10-Q/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2007
OR
o	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 0-02287

SYMMETRICOM, INC.

(Exact name of registrant as specified in our charter)

Delaware	No. 95-1906306
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2300 Orchard Parkway, San Jose, California 95131-1017

(Address of principal executive offices)

Registrant’s telephone number: (408) 433-0910

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  o

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes o   No x

Indicate number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:

Class	Outstanding as of April 30, 2007
Common Stock	46,415,611

Explanatory Note

This Form 10-Q/A amends the Company’s quarterly report on Form 10-Q for the quarter and nine months ended March 31, 2007, which was filed on May 9, 2007. The amendment is a result of the restatement of the Company’s condensed consolidated financial statements and related financial information for the quarterly period and nine months ended March 31, 2007.

The Company has restated its previously filed financial statements and other financial information for the above referenced period to correct an error in accounting for income taxes related to the liquidations of QoSmetrics, S.A. and QoSmetrics, Inc.  The third quarter liquidations of these companies, which were acquired on January 2, 2007, were previously accounted for as an adjustment to purchase accounting.  We have now determined that the liquidations were separate events from the purchase and that a tax expense should have been recorded for the quarter and nine months ended March 31, 2007.

As a result of this determination, the income tax provision was understated by approximately $3.4 million for the three and nine months ended March 31, 2007 with a related reduction (increase) to net income (loss).  The correction resulted in a reduction from the previously reported earnings per share on a fully-diluted basis of $0.04 to a loss per share of $0.04 per share for the quarter ended March 31, 2007 and a decrease in earnings per share from $0.18 to $0.10 per share for the nine months ended March 31, 2007. The correction of this error resulted in a reduction of the allocable goodwill of $3.1 million and an increase in other accrued liabilities of approximately $300,000.

All of the information in this Form 10-Q/A is as of May 9, 2007, the date the Company originally filed its Form 10-Q with the Securities and Exchange Commission, and does not reflect any subsequent information or events other than the restatement discussed in Note 17 to the condensed consolidated financial statements appearing in this Form 10-Q/A. For the convenience of the reader, this Form 10-Q/A sets forth the originally filed Form 10-Q in its entirety. However, the following items have been amended solely as a result of, and to reflect, the restatement:

Part I, Item 1 – Financial Statements

Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part I, Item 4 – Controls and Procedures

Part II, Item 6 – Exhibits

The Company is including currently dated Sarbanes-Oxley Act Section 302 and Section 906 certifications of the Chief Executive Officer and Chief Financial Officer that are attached to this Form 10-Q/A as Exhibits 31 and 32.

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SYMMETRICOM, INC.
FORM 10-Q/A
INDEX

			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Condensed Consolidated Balance Sheets—March 31, 2007 (As restated) and June 30, 2006	4
		Condensed Consolidated Statements of Operations—Three and nine months ended March 31, 2007 (As restated) and 2006	5
		Condensed Consolidated Statements of Cash Flows—Nine months ended March 31, 2007 (As restated) and 2006	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
	Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	35
	Item 1A.	Risk Factors	35
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
	Item 3.	Defaults Upon Senior Securities	37
	Item 4.	Submission of Matters to a Vote of Security Holders	37
	Item 5.	Other Information	37
	Item 6.	Exhibits	37
	SIGNATURES		38

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SYMMETRICOM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)
(Unaudited)

	March 31,		June 30,
	2007		2006
	(As Restated – See Note 17)
ASSETS
Current assets:
Cash and cash equivalents	$	52,656	$	82,193
Short-term investments	124,694		106,696
Accounts receivable, net of allowance for doubtful accounts of $1,048 and $888	34,734		33,015
Inventories	36,795		30,717
Prepaids and other current assets	12,375		10,240
Total current assets	261,254		262,861
Property, plant and equipment, net	26,664		26,553
Goodwill	55,013		45,899
Other intangible assets, net	16,814		8,200
Deferred taxes and other assets	43,225		48,405
Note receivable from employee	500		500
Total assets	$	403,470	$	392,418
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,806	$	13,359
Accrued compensation	13,360		10,352
Accrued warranty	3,598		3,547
Other accrued liabilities	13,957		12,024
Current maturities of long-term obligations	1,496		1,286
Total current liabilities	45,217		40,568
Long-term obligations	125,877		126,670
Deferred income taxes	334		619
Total liabilities	171,428		167,857
Commitments and contingencies	—		—
Stockholders’ equity:
Preferred stock, $0.0001 par value; 500 shares authorized, none issued	—		—
Common stock, $0.0001 par value; 70,000 shares authorized, 48,755 shares issued and 46,326 shares outstanding at March 31, 2007; 47,662 shares issued and 45,743 outstanding at June 30, 2006	184,115		181,696
Accumulated other comprehensive income	464		263
Retained earnings	47,463		42,602
Total stockholders’ equity	232,042		224,561
Total liabilities and stockholders’ equity	$	403,470	$	392,418

See notes to the condensed consolidated financial statements.

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SYMMETRICOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2007			2006			2007			2006
	(As Restated – See Note 17)						(As Restated – See Note 17)
Net revenue	$	51,943		$	41,532		$	150,964		$	129,358
Cost of products and services	26,238			22,029			79,916			66,043
Amortization of purchased technology	966			774			2,541			2,849
Integration and restructuring charges	110			425			188			769
Impairment of purchased technology	—			1,198			—			1,198
Gross profit	24,629			17,106			68,319			58,499
Operating expenses:
Research and development	6,453			4,886			16,168			13,739
Selling, general and administrative	15,808			13,721			43,050			42,024
Acquired in-process research and development	(330		)	—			188			—
Amortization of intangibles	272			117			534			404
Integration and restructuring charges	196			—			196			—
Impairment of goodwill	—			6,963			—			6,963
Operating income (loss)	2,230			(8,581		)	8,183			(4,631		)
Interest income	2,212			1,983			6,976			5,294
Interest expense	(1,208		)	(1,252		)	(3,641		)	(3,744		)
Income (loss) before income taxes	3,234			(7,850		)	11,518			(3,081		)
Income tax provision (benefit)	4,542			(2,154		)	7,042			(1,007		)
Income (loss) from continuing operations	(1,308		)	(5,696		)	4,476			(2,074		)
Gain (loss) from discontinued operations, net of tax	(349		)	509			385			915
Net income (loss)	$	(1,657	)	$	(5,187	)	$	4,861		$	(1,159	)
Earnings (loss) per share—basic:
Income (loss) from continuing operations	$	(0.03	)	$	(0.12	)	$	0.10		$	(0.05	)
Gain (loss) from discontinued operations	(0.01		)	0.01			0.01			0.02
Net income (loss)	$	(0.04	)	$	(0.11	)	$	0.11		$	(0.03	)
Weighted average shares outstanding—basic	45,596			46,003			45,563			46,088
Earnings (loss) per share—diluted:
Income (loss) from continuing operations	$	(0.03	)	$	(0.12	)	$	0.09		$	(0.05	)
Gain (loss) from discontinued operations	(0.01		)	0.01			0.01			0.02
Net income (loss)	$	(0.04	)	$	(0.11	)	$	0.10		$	(0.03	)
Weighted average shares outstanding—diluted	45,596			46,003			46,465			46,088

See notes to the condensed consolidated financial statements.

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SYMMETRICOM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(Unaudited)

	Nine Months Ended
	March 31,
	2007			2006
	(As Restated – See Note 17)
Cash flows from operating activities:
Net income (loss)	$	4,861		$	(1,159	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Impairment of goodwill and intangible assets				8,161
Expensed in-process research and development	188			—
Depreciation and amortization	7,035			7,805
Deferred income taxes	2,818			(1,815		)
Income tax expense related to QoSmetrics liquidations	3,110			—
Loss on disposal of fixed assets	7			177
Stock-based compensation	4,406			3,656
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable	(551		)	(3,211		)
Inventories	(4,510		)	(1,696		)
Prepaids and other assets	(1,235		)	1,182
Accounts payable	(768		)	(489		)
Accrued compensation	2,424			969
Other accrued liabilities	1,226			464
Net cash provided by operating activities	19,011			14,044
Cash flows from investing activities:
Purchases of short-term investments	(42,420		)	(25,647		)
Maturities of short-term investments	24,639			60,086
Purchases of plant and equipment	(3,623		)	(7,238		)
Acquisition and related costs, net of cash acquired	(23,385		)	(8,032		)
Net cash provided by (used for) investing activities	(44,789		)	19,169
Cash flows from financing activities:
Repayment of long-term obligations	(1,835		)	(794		)
Proceeds from issuance of common stock	1,858			1,592
Stock option income tax benefit	138			592
Repurchase of common stock	(3,982		)	(7,752		)
Net cash used for financing activities	(3,821		)	(6,362		)
Effect of exchange rate changes in cash	62			119
Net increase (decrease) in cash and cash equivalents	(29,537		)	26,970
Cash and cash equivalents at beginning of period	82,193			105,635
Cash and cash equivalents at end of period	$	52,656		$	132,605
Non-cash investing and financing activities:
Unrealized gain on securities, net	$	138		$	19
Cash payments for:
Interest	2,233			2,844
Income taxes	1,767			961

See notes to the condensed consolidated financial statements.

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SYMMETRICOM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The condensed consolidated financial statements of Symmetricom, Inc. (“Symmetricom,” “we,” “us,” “the Company,” or “our”) included herein are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of the management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Symmetricom’s Annual Report on Form 10-K for the year ended June 30, 2006. The results of operations for the three months and nine months ended March 31, 2007 are not necessarily indicative of the results to be anticipated for the entire fiscal year ending June 30, 2007.

The condensed consolidated balance sheet at June 30, 2006 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

Reclassification

Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation.  Deferred revenue of $1.1 million as of June 30, 2006 that was previously reported as other accrued liabilities in current liabilities has been reclassified as long-term obligations. As of March 31, 2007, $1.1 million of deferred revenue was included in long-term obligations.

Note 2. Acquisitions

QoSmetrics

On January 2, 2007, we completed the acquisition of QoSmetrics S.A., a privately held provider of quality of experience (QoE) solutions for IPTV (Internet Protocol Television) and other triple play services.  QoSmetrics’ results are included in our condensed consolidated statements of operations effective January 2, 2007.  We acquired QoSmetrics S.A. because of the demonstrated success of its product offerings with leading providers of triple play services, and due to our estimation of the unique capabilities of its technology base.  Moreover, its target customers, as well as certain of its proprietary product features, are highly complementary with key parts of Symmetricom’s current operations.  The purchase price of approximately $16.8 million was paid in cash.  The purchase price was allocated to the assets acquired and the liabilities assumed based on management’s estimate of the fair value for purchase accounting purposes at the date of acquisition.  We utilized an outside valuation consultant to assist with the determination of the purchase price allocation, based on a fair value of the intangible assets.

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

Cash and cash equivalents	$	172
Accounts receivable	556
Inventories	114
Prepaids and other current assets	225
Property, plant and equipment	242
Intangible assets	7,127
Goodwill	7,009
Deferred tax assets	5,251
Deferred revenue	(123		)
Liabilities assumed	(1,597		)
Deferred tax liabilities	(2,141		)
Total purchase price	$	16,835

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

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Timing Solutions Corporation

On October 2, 2006, we completed the acquisition of Timing Solutions Corporation (TSC), a privately held company based in Boulder, Colorado that provides high-performance time and frequency products and services for government, aerospace and military markets. TSC’s results are included in our condensed consolidated statements of operations effective October 2, 2006. We acquired TSC because it has a high-end timing technology that is fundamental to building our next generation products, which we believe will allow us to introduce new products into the market at a faster rate. This acquisition also further strengthens our leadership position in the time and frequency technology field. The total purchase price of approximately $8.6 million was paid in cash. The purchase price was allocated to the assets acquired and the liabilities assumed based on management’s estimate of the fair value for purchase accounting purposes at the date of acquisition. We utilized an outside valuation consultant to assist with the determination of the purchase price allocation, based on a fair value of the intangible assets.

The purchase price was allocated to TSC’s assets and liabilities as follows (in thousands):

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

Proforma Results of Operations

The following unaudited proforma information presents a summary of our consolidated results of operations as if the Timing Solutions Corporation and QoSmetrics S.A. acquisitions had taken place at the beginning of each period presented.

	Nine Months Ended
	March 31,
	2007		2006
	(In thousands, except per share amounts)
Net revenue	$	153,943	$	136,886
Net income (loss)	$	3,985	$	(3,715	)
Earnings (loss) per share - basic:
Net income (loss)	$	0.09	$	(0.08	)
Weighted average shares outstanding - basic	45,563		46,088
Earnings (loss) per share - diluted:
Net income (loss)	$	0.09	$	(0.08	)
Weighted average shares outstanding - diluted	46,465		46,088

The proforma consolidated results of operations include adjustments to continuing net income (loss) to give effect to amortization of intangibles acquired and excludes adjustments for integration and restructuring charges, and acquired in-process research and development, including their related income tax effects as they are non-recurring.

On an after-tax basis, the nine-month period ended March 31, 2007 includes an adjustment for amortization of intangibles of $0.6 million and excludes acquisition related costs for acquired in-process research and development of $0.2 million, and other integration and restructuring charges of $0.2 million. On an after-tax basis, the nine-month period ended March 31, 2006 includes an adjustment for amortization of intangibles of $1.3 million.

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Note 3. Discontinued Operation

During the third quarter of fiscal 2007, we discontinued the operation of our Specialty Manufacturing/Other business segment.  Specialty Manufacturing/Other was part of our Telecommunications Solutions Division.   This has been accounted for as a discontinued operation and, accordingly, the results of operations have been excluded from continuing operations in the condensed consolidated statements of operations. During first nine months of fiscal 2007, we recognized a $0.4 million gain, or $0.01 per share, net of taxes, all of which was attributable to income from discontinued operations.

Note 4. Summary of Significant Accounting Policies

Fiscal Period

Symmetricom’s fiscal period ends on the Sunday closest to month-end. For ease of presentation, all periods are referred to as ending on month-end. All references to the quarter refer to Symmetricom’s fiscal quarter. Our fiscal quarters covered by this report ended on April 1, 2007 and April 2, 2006.

Revenue Recognition

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

We assess collectibility based on the credit worthiness of the customer and past transaction history. We perform periodic credit evaluations of our customers and do not require collateral from our customers. However, for many of our international customers, we require an irrevocable letter of credit to be issued by the customer before the purchase order is accepted. If we determine that collection of the invoice is not reasonably assured, we recognize the revenue at the time that collection becomes reasonably assured, which is generally upon the receipt of cash. We commonly have transactions that involve sales of both product and services to our customers. Product revenue is generated from the sale of synchronization and timing equipment with embedded software that is essential to product functionality. We account for these transactions in accordance with the rules applicable to software revenue recognition. Service revenue is recognized as the services are performed provided collection of the related receivable is reasonably assured. Our sales to distributors are made under agreements allowing for returns or credits under certain circumstances. Accordingly, we defer an estimate of returns from distributors based on a historical average of distributor returns. We record commission expense when orders are shipped, at which time the commission is both earned and payable.

Revenue from contracts that require development and manufacture in accordance with customer specifications and have a lengthy development period may be categorized into two types: firm fixed price and cost-plus reimbursement. Revenue is recognized under the fixed price contracts using the percentage of completion method (cost-to-cost basis), principally based upon the costs incurred relative to the total estimated costs at completion on the individual contracts. Any anticipated losses on contracts are charged to operations as soon as they are determinable. Revenue recognized under cost plus contracts is recognized on the basis of direct and indirect costs incurred plus a negotiated profit calculated as a percentage of costs or as a performance based award fee. Revenue from long-term contracts is reviewed periodically, with adjustments recorded in the period in which the revisions are made. A contract is determined to be substantially complete when the physical deliverables are completed, shipped and accepted. Unbilled receivables totaled $2.8 million as of March 31, 2007. We expect to bill $2.0 million of this amount in fiscal 2007 and the remainder in fiscal 2008.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates include allowances for doubtful accounts receivable, valuation of goodwill and intangible assets, excess and obsolete inventory, future warranty costs, stock options and valuation of deferred tax assets. Actual results could differ from those estimates.

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Stock-Based Compensation

In the first quarter of fiscal 2006, we adopted Statement of Financial Accounting Standard (SFAS) No. 123(R) using the modified prospective method, which requires measurement of compensation cost for all stock-based awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of restricted stock is determined based on the number of shares granted and the quoted price of our common stock, and the fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with our valuation techniques previously utilized for options in footnote disclosures required under SFAS No. 123, Accounting for Stock Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure. Such value is recognized as expense over the service period, net of estimated forfeitures, using the accelerated method under SFAS No. 123(R). Because we adopted SFAS No. 123(R), we no longer have employee stock awards subject to variable accounting treatment.

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

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

2.The alternative transition method described in the FSP.

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

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

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

Note 5. Integration and Restructuring Charges

During fiscal 2006 we recorded integration and restructuring charges totaling $1.2 million related to the acquisition of Agilent Technologies’ Frequency and Timing Standards product line, which was recorded as cost of sales and paid out in the same year.

The following tables show the details of the restructuring cost accruals, which consist of facilities and severance costs,

	Balance at							Balance at
	June 30,		Expense					June 30,
	2005		Additions		Payments			2006
	(in thousands)
Facilities (October 2002 to June 2003)	$	544	$	—	$	(544	)	$	—
Facilities (fiscal 2004)	402		—		(148		)	254
Total facilities	946		—		(692		)	254
All other integration and restructuring changes (fiscal 2004)	700		—		(122		)	578
All other integration and restructuring changes (fiscal 2006)	—		1,154		(1,154		)	—
Total	$	1,646	$	1,154	$	(1,968	)	$	832

	Balance at							Balance at
	June 30,		Expense					March 31,
	2006		Additions		Payments			2007
	(in thousands)
Facilities (fiscal 2004)	$	254	$	—	$	(92	)	$	162
All other integration and restructuring changes (fiscal 2004)	578		—		(67		)	511
All other integration and restructuring changes (fiscal 2007)	—		384		(384		)	—
Total	$	832	$	384	$	(543	)	$	673

for the year ended June 30, 2006 and the nine-month period ended March 31, 2007:

The accrued balance of the $0.2 million lease loss accrual for facilities as of March 31, 2007 will be paid over the next five years.  We expect to incur additional integration and restructuring charges amounting to $0.3 million for the Timing Solutions Corporation acquisition and $1.2 million for the QoSmetrics acquisition.

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Note 6. New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R). SFAS No. 158 requires employers to recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income to report the funded status of defined benefit pension and other post-retirement benefit plans. Previous standards required employers to disclose the complete funded status of its plans only in the notes to the financial statements. Additionally, SFAS No. 158 requires employers to measure plan assets and obligations at their year-end balance sheet date. Guidance relating to the recognition of the over or under funded status of the plan and additional disclosure requirements is effective for periods ending after December 15, 2006.  Guidance relating to the measurement date of the plans is effective for the years ending after December 15, 2008. We do not believe that SFAS No. 158 will have a material impact on our consolidated balance sheet and statement of operations.

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

In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.  SAB No. 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 establishes an approach that requires quantification of financial statement errors based on the effects of each of the company’s balance sheet and statement of operations and the related financial statement disclosures. SAB No. 108 permits existing public companies to record the cumulative effect of initially applying this approach in the first year ending after November 15, 2006 by recording the necessary correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. Additionally, the use of the cumulative effect transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose. We do not believe that SAB No. 108 will have a material impact on our consolidated balance sheet and statement of operations.

In June 2006, the FASB issued Interpretation Number (FIN) No. 48, Accounting for Uncertainty in Income Taxes. FIN No. 48 applies to all tax positions within the scope of FASB Statement No. 109, applies a “more likely than not” threshold for tax benefit recognition, identifies a defined methodology for measuring benefits and increases the disclosure requirements for companies. FIN No. 48 is mandatory for years beginning after December 15, 2006. We are currently in the process of evaluating the effects of this new accounting standard.

Note 7. Net Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period less unvested shares of restricted common stock. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding and common equivalent shares from stock options, warrants and unvested restricted stock using the treasury method, except when anti-dilutive.

11

The following table reconciles the number of shares utilized in the earnings per share calculations:

	Three Months Ended March 31,						Nine Months Ended March 31,
	2007			2006			2007			2006
	(In thousands, except per share amounts)
Numerator:
Income (loss) from continuing operations	$	(1,308	)	$	(5,696	)	$	4,476		$	(2,074	)
Gain (loss) from discontinued operations	(349		)	509			385			915
Net income (loss)	$	(1,657	)	$	(5,187	)	$	4,861		$	(1,159	)
Shares (Denominator):
Weighted average common shares outstanding	45,596			46,003			46,133			46,088
Weighted average common shares outstanding subject to repurchase	—			—			(570		)	—
Weighted average shares outstanding—basic	45,596			46,003			45,563			46,088
Weighted average dilutive share equivalents from stock options and warrants	—			—			737			—
Weighted average common shares dilutive subject to repurchase	—			—			165			—
Weighted average shares outstanding—diluted	45,596			46,003			46,465			46,088
Net earnings per share - basic	$	(0.04	)	$	(0.11	)	$	0.11		$	(0.03	)
Net earnings per share - diluted	$	(0.04	)	$	(0.11	)	$	0.10		$	(0.03	)

The following common stock equivalents were excluded from the net earnings per share calculation as their effect would have been anti-dilutive:

	Three Months Ended March 31,		Nine Months Ended March 31,
	2007	2006	2007	2006
	(In thousands, except per share amounts)
Stock options and warrants	3,036	4,438	2,909	4,779
Common shares subject to repurchase	—	35	52	182
Total shares of common stock excluded from diluted net earnings per share calculation	3,036	4,473	2,961	4,961

We account for our contingent convertible subordinated notes in accordance with Emerging Issues Task Force (EITF) Issue No. 04-08, The Effect of Contingently Convertible Debt on Diluted Earnings Per Share, which requires us to include the dilutive effect of the shares of our common stock issuable upon conversion of the outstanding convertible notes in our diluted earnings per share calculation regardless of whether the market price trigger or other contingent conversion feature has been met. Because our contingent convertible subordinated notes include a mandatory cash settlement feature for the principal payment, we apply the treasury stock method. This method results in incremental dilutive shares when the average fair value of our common stock for a reporting period exceeds the initial conversion price per share of $12.49. However, because our share price did not exceed $12.49, no shares associated with the contingent convertible subordinated notes were included in our diluted earnings per share as of March 31, 2007.  See Note 12 for a description of our contingent convertible subordinated notes.

Note 8. Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories consist of:

	March 31,		June 30,
	2007		2006
	(In thousands)
Raw materials	$	18,882	$	15,354
Work-in-process	10,060		9,043
Finished goods	7,853		6,320
	$	36,795	$	30,717

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Note 9. Goodwill and Other Intangible Assets

Goodwill

The changes in the carrying amount of goodwill for the nine months ended March 31, 2007 are as follows for the different segments of Symmetricom:

	Wireline		Timing, Test and Measurement		Quality of Experience Assurance			Total
			(in thousands)
Balances as of June 30, 2006	$	27,917	$	17,982	$	—		$	45,899
Addition (TSC Acquistion, See Note 2)	—		2,028		—			2,028
Addition (QoSmetrics Acquistion, See Note 2)	—		—		10,119			10,119
Adjustment (QoSmetrics liquidations, See Note 2)	—		—		(3,110		)	(3,110		)
Addition (Agilent acquisition final adjustment)	—		77		—			77
Balances as of March 31, 2007	$	27,917	$	20,087	$	7,009		$	55,013

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

Critical estimates in valuing certain intangible assets include, but are not limited to: future expected cash flows from customer contracts, customer lists, distribution agreements, acquired developed technologies and patents; expected costs to develop the in-process research and development into commercially viable products and estimating cash flows from the projects when completed; and the brand awareness and the market position of the acquired products and assumptions about the period of time the brand will continue to be used in the combined company’s product portfolio. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination.

The provisions of SFAS No. 142 also require an annual goodwill impairment test, and more frequently if impairment indicators arise. In testing for a potential impairment of goodwill, the provisions of SFAS No. 142 require the application of a fair value based test at the reporting unit level. The first step of the impairment test prescribed by SFAS No. 142 requires an estimate of the fair value of each unit. If the estimated fair value of any unit is less than the book value, SFAS No. 142 requires an estimate of the fair value of all identifiable assets and liabilities of the unit in a manner similar to a purchase price allocation for an acquired business. This estimate requires valuations of certain internally generated and unrecognized intangible assets such as in-process research and development and developed technology. Potential goodwill impairment is measured based upon this two-step process. We performed our most recent annual goodwill impairment test as of June 2006 and no impairment losses were recorded based on these evaluations.  An internal evaluation identified the need to record an impairment loss for the Wireless/OEM segment in the third quarter of fiscal 2006 using a discounted cash flow valuation method.

Long-lived Assets Including Other Intangible Assets Subject to Amortization

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

Other intangible assets are recorded at cost, less accumulated amortization. Other intangible assets as of March 31, 2007 and June 30, 2006 consist of:

	Gross Carrying Amount		Acquisition		Accumulated Amortization		Net Intangible Assets
	(in thousands)
Purchased technology	$	22,671	$	—	$	15,515	$	7,156
Customer lists, trademarks, other	3,973		—		2,929		1,044
Balances as of June 30, 2006	$	26,644	$	—	$	18,444	$	8,200
Purchased technology	$	22,690	$	5,762	$	17,638	$	10,814
Customer lists, trademarks, other	3,973		5,916		3,889		6,000
Balances as of March 31, 2007	$	26,663	$	11,678	$	21,527	$	16,814

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The estimated future amortization expenses by fiscal year are as follows:

Fiscal year:	(in thousands)
2007 (remaining three months)	$	1,142
2008	3,513
2009	3,071
2010	2,789
2011	2,574
2012	2,022
Thereafter	1,703
Total amortization	$	16,814

Intangible asset amortization expense for the nine months ended March 31, 2007 and 2006 was approximately $3.1 million and $3.3 million, respectively.

Increases in intangible assets for the nine months ended March 31, 2007 resulted from the acquisition of Timing Solutions Corporation and the acquisition of QoSmetrics.  Increases in intangible assets related to Timing Solutions Corporation included $1.8 million relating to customer relationships, $1.4 million relating to developed technology, $1.0 million relating to backlog, and $0.2 million relating to trade name. Increases in intangible assets related to QoSmetrics included $1.2 million relating to customer relationships, $4.4 million relating to developed technology, and $1.5 million relating to trade name.

For the intangibles related to the Timing Solutions Corporation acquisition, the weighted-average amortization period in total is 6 years, 6 months.  The weighted-average amortization period by major intangible asset class is as follows:

·Customer relationships – 11 years, 9 months

·Developed technology – 4 years, 9 months

·Backlog – 1 year

·Trade Name – 3 years, 9 months

For the intangibles related to the QoSmetrics acquisition, the weighted-average amortization period in total is 5 years, 6 months.  The weighted-average amortization period by major intangible asset class is as follows:

·Customer relationships – 5 years, 6 months

·Developed technology – 5 years, 6 months

·Trade Name – 5 years, 6 months

Note 10. Comprehensive Income

Comprehensive income is comprised of two components: net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of stockholders’ equity but are excluded from net income. Other comprehensive income is comprised of unrealized gains and losses, net of taxes, on marketable securities categorized as available-for-sale and foreign currency translation adjustments. The components of comprehensive income, net of tax, are as follows:

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2007			2006			2007		2006
	(in thousands)
Net income (loss)	$	(1,657	)	$	(5,187	)	$	4,861	$	(1,159	)
Other comprehensive income, net of taxes:
Foreign currency translation adjustments	12			41			63		119
Unrealized gain on investments	23			(26		)	139		19
Other comprehensive income	35			15			202		138
Total comprehensive income (loss)	$	(1,622	)	$	(5,172	)	$	5,063	$	(1,021	)

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Note 11. Stockholders’ Equity

Stock Award Activity

Symmetricom has equity benefit plans under which employees, directors and consultants may be granted non-qualified and incentive options to purchase shares of our common stock and restricted stock. One of these plans was amended in fiscal 2003, in connection with the tender offer during the fourth quarter of fiscal 2003, to effectively provide that restricted stock could be granted and repurchased for no cash purchase price. Stock appreciation rights may also be granted under this plan; however, none have been granted to date.  All options have been granted at the fair market value of our common stock on the date of grant and generally vest over three years.

Effective August 4, 2005, the Symmetricom Board of Directors approved a change in the terms for stock options granted on and after August 4, 2005 under the employee stock option plans to provide that the life of a new stock option will be 5 years instead of 10 years. On October 26, 2006 at our annual meeting of shareholders, the shareholders approved the 2006 Incentive Award Plan that included an additional 3.7 million shares for future issuance.  For the three months ended March 31, 2007, we granted non performance-based options to purchase 432,500 shares of Symmetricom’s common stock, and awarded 184,250 shares of restricted stock.  In addition we granted performance-based options to purchase 295,000 shares.  Our right to repurchase restricted shares generally lapses over the same three-year term as the vesting period applicable to the stock options. We received $1.9 million from the exercise of stock options during the nine months ended March 31, 2007.

			Non Performance-based Options Outstanding				Performance-based Options Outstanding			Restricted Stock Outstanding
	Shares Available For Grant		Number of Shares		Weighted Average Exercise Price		Number of Shares	Weighted Average Exercise Price		Number of Shares		Weighted Average Grant-Date Fair Value
	(In thousands, except per share amounts)
Balances at June 30, 2006	1,317		4,399		$	7.22	—	$	—	184		$	9.28
2006 Plan	3,700		—		—		—	—		—		—
Granted - options	(968	)	968		8.20		—	—		—		—
Granted - perfomance-based options	(295	)	—		—		295	8.53		—		—
Granted - restricted shares	(705	)	—		—		—	—		705		7.73
Exercised	—		(370	)	5.02		—	—		—		—
Vested	—		—		—		—	—		(40	)	9.41
Canceled	132		(132	)	9.11		—	—		(18	)	8.70
Expired	(3	)	—		—		—	—		—		—
Balances at March 31, 2007	3,178		4,865		$	7.53	295	$	8.53	831		$	7.98

The weighted average estimated fair value of options granted was $3.21 per share in the third quarter of fiscal 2007 and $3.89 per share in the corresponding quarter of fiscal 2006. Our calculations were made using the Black-Scholes option-pricing model. The fair value of Symmetricom’s stock-based awards to employees was estimated assuming no expected dividend and the following weighted-average assumptions for the three months and nine months ended March 31, 2007 and 2006, as follows:

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2007		2006		2007		2006
Expected life (in years)	2.9		3.1		3.2		3.1
Risk-free interest rate	4.7	%	4.7	%	4.7	%	4.4	%
Volatility	43.78	%	58.65	%	47.84	%	57.17	%

Volatility is based on a combination of both historical and implied, as we believe this is more reflective of market conditions, and a better indicator of expected volatility than historical only.

We recorded stock-based compensation expenses of $1.9 million and $1.3 million in the third quarter of fiscal 2007 and 2006, respectively, and $4.4 million and $3.7 million in the nine months ended March 31, 2007 and 2006, respectively, which includes the net cumulative impact of 5.0 % estimated future annual forfeitures in the determination of the expense in both periods, rather than recording forfeitures when they occur.

Stock Repurchase Program

On August 18, 2005, the Board of Directors authorized management to repurchase up to approximately 2.6 million shares of our common stock pursuant to a repurchase program established in fiscal 2002, adding 2.0 million shares to the program previously authorized. There were approximately 46.3 million shares of Symmetricom common stock outstanding as of March 31, 2007.

During the first nine months of fiscal 2007, we repurchased 501,448 shares of common stock pursuant to the repurchase program for an aggregate price of approximately $3.9 million.  A further 9,153 shares were repurchased to cover the cost of taxes on vested restricted stock. Upon termination of certain employees, 17,550 shares of restricted stock were forfeited pursuant to existing agreements.

15

As of March 31, 2007, the total number of shares available for repurchase under the repurchase program authorized by the Board of Directors was approximately 0.9 million.

Warrants

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

Note 12. Long-term Obligations

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

The amendment extends the termination date of the lease from April 15, 2009 to April 15, 2016. In addition, it provides that, commencing December 1, 2005, basic annual rent (as defined in the lease) will be reduced to $1.7 million, subject to 4% annual increases commencing on April 15, 2006.  The building element of the original lease, which was accounted for from the outset as a capital lease for a property with a cost of $9.0 million, continues to be amortized over the initial lease period ending in April 2009, in accordance with paragraph 14(b)(ii) of SFAS No. 13, Accounting for Leases.

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

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

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

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

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

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

·   Upon the occurrence of specified corporate transactions.

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

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

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

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

In connection with the acquisition of Datum in October 2002, we assumed Datum’s liability relating to the $2.7 million industrial development bond that was issued by the Massachusetts Development Finance Agency on June 1, 2001, to finance the expansion by Datum of its manufacturing facility in Beverly, Massachusetts. The bond matures on May 1, 2021. Interest on the bond is payable monthly at an adjustable rate of interest as determined by the remarketing agent for each rate period to be the lowest rate which in its judgment would permit the sale of the bonds at par. The bond is collateralized by the line of credit with Wells Fargo Bank.

Long-term obligations consist of:

	March 31,			June 30,
	2007			2006
	(In thousands)
Long-term obligations:
Deferred revenue	$	1,078		$	1,050
Capital lease	3,023			3,913
Lease loss accrual	99			145
Lease accrual	353			151
Conditional grant	136			—
Bond payable	2,405			2,405
Convertible subordinate notes	120,000			120,000
Post-retirement benefits, net	279			292
Less—current maturities	(1,496		)	(1,286		)
Total	$	125,877		$	126,670

Note 13. Contingencies

We formerly leased a tract of land in Texas for our operations.  Those operations involved the use of solvents and, at the end of the lease, we remediated an area where the solvents had been deposited on the ground and obtained regulatory approval for that remedial activity.  In 1996, an environmental investigation of the property detected those same contaminants in groundwater in excess of then current regulatory standards.  The groundwater contamination has migrated to some adjacent properties.  We have entered into the Texas Natural Resource Conservation Commission’s Voluntary Cleanup Program (the “Voluntary Cleanup Program”) to obtain regulatory approval for closure of this site and a release from liability to the State of Texas for subsequent landowners and lenders. We have notified adjacent property owners affected by the contamination of participation in the Voluntary Cleanup Program.  On May 20, 2004, we received a demand from the owner of several adjacent lots for damages in the amount of $1.3 million, as well as seeking an indemnity for the contamination and a promise to remediate the contamination. On March 14, 2006, the adjacent property owner filed suit in Probate Court No. 1, Travis County, Texas (Anna B. Miller, Individually and as Executrix of the Estate of Robert L. Miller, et al. vs. Austron, Inc., et al.), seeking damages.  Symmetricom has not yet been served in this matter.  We are continuing to work on the remediation of the formerly leased site as well as the adjacent properties and intend to defend this lawsuit vigorously.  As of March 31, 2007, we had an accrual of $0.5 million for remediation costs, appraisal fees and other ongoing monitoring costs.

Under the indemnification provisions of our standard sales contracts, we agree to defend the customer against third party claims asserting infringement of certain intellectual property rights, which may include patents, copyrights, trademarks or trade secrets, and to pay any judgments entered on such claims against the reseller/customer. The exposure to us under these indemnification provisions is generally limited to the total amount paid by the customer under the agreement. However, certain agreements include indemnification provisions that could potentially expose us to losses in excess of the amount received under the agreement. To date, there have been no claims under such indemnification provisions. As such, we believe the estimated fair value of these indemnification agreements is not material.

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

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Note 14. Business Segment Information

Symmetricom is organized into five reportable segments that are within three divisions:

Telecom Solutions Division

There are three reportable segments within the Telecom Solutions Division:

·Wireline Products consist principally of Building Integrated Timing Supply, or BITS, based on quartz, rubidium and Global Positioning System (GPS) technologies. Our Wireline Products provide highly accurate and uninterruptible timing to meet the synchronization requirements of telecommunication networks.

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

·Global Services offers a broad portfolio of services for our customers around the world.

Timing, Test and Measurement Division

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

Quality of Experience Assurance Division

The Quality of Experience (QoE) Assurance Division products are hardware and software-based probes (and/or embedded agents) that are distributed throughout an IP (Internet Protocol) network in order to monitor network and application performance.  The primary application for these system-level solutions are to ensure end users’ Quality of Experience, or “QoE”, for IPTV (Internet Protocol Television) and other IP-based video services, as well as to provide diagnostic capabilities based on various IP network performance and VoIP (Voice over Internet Protocol) quality metrics.

For each of our segments, we have separate financial information, including gross profit amounts, which are evaluated regularly by management in deciding how to allocate resources and in assessing performance. We do not allocate assets or specific operating expenses to these individual operating segments. Therefore, the segment information reported here includes only net revenue and gross profit. As a result of the reorganization realignment that was initiated in our fourth quarter of fiscal 2006, we are currently in the process of assessing the segments within the Telecom Solutions Division, which may impact future segment reporting.

18

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2007			2006			2007			2006
	(in thousands, except percentages)
Net revenue:
Telecom Solutions Division:
Wireline Products	$	24,215		$	19,029		$	66,313		$	57,736
Wireless/OEM Products	6,695			5,716			21,121			17,196
Global Services	3,299			3,444			11,673			9,276
Timing, Test and Measurement Division	17,364			13,343			51,487			45,150
Quality of Experience Assurance Division	370			—			370			—
Total net revenue	51,943			41,532			150,964			129,358
Cost of sales:
Telecom Solutions Division:
Wireline Products	9,701			8,539			28,039			25,122
Wireless/OEM Products	4,847			4,576			15,788			13,264
Global Services	2,427			1,376			8,391			4,562
Timing, Test and Measurement Division	9,183			7,538			27,618			23,096
Quality of Experience Assurance Division	80			—			80			—
Other cost of sales*	1,076			2,397			2,729			4,815
Total cost of sales	27,314			24,426			82,645			70,859
Gross profit:
Telecom Solutions Division:
Wireline Products	14,514			10,490			38,274			32,614
Wireless/OEM Products	1,848			1,140			5,333			3,932
Global Services	872			2,068			3,282			4,714
Timing, Test and Measurement Division	8,181			5,805			23,869			22,054
Quality of Experience Assurance Division	290			—			290			—
Other cost of sales*	(1,076		)	(2,397		)	(2,729		)	(4,815		)
Total gross profit	$	24,629		$	17,106		$	68,319		$	58,499
Gross margin:
Telecom Solutions Division:
Wireline Products	59.9		%	55.1		%	57.7		%	56.5		%
Wireless/OEM Products	27.6		%	19.9		%	25.2		%	22.9		%
Global Services	26.4		%	60.0		%	28.1		%	50.8		%
Timing, Test and Measurement Division	47.1		%	43.5		%	46.4		%	48.8		%
Quality of Experience Assurance Division	78.4		%	—		%	78.4		%	—		%
Other cost of sales*	(2.1		)%	(5.8		)%	(1.8		)%	(3.7		)%
Total gross margin	47.4		%	41.2		%	45.3		%	45.2		%

* Includes amortization and impairment of purchased technology and applicable integration and restructuring charges.

One customer in our Wireline Products segment accounted for in excess of 10.0% of our net revenue in both the first and second quarters of fiscal 2007, or $5.4 million and $8.8 million respectively.  In the third quarter of fiscal 2007, a different customer in our Wireline Products segment accounted for in excess of 10.0% of our net revenue, or $9.1 million. No customers accounted for 10.0% or more of our net revenue during the four quarters of fiscal 2006.

Note 15. Warranties

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

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

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Changes in our accrued warranty liability during the first nine months of fiscal 2007 and 2006 were as follows:

	Nine Months Ended
	March 31,
	2007			2006
	(In thousands)
Beginning balance	$	3,547		$	3,338
Provision for warranty	1,782			1,741
Provision for warranty - Timing Solutions Corp. acquisition	120			—
Provision for warranty - acquisition of Agilent product line	—			442
Less: Actual warranty costs	(1,851		)	(1,952		)
Ending balance	$	3,598		$	3,569

Note 16. Income Taxes

The income tax provision for the quarter ended March 31, 2007 was $4.5 million or 140% of pre-tax income of $3.2 million.  Excluding the $3.4 million tax provision related to the QoSmetrics liquidations discussed in Note 2 – Acquisitions, the tax provision was $1.1 million, or 34% of pre-tax income.

Note 17. Restatement

Subsequent to the issuance of the condensed consolidated financial statements for the period ended March 31, 2007, the Company’s management identified an error in the accounting for income taxes related to the liquidation of two entities acquired in the quarter ended March 31, 2007.  This error in the income tax provision resulted from the Company’s previous treatment of the third quarter liquidations of QoSmetrics, S.A. and QoSmetrics, Inc., which were acquired on January 2, 2007, as an adjustment to purchase accounting.  Management has subsequently determined that the liquidations are separate events from the purchase and a tax expense related to the liquidations should have been recorded for the quarter and nine months ended March 31, 2007. As a result, the Company has restated the accompanying Condensed Consolidated Financial Statements as of and for the three and nine months ended March 31, 2007 to correct for this accounting error.

The following table presents the effect of the restatement on the Condensed Consolidated Balance Sheet (in thousands):

	March 31, 2007
	(As Previously Reported)		(Adjustments)			(As Restated)
ASSETS
Current assets	$	261,254	$	—		$	261,254
Property, plant and equipment, net	26,664		—			26,664
Goodwill	58,123		(3,110		)	55,013
Other intangible assets, net	16,814		—			16,814
Deferred taxes and other assets	43,225		—			43,225
Note receivable from employee	500		—			500
Total assets	$	406,580	$	(3,110	)	$	403,470
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,806	$	—		$	12,806
Accrued compensation	13,360		—			13,360
Accrued warranty	3,598		—			3,598
Other accrued liabilities	13,655		302			13,957
Current maturities of long–term obligations	1,496					1,496
Total current liabilities	44,915		302			45,217
Long-term obligations	125,877		—			125,877
Deferred income taxes	334		—			334
Total liabilities	171,126		302			171,428
Stockholders’ equity:
Preferred stock, $0.0001 par value; 500 shares authorized, none issued	—		—			—
Common stock, $0.0001 par value; 70,000 shares authorized, 48,755shares issued and46,326 shares outstanding at March 31, 2007; 47,662 shares issued and 45,743 outstanding at June 30, 2006	184,115		—			184,115
Accumulated other comprehensive income	464		—			464
Retained earnings	50,875		(3,412		)	47,463
Total stockholders’ equity	235,454		(3,412		)	232,042
Total liabilities and stockholders’ equity	$	406,580	$	(3,110	)	$	403,470

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The following table presents the effect of the restatement on the Condensed Consolidated Statements of Operations (in thousands, except per share amounts):

	Three Months Ended									Nine Months Ended
	March 31, 2007									March 31, 2007
	(As Previously Reported)			(Adjustments)			(As Restated)			(As Previously Reported)		(Adjustments)			(As Restated)
Income before income taxes	$	3,234		$	—		$	3,234		$	11,518	$	—		$	11,518
Income tax provision	1,130			3,412			4,542			3,630		3,412			7,042
Income (loss) from continuing operations	2,104			(3,412		)	(1,308		)	7,888		(3,412		)	4,476
Gain (loss) from discontinued operations, net of tax	(349		)	—			(349		)	385		—			385
Net income (loss)	$	1,755		$	(3,412	)	$	(1,657	)	$	8,273	$	(3,412	)	$	4,861
Earnings (loss) per share—basic:
Income (loss) from continuing operations	$	0.05		$	(0.08	)	$	(0.03	)	$	0.17	$	(0.07	)	$	0.10
Gain (loss) from discontinued operations	(0.01		)	—			(0.01		)	0.01		—			0.01
Net income (loss)	$	0.04		$	(0.08	)	$	(0.04	)	$	0.18	$	(0.07	)	$	0.11
Weighted average shares outstanding—basic	45,596			—			45,596			45,563		—			45,563
Earnings (loss) per share—diluted:
Income (loss) from continuing operations	$	0.05		$	(0.08	)	$	(0.03	)	$	0.17	$	(0.08	)	$	0.09
Gain (loss) from discontinued operations	(0.01		)	—			(0.01		)	0.01		—			0.01
Net income (loss)	$	0.04		$	(0.08	)	$	(0.04	)	$	0.18	$	(0.08	)	$	0.10
Weighted average shares outstanding—diluted	46,594			(998		)	45,596			46,465		—			46,465

The following table presents the effect of the restatement on the Condensed Consolidated Statement of Cash Flows (in thousands):

	Nine Months Ended
	March 31, 2007
	(As Previously Reported)			(Adjustments)			(As Restated)
Cash flows from operating activities:
Net income	$	8,273		$	(3,412	)	$	4,861
Adjustments to reconcile net income to net cash provided by operating activities:
Expensed in-process research and development	188			—			188
Depreciation and amortization	7,035			—			7,035
Deferred income taxes	2,818			—			2,818
Income tax expense related to QoSmetrics liquidations	—			3,110			3,110
Loss on disposal of fixed assets	7			—			7
Stock-based compensation	4,406			—			4,406
Changes in assets and liabilities, net of effects of acquisitions:							—
Accounts receivable	(551		)	—			(551		)
Inventories	(4,510		)	—			(4,510		)
Prepaids and other assets	(1,235		)	—			(1,235		)
Accounts payable	(768		)	—			(768		)
Accrued compensation	2,424			—			2,424
Other accrued liabilities	924			302			1,226
Net cash provided by operating activities.	$	19,011		$	—		$	19,011

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

The following discussion and analysis of our financial condition and results of operations should be read together with the condensed consolidated financial statements and related notes included elsewhere in this report and give effect to the restatement discussed in Note 17 to the condensed consolidated financial statements.

When used in this discussion, the words “expects,” “anticipates,” “estimates,” “believes,” “plans,” “will,” “intend,” “can” and similar expressions are intended to identify forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

These risks and uncertainties include, but are not limited to risks relating to general economic conditions in the markets we address and the telecommunications market in general, risks related to the development of our new products and services, the effects of competition and competitive pricing pressure, uncertainties associated with changing intellectual property laws, developments in and expenses related to litigation, increased competition in our markets, inability to obtain sufficient amounts of key components, the rescheduling or cancellations of key customer orders, the loss of a key customer, the effects of new and emerging technologies, the risk that excess inventory may result in write-offs, price erosion and decreased demand, fluctuations in the rate of exchange of foreign currency, changes in our effective tax rate, market acceptance of our new products and services, technological advancements, undetected errors or defects in our products, the risks associated with our international sales, geopolitical risks and risk of terrorist activities, the risks associated with attempting to integrate other companies and businesses we acquire, and the risks set forth below  in Part II, item 1A,  “Risk Factors.”

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

All references to “Symmetricom,” “we,” “us,” and “our” mean Symmetricom, Inc. and its subsidiaries, except where it is made clear that the term means only the parent company.

Overview

Symmetricom is a leading supplier of synchronization and timing products to industry, government, research centers and aerospace markets. We supply solutions for customers who demand reliable products and engineering expertise in a variety of applications, including network synchronization, timing, testing, verification and/or the measurement of time and frequency-based signals. We design and/or manufacture rubidium clocks, crystal oscillators, cesium clocks and hydrogen maser clocks. Our products include synchronization network elements, timing elements and business broadband access devices for wireline and wireless networks as well as the provision of professional services. Our products play an essential role in network operations, bandwidth optimization and quality of service of wireline, wireless and broadband communications networks, enabling our customers to increase performance and efficiency in their communications infrastructures.

Symmetricom’s customers include worldwide public network providers, incumbent local exchange carriers (ILECs), public telephone and telegraph companies (PTTs), competitive local exchange carriers (CLECs), other telephone companies, wireless service providers, cable television operators, distributors and systems integrators and communications original equipment manufacturers (OEMs). With the fiscal 2003 acquisitions of TrueTime and Datum, we broadened our customer base to include aerospace contractors, governments and research facilities.

On January 2, 2007, we completed the acquisition of QoSmetrics S.A., a privately held provider of quality of experience (QoE) solutions for IPTV (Internet Protocol Television) and other triple play services.  The purchase price of approximately $16.8 million was paid in cash.  The purchase price was allocated to the assets acquired and the liabilities assumed based on management’s estimate of the fair value for purchase accounting purposes at the date of acquisition.

On October 2, 2006, we completed the acquisition of Timing Solutions Corporation, a privately held company based in Boulder, Colorado that provides high-performance time and frequency products and services for government, aerospace and military markets. This acquisition further strengthens and broadens our leadership position in the time and frequency field, as well as brings new technology to address the Test & Measurement market. The total purchase price of approximately $8.6 million was paid in cash. The purchase price was allocated to the assets acquired and the liabilities assumed based on our estimate of the fair value for purchase accounting purposes at the date of acquisition.

On August 1, 2005, we acquired Agilent Technologies’ Frequency and Timing Standards product line, including the 5071A cesium primary frequency standard. This acquisition enhanced Symmetricom’s position in the area of cesium standards and Symmetricom’s leadership in generating high-precision frequency and timing references including rubidium,

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cesium and hydrogen masers. Pursuant to the acquisition of Agilent Technologies’ Frequency and Timing Standards product line, we acquired certain assets of Agilent Technologies for a cost of approximately $8.0 million, which was accounted for as a purchase.

Critical Accounting Policies, Significant Judgments and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure at the date of our financial statements. On an ongoing basis, management evaluates its estimates and judgments, including those related to allowances for doubtful accounts receivable, inventories, valuation of goodwill and intangible assets, excess and obsolete inventory, future warranty costs, stock options, valuation of deferred tax assets, and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be 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 under different assumptions or conditions. We consider certain accounting policies related to revenue recognition and allowance for doubtful accounts, reserve for warranty, inventory valuation, accounting for income taxes, valuation of investments and valuation of intangible assets and goodwill to be critical policies due to the estimates and judgments involved in each.

Business Combinations

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

Critical estimates in valuing certain intangible assets include but are not limited to: future expected cash flows from customer contracts, customer lists, distribution agreements, acquired developed technologies and patents; expected costs to develop the in-process research and development into commercially viable products and estimating cash flows from the projects when completed; and the brand awareness and the market position of the acquired products and assumptions about the period of time the brand will continue to be used in the combined company’s product portfolio. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.

Revenue Recognition

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

We assess collectibility based on the credit worthiness of the customer and past transaction history. We perform periodic credit evaluations of our customers and do not require collateral from our customers. However, for some of our international customers, we require an irrevocable letter of credit to be issued by the customer before the purchase order is accepted. If we determine that collection of the invoice is not reasonably assured, we recognize the revenue at the time that collection becomes reasonably assured, which is generally upon the receipt of cash. We commonly have transactions that involve sales of both product and services to our customers. Product revenue is generated from the sale of synchronization and timing equipment with embedded software that is essential to product functionality. We account for these transactions in accordance with the rules applicable to software revenue recognition. Service revenue is recognized as the services are performed, provided collection of the related receivable is reasonably assured. Our sales to distributors are made under agreements allowing for returns or credits under certain circumstances. Accordingly, we defer an amount of revenue equal to our estimate of returns from distributors based on a historical average of distributor returns. We record commission expense when orders are shipped, at which time the commission is both earned and payable.

Revenue from contracts that require development and manufacture in accordance with customer specifications and have a lengthy development period may be categorized into two types: firm fixed price and cost-plus reimbursement. Revenue is recognized under the fixed price contracts using the percentage of completion method (cost-to-cost basis), principally based upon the costs incurred relative to the total estimated costs at completion on the individual contracts. Any anticipated losses on contracts are charged to operations as soon as they are determinable. Revenue recognized under cost-plus contracts is recognized on the basis of direct and indirect costs incurred plus a negotiated profit calculated as a percentage of costs or as a performance based award fee. Revenue from long-term contracts is reviewed periodically, with adjustments recorded in the period in which the revisions are made.

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Warranty

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

We accrue for anticipated warranty costs upon shipment. Our warranty reserve is based on the number of installed units, historical analysis of the volume of product returned to us under the warranty program, management’s judgment regarding anticipated rates of warranty claims and associated repair costs. We use the historical data to forecast our anticipated future warranty obligations. This analysis is updated on a quarterly basis.

Allowance for Doubtful Accounts

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

Inventory Valuation

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

Accounting for Income Taxes

We provide for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in the financial statements in the period that includes the enactment date.

We currently operate a subsidiary in Puerto Rico under a grant providing partial exemption from Puerto Rico taxes through fiscal 2021. Consistent with a resolution adopted by the Symmetricom, Inc. board of directors and effective July 2006, this subsidiary elected to indefinitely reinvest its future earnings outside the United States. Under the applicable accounting rules, earnings of this subsidiary, as of July 2006, are not subject to U.S. taxes, because its earnings will not be repatriated back to Symmetricom, Inc. Through the end of fiscal 2006, this Puerto Rico subsidiary was taxed under Section 936 of the U.S. Internal Revenue Code, which exempted qualified Puerto Rico source earnings, subject to various limitations, from regular federal income tax. Section 936 expired as of the end of fiscal 2006. Taxes were provided on this subsidiary’s earnings through June 2006, because we intend to remit all of these earnings to Symmetricom, Inc.

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

Valuation of Goodwill

We perform goodwill impairment tests in accordance with Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets, on an annual basis, and between annual tests in certain circumstances for each reporting unit. During the third quarter of fiscal 2006, we performed a goodwill impairment test on the Wireless/OEM business segment because the product pricing pressures and gross margin pressures continued to decline in the third quarter

24

of fiscal 2006 and we did not anticipate any improvement. As a result, we recorded a non-cash impairment charge of $7.0 million. Potential goodwill impairment is measured based upon a two-step process. In the first step, we compare the fair value of a reporting unit with its carrying amount using discounted cash flow valuation method, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, thus the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any.

Valuation of Long-Lived Assets Including Intangible Assets Subject to Amortization

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Intangible assets primarily include purchased technology and trademarks. We review our intangible assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Factors we consider important that could trigger an impairment review include significant under-performance relative to historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, or significant negative industry or economic trends. If these criteria indicate that the value of the intangible asset may be impaired, an evaluation of the recoverability of the net carrying value of the asset over its remaining useful life is made. If this evaluation indicates that the intangible asset is not recoverable, the net carrying value of the related intangible asset will be reduced to fair value. Any such impairment charge could be significant and could have a material adverse effect on our financial statements if and when an impairment charge is recorded. If an impairment charge were recognized, the amortization related to intangible assets would decrease during the remainder of the life of the asset. In the third quarter of the fiscal 2006, we recorded a non-cash impairment charge of $1.2 million for the write-down of the other intangibles entirely related to our wireless business segment purchase in connection with the Datum acquisition in October 2002.

25

Results of Operations

The following table presents selected items in our condensed consolidated statements of operations as a percentage of total revenues for the three months and nine months ended March 31, 2007 and 2006:

	Three Months				Nine Months
	Ended				Ended
	March 31,				March 31,
	2007		2006		2007		2006
Net revenue
Telecom Solutions Division:
Wireline Products	46.6	%	45.8	%	44.0	%	44.6	%
Wireless/OEM Products	12.9	%	13.8	%	14.0	%	13.3	%
Global Services	6.4	%	8.3	%	7.7	%	7.2	%
Timing, Test and Measurement Division	33.4	%	32.1	%	34.1	%	34.9	%
Quality of Experience Assurance Division	0.7	%	—	%	0.2	%	—	%
Total net revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of products and services	50.5	%	53.0	%	52.9	%	51.1	%
Amortization of purchased technology	1.9	%	1.9	%	1.7	%	2.2	%
Integration and restructuring charges	0.2	%	1.0	%	0.1	%	0.6	%
Impairment of purchased technology	—	%	2.9	%	—	%	0.9	%
Gross profit	47.4	%	41.2	%	45.3	%	45.2	%
Operating expenses:
Research and development	12.4	%	11.8	%	10.7	%	10.6	%
Selling, general and administrative	30.4	%	33.0	%	28.5	%	32.5	%
Acquired in-process research and development	(0.6	)%	—	%	0.1	%	—	%
Amortization of intangibles	0.5	%	0.3	%	0.4	%	0.3	%
Integration and restructuring charges	0.4	%	—	%	0.1	%	—	%
Impairment of goodwill	—	%	16.8	%	—	%	5.4	%
Income (loss) from operations	4.3	%	(20.7	)%	5.4	%	(3.6	)%
Interest income	4.3	%	4.8	%	4.6	%	4.1	%
Interest expense	(2.3	)%	(3.0	)%	(2.4	)%	(2.9	)%
Income (loss) before income taxes	6.2	%	(18.9	)%	7.6	%	(2.4	)%
Income tax provision	8.7	%	(5.2	)%	4.7	%	(0.8	)%
Income (loss) from continuing operations	(2.5	)%	(13.7	)%	3.0	%	(1.6	)%
Gain (loss) from discontinued operations, net of tax	(0.7	)%	1.2	%	0.3	%	0.7	%
Net income (loss)	(3.2	)%	(12.5	)%	3.2	%	(0.9	)%

Net Revenue:

	Three Months Ended March 31,						Percentage Change		Nine Months Ended March 31,						Percentage Change
	2007			2006					2007			2006
Net revenue (in thousands):
Wireline Products	$	24,215		$	19,029		27.3	%	$	66,313		$	57,736		14.9	%
Wireless/OEM Products	6,695			5,716			17.1		21,121			17,196			22.8
Global Services	3,299			3,444			(4.2	)	11,673			9,276			25.8
Timing, Test and Measurement Division	17,364			13,343			30.1		51,487			45,150			14.0
Quality of Experience Assurance Division	370			—			100.0		370			—			100.0
Total Net Revenue	$	51,943		$	41,532		25.1	%	$	150,964		$	129,358		16.7	%
Percentage of Revenue	100.0		%	100.0		%			100.0		%	100.0		%

Net revenue consists of sales of products, software licenses and services. In the third quarter of fiscal 2007, net revenue increased by $10.4 million to $51.9 million from $41.5 million in the corresponding quarter of fiscal 2006.  This increase was primarily attributable to a $5.2 million or 27.3% increase in revenue from Wireline Products due primarily to a large project from one of our major customers to upgrade its network. In addition, the Timing, Test and Measurement Division revenue increased $4.0 million or 30.1%, which included a $2.3 million increase due to the Timing Solutions Corporation products acquired on October 2, 2006 and revenue from the Wireless/OEM Products increased $1.0 million or 17.1%.  Revenue for the Quality of Experience Assurance Division, which was acquired on January 2, 2007, for the third quarter of fiscal 2007 was $0.4 million. Revenue for the Global Services segment decreased $0.1 million or 4.2% compared to the same period of fiscal 2006 because the prior year revenue included revenue for a large repair program for a major customer.

 In the first nine months of fiscal 2007, net revenue increased $21.6 million or 16.7% to $151.0 million from $129.4 million in the corresponding period of fiscal 2006.  The increase was primarily attributable to a $8.6 million or 14.9% increase in Wireline Products revenue and a $2.4 million or 25.8% increase in Global Services revenue, both due to higher sales of products and installation services to major customers for network upgrades. Wireless/OEM Products increased $3.9 million or 22.8% due to higher volume to two OEM customers, including a first deployment in China.  Timing, Test and Measurement Division revenue increased $6.3 million or 14.0% due primarily to the acquisition of Timing Solutions Corporation on October 2, 2006.

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Cost of Products and Services:

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	March 31,								March 31,
	2007			2006					2007			2006
Cost of products and services(in thousands):
Wireline Products	$	9,701		$	8,539		13.6	%	$	28,039		$	25,122		11.6	%
Wireless/OEM Products	4,847			4,576			5.9		15,788			13,264			19.0
Global Services	2,427			1,376			76.4		8,391			4,562			83.9
Timing, Test and Measurement Division	9,183			7,538			21.8		27,618			23,096			19.6
Quality of Experience Assurance Division	80			—			100.0		80			—			100.0
Other cost of sales	1,076			2,397			(55.1	)	2,729			4,815			(43.3	)
Total Cost	$	27,314		$	24,426		11.8	%	$	82,645		$	70,859		16.6	%
Percentage of Revenue	52.6		%	58.8		%			54.7		%	54.8		%

The cost of products and services, including other cost of sales, increased by $2.9 million or 11.8% for the third quarter of fiscal 2007 compared with the same quarter of fiscal 2006. The cost of products and services for Wireline Products increased by $1.2 million or 13.6%, which was lower than the revenue increase of 27.3% due primarily to favorable sales mix related to increased sales of higher margin products for major network upgrades. The cost of products and services for Wireless/OEM Products increased by $0.3 million or 5.9%, which is also lower than the revenue increase of 17.1% due to selling price increases and favorable sales mix as a result of increased sales of higher margin products. The cost of products and services for Global Services increased $1.1 million or 76.4%, which is higher than the revenue decrease of 4.2% due to a higher volume in lower margin services related to installation of customer network upgrades and also because the prior year included sales of higher margin repair services to a major customer. The cost of products and services for Timing, Test and Measurement Division products increased by $1.6 million or 21.8%, which is lower than the revenue increase of 30.1%, due primarily to a volume increase in sales of higher margin products.

Other cost of sales decreased $1.3 million or 55.1% due primarily to the $1.2 million impairment of purchased technology write off for the Wireless/OEM Products segment in the third quarter of fiscal 2006.

The cost of products and services, including other cost of sales, increased by $11.8 million or 16.6% during the first nine months of fiscal 2007 compared with the first nine months of fiscal 2006. The cost of products and services for Wireline Products increased by $2.9 million or 11.6%, which was lower than the revenue increase of 14.9% due primarily to favorable sales mix related to increased sales of higher margin products for major network upgrades.  The cost of products and services for Wireless/OEM Products increased by $2.5 million or 19.0%, which was lower than the revenue increase of 22.8%, due primarily to selling price increases and favorable mix as of result of increased sales of higher margin products. The cost of products and services for Global Services increased by $3.8 million or 83.9%, which was higher than the revenue increase of 25.8%, due primarily to higher sales of lower margin services for installation of customer network upgrades and because the same period in the prior year included repair revenue for a major project at a higher margin. The cost of products and services for the Timing, Test and Measurement Division increased by $4.5 million or 19.6%, which was higher than the revenue increase of 14.0% due primarily to volume increase due to the Timing Solutions Corporation products which are lower gross margin compared to the other Timing, Test and Measurement Division products. The cost of products and services for the Quality of Experience Assurance Division, which was acquired on January 2, 2007, was $0.1 million for the third quarter of fiscal 2007.

Other cost of sales for the first nine months of fiscal 2007 decreased $2.1 million or 43.3% due primarily to the elimination of amortization of product technology for the Wireless/OEM Products segment which was written off as an impairment charge in the third quarter of fiscal 2006 and also because the prior year period included a $1.2 million impairment charge for the write off of this purchased technology.  In addition, the first nine months of fiscal 2007 included $0.2 million for integration and restructuring charges for the Timing Solutions Corporation acquisition which was lower than the $0.8 million incurred in the same period of the prior year for the Agilent Technologies’ Frequency and Timing Standards product line acquisition, which was completed in fiscal 2006.

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Gross Profit:

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	March 31,								March 31,
	2007			2006					2007			2006
Gross profit(in thousands):
Wireline Products	$	14,514		$	10,490		38.4	%	$	38,274		$	32,614		17.4	%
Wireless/OEM Products	1,848			1,140			62.1		5,333			3,932			35.6
Global Services	872			2,068			(57.8	)	3,282			4,714			(30.4	)
Timing, Test and Measurement Division	8,181			5,805			40.9		23,869			22,054			8.2
Quality of Experience Assurance Division	290			—			100.0		290			—			100.0
Other cost of sales	(1,076		)	(2,397		)	(55.1	)	(2,729		)	(4,815		)	(43.3	)
Total Gross profit	$	24,629		$	17,106		44.0	%	$	68,319		$	58,499		16.8	%
Percentage of Revenue	47.4		%	41.2		%			45.3		%	45.2		%

Gross profit in the third quarter of fiscal 2007 increased by $7.5 million or 44.0% compared to the corresponding quarter of fiscal 2006.  Gross profit for Wireline Products increased by $4.0 million or 38.4%, which was higher than the 27.3% revenue increase for the same period due primarily to favorable sales mix related to increased sales of higher margin products for major network upgrades. Gross profit for the Wireless/OEM Products increased by $0.7 million or 62.1%, which was higher than the revenue increase of 17.1% for the same period due primarily to selling price increases and favorable mix as of result of increased sales of higher margin products. Gross profit for Global Services decreased $1.2 million or 57.8%, which was lower than the 4.2% revenue decrease for the same period due to increased sales of lower margin installation services and because the same period in the prior year included repair revenue for a major project at a higher margin.  Gross profit for the Timing, Test and Measurement Division increased by $2.4 million or 40.9%, which was higher than the revenue increase of 30.1% for the same period due primarily to a volume increase in sales of higher margin products. Gross profit for the Quality of Experience Assurance Division, which was acquired on January 2, 2007, was $0.3 million.

Other cost of sales decreased $1.3 million or 55.1% due primarily to the $1.2 million impairment of purchased technology write off for the Wireless/OEM Products segment in the third quarter of fiscal 2006.

Gross profit in the first nine months of fiscal 2007 increased by $9.8 million or 16.8%, which was fairly consistent with the revenue increase of 16.7% for the first nine months of fiscal 2006.  Gross profit for the Wireline Products increased by $5.7 million or 17.4%, which was slightly higher than the 14.9% revenue increase for the same period. Gross profit for the Wireless/OEM products increased by $1.4 million or 35.6%, which was higher than the revenue increase of 22.8%. Gross profit for Global Services decreased by $ 1.4 million or 30.4%, which was lower than the 25.8% revenue increase for the same period due to increased sales of lower margin services for installation of customer network upgrades and because the same period in the prior year included repair revenue for a major project at a higher margin.  Gross profit for the Timing, Test and Measurement Division increased by $1.8 million or 8.2%, which was lower than the revenue increase of 14.0% for the same period due primarily to the addition of the higher cost products acquired from Timing Solutions Corporation.

Other cost of sales for the first nine months of fiscal 2007 decreased $2.1 million or 43.3% due primarily to the elimination of amortization of product technology for the Wireless/OEM Products segment which was written off as an impairment charge in the third quarter of fiscal 2006 and because the prior year period included a $1.2 million impairment charge for the write off of this purchased technology.  In addition, the first nine months of fiscal 2007 included $0.2 million for integration and restructuring charges for the Timing Solutions Corporation acquisition which was lower than the $0.8 million incurred in the same period of the prior year for the Agilent Technologies’ Frequency and Timing Standards product line acquisition, which was completed in fiscal 2006.

Operating Expenses

Research and Development Expense:

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	March 31,								March 31,
	2007			2006					2007			2006
Research and development expense (in thousands)	$	6,453		$	4,886		32.1	%	$	16,168		$	13,739		17.7	%
Percentage of Revenue	12.4		%	11.8		%			10.7		%	10.6		%

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Research and development expenses were $6.5 million for the third quarter of fiscal 2007 compared to $4.9 million for the corresponding period of fiscal 2006. The overall increase in the research and development expense was primarily attributable to the additional expenses related to the acquisition of Timing Solutions Corporation on October 2, 2006 and the Quality of Experience Assurance Division on January 2, 2007.

Research and development expenses consist primarily of salaries and benefits, prototype expenses and fees paid to outside consultants. Research and development expenses were $16.2 million during the first nine months of fiscal 2007 compared to $13.7 million for the first nine months of fiscal 2006. The overall increase in the research and development expense was primarily attributable to the additional expenses related to the acquisition of Timing Solutions Corporation on October 2, 2006 and the Quality of Experience Assurance Division on January 2, 2007. We expect to continue to support research and development efforts in order to enhance existing products and to design and develop new technologies and products.

Selling, General and Administrative:

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	March 31,								March 31,
	2007			2006					2007			2006
Selling, general and administrative (in thousands)	$	15,808		$	13,721		15.2	%	$	43,050		$	42,024		2.4	%
Percentage of Revenue	30.4		%	33.0		%			28.5		%	32.5		%

Selling, general and administrative expense, including the amortization of intangibles, consists primarily of salaries, benefits, sales commissions and travel-related expenses for our sales and services, finance, human resources, information technology and facilities departments and part of the amortization expenses of our intangible assets. These expenses increased by 15.2% to $15.8 million for the third quarter of fiscal 2007 compared to $13.7 million for the corresponding quarter of fiscal 2006. This $2.1 million increase in selling, general and administrative expenses was primarily attributable to the increased expenses for the Quality of Experience Assurance Division acquired on January 2, 2007, a $0.3 million write off related to a sublease contract for our Santa Rosa facility, higher stock compensation expenses and higher commission expense for revenue increases. We expect selling, general and administrative expenses to increase accordingly when we fill these open positions.

These expenses increased by 2.4% to $43.1 million for the first nine months of fiscal 2007 compared to $42.0 million for the corresponding nine months of fiscal 2006. This $1.0 million increase in selling, general and administrative expenses was attributable primarily to the increased expenses for the Quality of Experience Assurance Division acquired on January 2, 2007 and higher stock compensation expenses.  Other expense increases for salary increases were substantially offset by lower salary expense due to the headcount reductions in the fourth quarter of fiscal year 2006 for organizational realignment which open positions were not filled for the majority of fiscal 2007.

Acquired In-process Research and Development:

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	March 31,								March 31,
	2007			2006					2007			2006
Acquired in-process research and development (in thousands)	$	(330	)	$	—		100.0	%	$	188		$	—		100.0	%
Percentage of Revenue	(0.6		)%	—		%			0.1		%	—		%

Acquired in-process research and development expenses were reduced by $0.3 million during the third quarter of fiscal 2007 for an adjustment to the expense related to the Timing Solutions acquisition (See Note 2 in the Notes to the condensed consolidated financial statements), which is a year to date expense of $0.2 million.

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Integration and restructuring charges:

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	March 31,								March 31,
	2007			2006					2007			2006
Integration and restructuring charges (in thousands)	$	196		$	—		100.0	%	$	196		$	—		100.0	%
Percentage of Revenue	0.4		%	—		%			0.1		%	—		%

Administrative related integration and restructuring charges of $0.2 million were incurred in the third quarter of fiscal 2007, all related to the QoSmetrics acquisition.

Impairment of goodwill:

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	March 31,								March 31,
	2007			2006					2007			2006
Impairment of goodwill (in thousands)	$	—		$	6,963		(100.0	)%	$	—		$	6,963		(100.0	)%
Percentage of Revenue	—		%	16.8		%			—		%	5.4		%

In the third quarter of the fiscal year 2006, we recorded a non-cash impairment charge of $7.0 million for the write-down of goodwill principally related to our Wireless Products segment purchase in connection with the Datum acquisition in October 2002. For the first nine months of fiscal 2007 there were no charges associated with goodwill.

Interest Income:

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	March 31,								March 31,
	2007			2006					2007			2006
Interest income (in thousands)	$	2,212		$	1,983		11.5	%	$	6,976		$	5,294		31.8	%
Percentage of Revenue	4.3		%	4.8		%			4.6		%	4.1		%

Interest income increased to $2.2 million during the second quarter of fiscal 2007 compared to $2.0 million during the corresponding quarter of fiscal 2006. This increase was due to higher average interest rates and an increase in short-term investments.

Interest income for the first nine months of fiscal 2007 was $7.0 million or 31.8% higher than $5.3 million for the same period of fiscal 2006. This increase was due to higher average interest rates and an increase in short-term investments.

Interest Expense:

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	March 31,								March 31,
	2007			2006					2007			2006
Interest expense (in thousands)	$	(1,208	)	$	(1,252	)	(3.5	)%	$	(3,641	)	$	(3,744	)	(2.8	)%
Percentage of Revenue	(2.3		)%	(3.0		)%			(2.4		)%	(2.9		)%

Interest expense consists primarily of interest on our convertible notes, bond payable and the capital lease for our headquarters building in San Jose, California. Interest expense was $1.2 million in the third quarter of fiscal 2007, slightly below the corresponding quarter of fiscal 2006.

Interest expense for the first nine months of fiscal 2007 was $3.6 million, slightly below the same period for fiscal 2006.

Income Taxes:

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	March 31,								March 31,
	2007			2006					2007			2006
Income taxes (in thousands)	$	4,542		$	(2,154	)	310.9	%	$	7,042		$	(1,007	)	799.3	%
Percentage of Revenue	8.7		%	(5.2		)%			4.7		%	(0.8		)%

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Our income tax provision was $4.5 million in the third quarter of fiscal 2007, compared to an income tax benefit of $2.2 million in the corresponding quarter of fiscal 2006.  This was mainly due to tax expenses of $3.4 million related to the liquidations of QoSmetrics, S.A. and QoSmetrics, Inc.  Our effective tax rate in the third quarter of fiscal 2007 was 140.4%, compared to an effective tax rate of 27.4% in the corresponding period of fiscal 2006.

For the first nine months of fiscal 2007, our income tax provision was $7.0 million, compared to an income tax benefit of $1.0 million in the corresponding period of fiscal 2006. Our effective tax rate for the first nine months of fiscal 2007 was 61.1% compared to an effective tax rate of 32.7% in the corresponding period of fiscal 2006.

Gain (loss) from discontinued operations, net of tax:

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	March 31,								March 31,
	2007			2006					2007			2006
Gain (loss) from disontinued operations, net of tax (in thousands)	$	(349	)	$	509		(168.6	)%	$	385		$	915		(57.9	)%
Percentage of Revenue	(0.7		)%	1.2		%			0.3		%	0.7		%

In the third quarter of fiscal 2007, we completed the closure of the contract manufacturing work conducted at our Puerto Rico facility, which was announced in April 2006. Symmetricom’s Telecom Solution Division revenues contain a Specialty Manufacturing/Other segment that is related to this contract manufacturing work. We anticipate exiting this non-core business during fiscal 2007 and reallocating the majority of the related manufacturing resources to other activities

Net Income:

	Three Months Ended						Percentage Change		Nine Months Ended						Percentage Change
	March 31,								March 31,
	2007			2006					2007			2006
Net income (loss) (in thousands)	$	(1,657	)	$	(5,187	)	68.1	%	$	4,861		$	(1,159	)	519.4	%
Percentage of Revenue	(3.2		)%	(12.5		)%			3.2		%	(0.9		)%

As a result of the factors discussed above, we had a net loss of $1.7 million, or $0.04 per share, in the third quarter of fiscal 2007 compared to net loss of $5.2 million, or $0.11 per share, during the corresponding quarter of fiscal 2006.

Net income for the first nine months of fiscal 2007 was $4.9 million, or $0.10 per share compared to net loss of $1.2 million, or $0.03 per share for the same period of fiscal 2006.

Key Operating Metrics

Key operating metrics for measuring our performance include sales backlog, contract revenue, headcount and deferred revenue. A comparison of these metrics for the third quarter of fiscal 2007 with the end of fiscal 2006 is listed below:

Sales Backlog:

Our backlog consists of firm orders that have yet to be shipped to the customer, or may not be shippable to a customer until a future period. Most orders included in backlog can be rescheduled or cancelled by customers without significant penalty. Historically, a substantial portion of net revenue in any fiscal period has been derived from orders received during that fiscal period.

Our backlog amounted to $57.3 million as of March 31, 2007, compared to $51.7 million as of June 30, 2006. Our backlog, which is shippable within the next six months, was $45.3 million as of March 31, 2007, compared to $37.9 million as of June 30, 2006.

Contract Revenue:

As of March 31, 2007, we had approximately $8.3 million in contract revenue to be performed and recognized within the next 36 months, compared to approximately $4.4 million in contract revenue that was to be performed and recognized within the following 36 months as of June 30, 2006. These amounts have been accounted for as part of our sales backlog discussed above.

Headcount:

Our consolidated headcount as of March 31, 2007 comprised 855 regular employees and 76 temporary employees, compared to 802 regular employees and 63 temporary employees as of June 30, 2006.

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Deferred Revenue:

Deferred revenue comprises deferred revenue on sales of goods with special terms, which are recognized when the special terms are satisfied; maintenance contracts, which are recognized ratably over the maintenance period; and distributor return allowances, which are based on historical return averages with certain distributors.

Deferred revenue for sales of goods with special terms was $0.2 million as of March 31, 2007, compared to $0.4 million as of June 30, 2006. Deferred revenue for maintenance contracts was $2.2 million as of March 31, 2007, compared to $2.2 million as of June 30, 2006. Deferred revenue for distributor return allowances was $0.2 million as of March 31, 2007, compared to $0.3 million as of June 30, 2006.  Deferred royalty revenue of $0.1 million was booked in the third quarter of fiscal 2007 and related to the QoSmetrics acquisition.

Liquidity and Capital Resources

As of March 31, 2007, working capital was $216.3 million compared to $222.3 million as of June 30, 2006. Cash and cash equivalents as of March 31, 2007 decreased to $52.7 million from $82.2 million as of June 30, 2006. This decrease was primarily the result of cash used in the acquisitions of Timing Solutions Corporation and QoSmetrics, and purchases of short-term investments. Short-term investments increased from $106.7 million as of June 30, 2006 to $124.7 million as of March 31, 2007. This increase was attributable primarily to the cash flow from operations generated in the first nine months of fiscal 2007.

The $19.0 million net cash provided by operating activities for the nine months ended March 31, 2007 was primarily attributable to net income of $4.9 million, non-cash expenses related to depreciation and amortization of $7.0 million, deferred income taxes of $2.8 million, income tax expense related to QoSmetrics acquisition of $3.1 million, stock-based compensation expenses of $4.4 million and a $2.4 million increase in accrued compensation.  This was partially offset by an accounts receivable increase of $0.6 million, an accounts payable decrease of $0.8 million, an increase in prepaids and other assets of $1.2 million, and an increase in inventory of $4.5 million. The $44.8 million net cash used for investing activities for the nine months ended March 31, 2007 was primarily attributable to $42.4 million in purchases of short-term investments and $23.4 million in acquisition and related cost, that was partially offset by $24.6 million in maturities of short-term investments. The $3.8 million net cash used for financing activities was primarily attributable to $4.0 million used to repurchase common stock and $1.8 million for repayment of long-term obligations, that was partially offset by $1.2 million relating to proceeds from the issuance of common stock.

Our total capital spending commitments outstanding as of March 31, 2007 were $1.6 million. Day sales outstanding in accounts receivable was 60 days as of March 31, 2007, compared to 59 days at June 30, 2006.

We believe that our existing cash resources will be sufficient to meet our anticipated operating and working capital expenditure needs in the ordinary course of business for at least the next 12 months and the foreseeable future. We base our expense levels in part on our expectation of future revenue levels. If our revenue for a particular period is lower than we expect, we may take steps to reduce our operating expenses accordingly. If cash generated from operations is insufficient to satisfy our liquidity requirements or if we require additional capital resources to grow our business or to acquire complementary technologies and businesses in the future, we may seek to issue additional equity securities or obtain additional debt financing. Additional financing may not be available at all or on terms favorable to us. Additional financing may also be dilutive to our existing stockholders. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources.

On May 1, 2004, we entered into a credit agreement with Wells Fargo Bank, National Association to obtain a revolving line of credit up to $5.0 million to be used as working capital.  On June 1, 2005 this agreement was amended to allow us to increase the line of credit up to $10.0 million.  On November 1, 2006 the agreement was amended to lower the line of credit to $3.0 million.  The line of credit contains certain financial covenants and restrictions.  The line of credit expires on November 1, 2007.  No borrowings on this facility were outstanding as of March 31, 2007.

Contingencies

See Item 1 of Part I, Financial Statements — Note 13 — Contingencies.

New Accounting Pronouncements

See Item 1 of Part I, Financial Statements — Note 6 — New Accounting Pronouncements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Exposure

As of March 31, 2007, we had short-term investments of $124.7 million. Currently our short-term investment portfolio consists of corporate debt securities. Our exposure to market risk due to fluctuations in interest rates relates primarily to our corporate debt securities, which are subject to interest rate risk in as much as their fair value will fall if market interest rates increase. If market interest rates were to increase or decrease immediately and uniformly by 10% from the levels prevailing at March 31, 2007, the fair value of the portfolio would not change by a material amount. We do not use derivative financial instruments to mitigate the risks inherent in these securities. However, we do attempt to reduce these risks by typically limiting the maturity date of such securities to no more than nine months, placing our investments with high credit quality issuers and limiting the amount of credit exposure with any one issuer. In addition, we have the ability and currently intend to hold these investments to recovery, which may be maturity, and therefore we believe that reductions in the value of these securities attributable to short-term fluctuations in interest rates would not materially harm our business.

On June 8, 2005, we issued convertible subordinate notes with a fixed rate of 3.25%, which would have no interest rate risk impact to our business.

Foreign Currency Exchange Rate Exposure

Our exposure to market risk due to fluctuations in currency exchange rates relates primarily to the intercompany balances with our subsidiaries in the United Kingdom and Germany. Although we transact business with various countries, settlement amounts are usually based on U.S. currency. Transaction gains or losses have not been significant in the past and we do not presently engage in hedging activity. Based on our foreign currency denominated assets at March 31, 2007, a hypothetical 10% adverse change in British Pounds and Euro against U.S. dollars would not result in a material foreign exchange loss. Consequently, we do not expect that reductions in the value of such assets or other accounts denominated in foreign currencies resulting from even a sudden and significant fluctuation in foreign exchange rates would have a direct material impact on our business.

Notwithstanding the foregoing analysis of the direct effects of interest rate and currency exchange rate fluctuations on the value of certain of our investments and accounts, the indirect effects of such fluctuations could have a materially harmful effect on our business. For example, international demand for our products is affected by foreign currency exchange rates. In addition, interest rate fluctuations may affect the buying patterns of our customers. Furthermore, interest rate and currency exchange rate fluctuations have broad influence on the general condition of the U.S., foreign and global economies, which could materially harm our business.

Item 4. Controls and Procedures

As disclosed in the Explanatory Note on page 2 of this Form 10-Q/A and in Note 17 of our consolidated financial statements included in this Form 10-Q/A, the Company restated its financial statements for the quarter and nine months ended March 31, 2007.  This was due to an error in the accounting for income taxes related to the liquidation of two entities acquired in the quarter ended March 31, 2007. To correct this material weakness in the internal control environment, management is in the process of instituting changes in its controls and procedures that we feel will ensure the accuracy of the recording of these expenses in the future.

Evaluation of Disclosure Controls and Procedures

On May 1, 2007 we filed Form 10-Q/A to amend our Form 10-Q for the quarter ended December 31, 2006, to correct a misstatement in our original filing.  In that Form 10-Q/A, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective. Because a material weakness in our control environment existed during the third quarter of fiscal 2007 and was not discovered until after March 31, 2007, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2007, solely because of this material weakness.  Additionally, in connection with the filing of this Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2007, we carried out a re-evaluation under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on such re-evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2007 because of the material weakness described above and the previously disclosed material weakness described in the Form 10-Q/A for the quarter ended December 31, 2006.

33

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  As previously described in our amended quarterly report on Form 10-Q/A for the quarter and six months ended December 31, 2006, management is in the process of instituting changes in our accounting procedures to help ensure the completeness and accuracy of the recording of expenses for outsourced labor.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Item 1 of Part I, Financial Statements — Note 13 — Contingencies.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended June 30, 2006. The risks discussed in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.

We have updated the following risk factors that were presented in our Annual Report on Form 10-K for our fiscal year ended June 30, 2006:

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

A relatively small number of customers have historically accounted for a significant portion of our net revenue.  During fiscal 2006, no single customer accounted for 10% or more of our net revenue. However, in the first and second quarters of fiscal 2007, one customer accounted for more than 10% of our net revenue.  In the third quarter of fiscal 2007, another customer accounted for more than 10% of our net revenue. We expect that we will continue to depend on a relatively small number of customers for a substantial portion of our net revenue for the foreseeable future. The timing and level of sales to our largest customers have fluctuated significantly in the past and are expected to continue to fluctuate significantly in the future. The loss of one or more of our significant customers, or a significant reduction or delay in sales to any customer, may harm our business and operating results. For instance, our Wireline revenue in 2006 decreased by $2.5 million in part because one large customer ordered less product in fiscal 2006 than 2005 as it completed a major project. Major customers also have significant leverage and may attempt to change the terms, including pricing, upon which we do business, which could also harm our business and operating results.

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

Our operating results may be adversely affected as a result of our required compliance with the adopted European Union Directives on Waste Electrical and Electronic Equipment and the Restriction of the Use of Hazardous Substances in electrical and electronic equipment, as well as other standards around the world

In January 2003, the European Union enacted Directive 2002/96/EC on Waste Electrical and Electronic Equipment Directive, known as the WEEE Directive. The WEEE Directive requires producers of certain electrical and electronic equipment to be financially responsible for the future disposal costs of this equipment. Some of our products fall within the scope of this Directive, and, as such, we will incur some financial responsibility for the collection, recycling, treatment and disposal of both new product sold, and product already sold prior to the WEEE Directive’s enforcement date, to customers within the European Union.

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

Individual European Union member states are required to transpose the Directives into national legislation. Although not all European Union member states have enacted legislation to implement these two Directives, we continue to review the

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applicability and impact of both Directives on the sale of our products within the European Union. If we fail to comply with these laws, we may be forced to recall products and cease their manufacture and distribution, and we could be subject to civil or criminal penalties. We may incur increased manufacturing costs, and some products may be subject to production delays to comply with future legislation which implements these Directives, but we cannot currently estimate the extent of such increased costs or production delays, if any. However, to the extent that any such cost increases or delays are substantial, our operating results could be materially adversely affected. Also, we are aware that lead times for new, compliant components are longer and that older, non-compliant components are being discontinued at a fast pace. In addition, we are aware of similar legislation that may be enacted in other countries, such as Japan and China, and possible new federal and state legislation in the United States, the cumulative impact of which could significantly increase our operating costs and adversely affect our operating results.

We added the following risk factors during fiscal 2007:

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

We must comply with and are affected by laws and regulations relating to the award, administration and performance of U.S. Government contracts. Government contract laws and regulations affect how we do business and, in some instances, impose added costs on our business. A violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts or debarment from bidding on contracts. In order to administer certain U.S. Government contracts we are required to have employees with Top Secret Security Clearance.  Since we have a limited number of employees with such clearance, the loss of these employees could adversely affect our ability to administer these contracts.

The accounting method for convertible debt securities with net share settlement, like the notes, may be subject to change.

For the purpose of calculating diluted earnings per share, a convertible debt security providing for net share settlement of the conversion value and meeting specified requirements under Emerging Issues Task Force, or EITF, Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” is accounted for similar to non-convertible debt, with the stated coupon constituting interest expense and any shares issuable upon conversion of the security being accounted for under the treasury stock method.  The effect of the treasury stock method is that the shares potentially issuable upon conversion of the notes are not included in the calculation of our earnings per share except to the extent that the conversion value of the notes exceeds their principal amount, in which event we are treated for earnings per share purposes as having issued the number of shares of our common stock necessary to settle the conversion.

The EITF is reviewing, among other things, the accounting method for net share settled securities.  A subcommittee of the EITF is considering a proposed method for accounting for net share settled securities under which the debt and equity components of the security would be bifurcated and accounted for separately.  The effect of this proposal is that the equity component would be included in the paid-in-capital section of stockholders’ equity on an issuer’s balance sheet and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the notes.  Net income attributable to our common stockholders would be lower by recognizing accretion of the discounted carrying value of the convertible debt security to its face amount as additional interest expense.  The diluted earnings per share calculation would continue to be calculated based on the treasury stock method.

We cannot predict the outcome of the EITF deliberations and whether the EITF will require that net share settled securities be accounted for under the existing method, the proposed method described above or some other method, and when any change would be implemented or whether it would be implemented retroactively or prospectively.

We also cannot predict any other changes in GAAP that may be made affecting accounting for convertible debt securities. Any change in the accounting method for convertible debt securities could have an adverse impact on our reported or future financial results.  These impacts could adversely affect the trading price of our common stock and in turn negatively impact the trading price of the notes.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

a)Not applicable.

b)Not applicable.

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c)The following table provides monthly detail regarding our share repurchases and forfeitures during the nine months ended March 31, 2007:

Period	Total Number of Shares Purchased	Average Price Paid  per Share		Total Number of Shares Forfeited
July 1, 2006 through July 31,2006	—	—		3,500
August 1, 2006 through August 31, 2006	84,989	$	6.97	3,000
September 1, 2006 through September 30, 2006	182,648	7.76		1,750
November 1, 2006 through November 30, 2006	—	—		2,675
February 1, 2007 through February 28, 2007	2,964	8.79		—
March 1, 2007 through March 31, 2007	240,000	8.06		6,625
Total	510,601	$	7.78	17,550

On August 18, 2005, the Board of Directors authorized management to repurchase up to approximately 2.6 million shares of our common stock pursuant to a repurchase program established in fiscal 2002, adding 2.0 million shares to the program previously authorized. There were approximately 46.3 million shares of Symmetricom common stock outstanding as of March 31, 2007.

During the first nine months of fiscal 2007, we repurchased 501,448 shares of common stock pursuant to the repurchase program for an aggregate price of approximately $3.9 million.  A further 9,153 shares were repurchased to cover the cost of taxes on vested restricted stock. Upon termination of some employees, 17,550 shares of restricted stock were forfeited pursuant to existing agreements.

As of March 31, 2007, the total number of shares available for repurchase under the repurchase program authorized by the Board of Directors was approximately 0.9 million.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

Exhibit Number	Description of Exhibits
31	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

		SYMMETRICOM, INC.
		(Registrant)
DATE: August 31, 2007	By:	/s/ THOMAS W. STEIPP
		Thomas W. Steipp Chief Executive Officer (Principal Executive Officer) and Director
DATE: August 31, 2007	By:	/s/ WILLIAM SLATER
		William Slater Executive Vice President Finance and Administration, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

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Exhibit Index

Exhibit Number	Index of Exhibits
31	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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EX-31

Exhibit 31

CERTIFICATION

I, Thomas W. Steipp, certify that:

1.I have reviewed this quarterly report on Form 10-Q/A of Symmetricom, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 31, 2007

/s/ THOMAS W. STEIPP

Thomas W. Steipp
Chief Executive Officer and Director

CERTIFICATION

I, William Slater, certify that:

1.I have reviewed this quarterly report on Form 10-Q/A of Symmetricom, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 31, 2007

/s/ WILLIAM SLATER

William Slater
Executive Vice President Finance and
Administration, Chief Financial Officer and
Secretary

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Thomas W. Steipp, Chief Executive Officer of Symmetricom, Inc. (the “Company”), pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify to my knowledge that:

i.the Quarterly Report on Form 10-Q/A of the Company for the quarterly period ended March 31, 2007 (the “Report”) fully complies with the requirements of Section 13 (a) or Section 15 (d), as applicable, of the Securities Exchange Act of 1934, as amended; and

ii.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE: August 31, 2007	By:	/s/ THOMAS W. STEIPP
		Thomas W. Steipp Chief Executive Officer

* * * * *

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, William Slater, Chief Financial Officer of Symmetricom, Inc. (the “Company”), pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify to my knowledge that:

i.the Quarterly Report on Form 10-Q/A of the Company for the quarterly period ended March 31, 2007 (the “Report”) fully complies with the requirements of Section 13 (a) or Section 15 (d), as applicable, of the Securities Exchange Act of 1934, as amended; and

ii.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE: August 31, 2007	By:	/s/ WILLIAM SLATER
		William Slater
		Executive Vice President Finance and Administration, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)