F. BRAUNEIS

Paul F. Brauneis

Chief Financial Officer,

Vice President, Finance and Administration, Treasurer

(Duly Authorized Officer and Principal

Financial and Accounting Officer)

Dated: June 5, 2008

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